One of the recent business scandals in the news is Theranos and its founder, Elizabeth Holmes. Holmes founded Theranos in 2003 with the goal of making lab tests that were more cost-effective and required smaller samples from the patient (O’Brien, 2018). She introduced the Edison machines, which were testing equipment that would only require a drop of blood to diagnosis everything from high cholesterol to cancer (Hartmans, 2018). Because of the small size of the sample and the short wait to receive results, Holmes claimed the Edison machines would be able to cut health care costs significantly (Belluz, 2018). Holmes raised over $700 million from investors to improve the technology and secured partnership deals with the Cleveland Clinic, Capital Blue Cross, Walgreens, and Safeway (Hartmans, 2018). In October 2015, a Wall Street Journal article was published revealing the Edison machines were unreliable with its results and Theranos was completing lab tests by sending the samples to other companies for analysis (Belluz, 2018). Holmes continued to support her Edison machines and her claims that she was revolutionizing the health care industry. In 2016, Theranos was investigated by the FDA, the Centers for Medicare and Medicaid Services or CMS, and the SEC (Hartmans, 2018). In March of 2018, Holmes was charged by the SEC with fraud and forced to pay a $500,000 fine, give up all of her shares of the company, and is not allowed to be a director or officer of a publicly traded company for ten years (Hartmans, 2018). Theranos, a company at the peak of its success was worth $9 billion and employed over 800 people, is now worth practically nothing and employs twenty people who are in the process of closing the company (O’Brien, 2018).
The leaders of Theranos had an issue with being able to challenge the actions and claims of its CEO, Elizabeth Holmes. The culture of Theranos was a culture that didn’t allow employees to voice their concerns without risk of being discounted or fired (Carreyrou, 2018). As issues become more apparent within the organization, nothing was done to address and correct these concerns. The leaders of Theranos fell into a state of groupthink where it was unacceptable to discuss any issues with the Edison machines or other tests Holmes wanted developed. Because of the lack of checks and balances within the organization, Holmes held all of the control in what was occurring and made all decisions based on her own ideas. She was focused on becoming a leading innovator in the health care industry, and her personal ethos would not allow her to give up that dream, no matter the cost (Carreyrou, 2018). The fraudulent claims about what the company could do had a negative financial effect on the investors and companies and created suspicion for the next health care innovation that could be on the horizon. The leaders at Theranos decided to allow Holmes to have free rein of the company and the way it conducted its business, and that decision cost them millions of dollars and many people their jobs. Going forward, the only decision the leaders at Theranos will have to make is how to dissolve the company as quickly as possible; the brand has now been tarnished as one that is synonymous with fraudulent activity and undocumented claims.
Belluz, J. (2018 June 15). Theranos Founder Elizabeth Holmes Has Been Charged With Criminal Fraud. Vox. Retrieved from: https://www.vox.com/2018/6/15/17469332/theranos-elizabeth-holmes-criminal-charges-fraud (Links to an external site.)Links to an external site.
Carreyrou, J. (2018 May 21). A New Look Inside Theranos’ Dysfunctional Corporate Culture. Wired. Retrieved from: https://www.wired.com/story/a-new-look-inside-theranos-dysfunctional-corporate-culture/ (Links to an external site.)Links to an external site.
Hartmans, A. (2018 June 15). The Life Story Of Theranos Elizabeth Holmes. Business Insider. Retrieved from: https://www.businessinsider.com/theranos-founder-ceo-elizabeth-holmes-life-story-bio-2018-4 (Links to an external site.)Links to an external site.
Mindtools, Ltd. (2017). Risk Analysis And Risk Management. Retrieved from: https://www.mindtools.com/pages/article/newTMC_07.htm (Links to an external site.)Links to an external site.
O’Brien, S.A. (2018 March 18). Theranos Founder Elizabeth Holmes Charged With Massive Fraud. CNN Tech. Retrieved from: https://money.cnn.com/2018/03/14/technology/theranos-fraud-scandal/index.html (Links to an external site.)Links to an external site.