What we continue to learn about Theranos is that the level of deception was unprecedented and that Homes surely belong in jail. But, somehow, Holmes was able to get away with it. Tom Fox:Hello everyone. Theranos Scandal Highlights Need for Effective Corporate Governance The paranoia went into overdrive., He added, If the culture had been more wholesome, then maybe Theranos would have actually made some headway toward achieving Holmess vision., At the time of this writing, Holmes and Balwani were facing fraud charges, including making false representations to investors, doctors, and patients. Until she couldnt and it all came crashing down around her. Non-degree programs for senior executives and high-potential managers. Time selected her as one of its 100 Most Influential People. But there was apparently no one on the board to point out that this approach doesn't work very well for technology startups. The health companys plummet carries valuable lessons for Silicon Valley. How data-savvy are you, really? Here are two others: The culture of Silicon Valley created the conditions for someone like Holmes to come along, to thrive. You might argue that they are in fact looking out for the investors by protecting the intellectual property but you dont necessarily need a firm on a retainer for that. Opinions expressed by Forbes Contributors are their own. Volkswagen's share value plunged 30% in the . She owned 55% of the shares of Theranos, but more importantly she had stock that gave her 100 votes per share of Theranos stock. You have to get your product working first.. Is It Time To Change Director Board Compensation In Private Real Estate Firms? The lab director is core to their business. Corporate Governance & Control Failures - Volkswagen Emissions - Google She always flew in private gulf stream jets. She has shaped many company cultures and strategic initiatives as an executive at Fortune 20 companies, smaller business and non-profits, and leading multiple functions, including human resources, legal, IT, communications, and compliance. So far Theranos has raised about $750 million. Keep in mind that one reporter did have the courage to pursue the truth, but what all the other so called journalists? They need to be shareholder oriented, they need to watch out for shareholder value, but then they also should have a special interest in the company. Or its new and shiny and seems clean, so all is good with the product or process or company or person. Theranos founder Elizabeth Holmes charged with massive fraud - CNNMoney Amii:Well, I advise people to ask before they join a board. Theranos and the Tale of the Disappearing Board of Directors Lets start with the management team, Tom. The after-effects of any Corporate Governance failures is a resulting wiping-off in billions of stock value. 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Carreyrous first article appeared in October 2015, and revealed: Theranos did less than 10 percent of its tests on Edison machines.. Complex dependencies that required progressively bigger risks or face complete failure. Fortune magazine put her on their cover. The other red flag was Elizabeths security detail. What went wrong with Theranos? - Cases and Tools in Biotechnology Theranos: Why don't start-up investors and boards require compliance These were speakers that were there to talk about corporate governance. But Holmes talked her way out of the decision and prevented subsequent intervention by multiplying the voting rights of her shares to give her 99% of total voting rights. The Theranos scandal highlights the need for transparent corporate governance. Tom Fox:In addition to no CFO, none of the investors, none of the board had the benefit of audited financial statements. I also don't mean to suggest that the board should take over day to day responsibility for the corporation because there's definitely a boundary there and they should not be doing that. When expanded it provides a list of search options that will switch the search inputs to match the current selection. Theranos and FTX show a broad failure by investors to ask enough questions before handing over cash, . Businesses need to ensure they remain disciplined, transparent, independent, accountable for their actions, responsible, and fair. Theranos Founder Elizabeth Holmes Found Guilty Of Investor Fraud In reality, the company was running its tests on commercial machines produced by a German company and diluting blood samples to make it work, according to John Carreyrou, the Wall Street Journal investigative reporter who firstbroke the Theranos story in 2015. Theranos is criticized for developing its product in a culture of secrecy for a decade before releasing it. Tom Fox: There's been a lot written about the Theranos case, so lots that both you and I have digested. ensure responsible corporate governance both from a CSR and a good governance perspective. They also had the most prominent law firm in the country on a retainer at their beck and call. As a matter of fact, after the scandal broke, Rupert Murdoch sold back the shares from his $125 million investment back to the company for $1 just to get the tax write-off. Across the Board is a part of the Compliance Podcast Network. A special opportunity for partner and affiliate schools only. There's a lot of evidence that the two of them comprised the executive committee of the board and that there was no other group in charge. So, technically, if you just look at it straight on with that, the board is actually powerless. What Theranos Got Right About Risk and Reputation Management. Walgreens consultant for the new clinics advised his client to not to proceed working with the in-store clinics, executives at Walgreens dismissed his statement and ignored his concerns. Theranos - A Case Study on Risk and Reputation Management - eLeaP Due to the various causes of corporate failures, corporate governance failures . much as was the case with Adam Neumann of WeWork or the well-publicised Elizabeth Holmes of Theranos. Carreyrou recently visited Stanford Graduate School of Business as part of a program organized by the schools Corporations and Society Initiative. What Makes Some Health Care Teams More Effective Than Others? Didn't do its job in governing, but certainly attracted investors and a lot of PR to the company. Theranosa privately held company valued at $9 billionhas advertised its proprietary medical technology as being transformative, enabling laboratories to run scores of medical tests with merely a finger-prick of blood. When it comes to the pharma trade press there is only one publication that pursues the truth; STAT News. A systemic failure of corporate governance means the failure of the whole set of regulatory, market, stakeholder, and internal governance. I recently did a workshop on how to risk-proof your board search and it's important that board members know what they're getting into. And then when they hired a general counsel, she had a political background. Everyone else is doing it and so it must be okay? The insolvency of the company attributed to the failure of its governance system that led to the inefficiency of the venture. In fact, it turns out that the lab director had sent hundreds of emails to himself at or around the time of his resignation. But theres a line between that and hyping so much you cross over into outright lies, Carreyrou said such as when Holmes misrepresented the sources of finger-stick tests, most of which were done on Siemens machines rather than her companys. Blood tech startups are booming following Theranos bust - The John Carreyrou, Carreyrous outside perspective helped him break the story. We identify important steps a board should take to ensure the health and viability of companies in the best interests of investors, employees, and the public. Attempts at curbing these failures in the form of more stringent legislation and regulation does not appear to have had the desired impact. When Walgreens, one of Theranos large clients that spent millions of dollars to set up clinics to showcase the new technology, asked to see the lab with the new technology, Holmes denied them such permission. So, yeah, could we just agree lots of red flags? Sonnenfeld states in the Harvard Business Review that when honest dialogue is not actively encouraged, it is common for groupthink to take over: Directors are, almost without exception, intelligent, accomplished, andcomfortable with power. Bleeding out: Theranos oozes with corporate governance lessons An interdisciplinary program that combines engineering, management, and design, leading to a masters degree in engineering and management. He wants board members that are 1) business-savvy, 2) shareholder oriented, and 3) have a special interest in the company. AICPA, audit standards, corporate governance, deontology, entrepreneurship, fake-it-till-you-make-it, fraud triangle, Elizabeth Holmes, shareholder rights, Theranos, utilitarianism, venture capital, virtue ethics. The investors in the company were mostly very wealthy individuals and the lost money is a blip in their financial ecosystem so they might not care. FTX, Enron, Theranos: How proper corporate governance could avert such 4 red flags that signaled Theranos' downfall | MIT Sloan The culture of Silicon Valley created the conditions for someone like Holmes to come along, to thrive. And you really need to think about it when you're in a highly regulated environment, like blood testing. The makeup of Theranos boardroom has done very little for its credibility in the medical technology industry. She talked about her fear of needles and blood. Inside Elizabeth Holmes's Final Months at Theranos Subscribe to receive news and updates: Amii:Yeah, and then one near and dear to our hearts Tom. Of course, there's lot of reasons why this lack of a compliance role becomes important later. Now it's under civil and criminal investigation for defrauding investors. Tom Fox:Well, Amii, unfortunately we're near the end of our time, but I hope that companies will certainly take your message to heart and, more importantly, I hope you will continue to spread this message. Show abstract. Doesnt this happen often in our own lives? Theranos was a privately held healthcare technology company founded by then 19-year-old Elizabeth Holmes in 2003. Bleeding out: Theranos oozes with corporate governance lessons | Article | Compliance Week A year ago, Theranos was a Silicon Valley health tech "unicorn" praised for breakthrough advancements in blood testing. They want to look for rewarded risk. And she wouldnt let anything get in the way of that. Enron Case Study - History, Ethics and Governance failures Theranos was valued at $9 billion and Elizabeth Holmes had a net worth of almost $5 billion. It was formed in 2003 by then 19-year-old Elizabeth Holmes, who dropped out of Stanford University to launch the company. Or once you've lost control, is that it? The Theranos board and federal regulators provided insufficient oversight, Carreyrou noted. What we're going to focus on today is the failures at the board level. Papa John's Pizza:http://fcpacompliancereport.com/2018/07/across-board-episode-21-amii-barnard-bahn/, on a very interesting case study of the oversight role (or lack thereof) of boards. Corporate executives are often criticized for doing just that and here we had a company that was burning through cash and spending money on entirely unnecessary expenses. She said nothing concrete. In this podcast with Tom Fox, we explore blood testing startup Theranos, once valued at $9 billion, and the failures of its board of directors to fulfill its oversight responsibilities. USD. I wonder why they're leaving the hottest company in the world that just won all these awards for innovation.". Amii:Lets start with an acknowledgement of what a board should do, which is to make informed business judgments. Elizabeth Holmes, the former CEO and founder of failed blood testing startup Theranos, was found guilty on four charges of defrauding investors, capping off the stunning downfall of a former tech. eventually fail to sustain its operations. Boies Schiller Flexner LLP is not your run of the mill law firm.