Tom Fox:Yeah, Francine McKenna wrote that there were no audited financial statements during this time period. These were speakers that were there to talk about corporate governance. In essence, it kicked the can down the road, hoping that salvation would come at some point. They shouldn't just be doing it for a marquis title. Enron built layers of financial dependencies in a constant push to raise stock prices and led to the Enron collapse. That it was just a prestige board designed to help get investor money for Theranos, which it did quite well. Home Depots co-founder Is It Time To Change Director Board Compensation In Private Real Estate Firms? In Bad Blood, Carreyrou states that employees tried to warn Holmes that the Theranos technology was not ready to go live on humans. There are fourteen new forensic case analyses critically scrutinising governance failures. Theranos has been criticized for the makeup of its investors and board of directors which featured heavy-hitting investors such as media mogul Rupert Murdoch and former secretary of state Henry. In response to the Wharton podcast, Robert Talbot-Stern said in a comment: As for Theranos, There was a toxic mix of an unseasoned, untethered or ethically loose (take your pick) founder in control and a board woefully short of corporate governance skills (whether or not purposely hand-picked by Holmes because of that skill shortage and regardless of their impressive but meaningless credentials for their board role). Carreyrou recently released a book about the scandal entitled Bad Blood: Secrets and Lies in a Silicon Valley Startup, and spoke at MIT on Oct. 2, where he described the red flags that should have signaled something was amiss at the company. Rashmi is anethics speakerand consultant fighting to create a culture of conversation and bringethical issues in businessto light, to promote integrity, to enhance commitment to fiduciary duty, to build ethical leadership, and to shift the paradigm of ethics standards through ethics training. Both Holmes and the board were out of their depth.. And that comes down to the super voting shares that Elizabeth had. The evidence needed to back Theranos claims is now absent, rendering the company even more suspect. Quote This button displays the currently selected search type. Amii Barnard-Bahn (amii@barnardbahn.com) is an executive coach and strategic advisor to business executives and directors. 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. But Holmes created a structure that was unusual in corporate governance. Theranos was a privately held healthcare technology company founded by then 19-year-old Elizabeth Holmes in 2003. The gap between what she claimed and what she had really achieved became a massive fraud, Carreyrou said. I hope even more that the board members dont just get to move on. If you start from that place, you're going to avoid a lot of problems. It's a fascinating exploration of a case that's literally torn from the headlines. This begins by ensuring that the right people are on board. Nov. 18, 2022. They didn't have a general counsel for a long time, until I think it was 2015. Here are the main takeaways from Carreyrous discussion of the scandal. Usually this means finding a new CEO or voting on the right board member to take over. Theranos - When Corporate Governance Fails - sanjogpatel.com If you are a new company and in need of legitimacy and capital infusion, having oversight from a board comprised of influential people would be great for your reputation. So, what lessons, you've detailed several different points, but are there some overall lessons you might suggest to a high flying startup now to either, for the board to get their hands around the controls, get their hands around the audited financial statements, or perhaps even go in a different direction? The Theranos issue is just one of the proof that companies need to have a cautious yet. Carreyrous first article appeared in October 2015, and revealed: Theranos did less than 10 percent of its tests on Edison machines.. The most powerful expression I took from this class was said by Patty Bedient. When Warren started out his early investment partnerships, he had established very stringent rules about what the investors were allowed to do. Business is about taking risks and so by no means am I suggesting that a board is there to be a cop, but they do need to also have this dual role of giving the CEO wings, but also telling them when something is too risky and pointing it out. Were they just purposefully ignorant or were they just that blind to the charisma of Elizabeth? Elizabeth on the other hand, failed to even recognize who her actual customer was. -0.79 -1.69%. More navigation items; Post-mortem on Theranoswhere were the controls? . How companies use AI to reach customers, innovate, Creating change through collaborative participation. The firm which was once valued at $9 billion . By February 2015 the Theranos fairytale was about to unravel publicly. In much of the computer software industry, its possible and common to safely release and then iterate on incomplete products to fix bugs until they work. At the end of the day, the difference between an effective board and a failing board boils down to whether or not there is a social system of respect, trust and candor among members of management. The Wall Street Journal, which published the glowing article about Theranos early on, ultimately unraveled its myth, thanks to a months-long investigation by reporter John Carreyrou. After being ignored again and again, it should come as no surprise that those whistleblowers eventually reported their concerns to external parties, including the primary federal regulator of medical laboratories. Getting a . For now and for what it is worth, the board members have my strongest stamp of disapproval and I say SHAME ON YOU for not doing your job. The company hyped itself up and secured massive funding, all the while failing to. She described in a single expression for us the job of a board member as Nose in, hands out. What we're going to focus on today is the failures at the board level. Similar attestations were made by Bill Ayer, the ex CEO of Alaska Airlines and a board member at Honeywell as well as Charlotte Guyman, a board member at Brooks Running, The Space Needle and Berkshire Hathaway. I like that last question because it demonstrates whether in fact senior management is open to suggestions from the board or whether this is a rubber stamp board, and if I join, am I expected just to go along with everything or am I going to be allowed to do my job representing shareholders, and patients in this case, in asking the right questions. He was willing to give credit to his mentor where it was due but had the audacity to be different to become who he is today. But, somehow, Holmes was able to get away with it. I wonder why they're leaving the hottest company in the world that just won all these awards for innovation.". Or once you've lost control, is that it? So, thank you very much! | Reuters/Brendan McDermid When you enter industries where lives are in the balance, you cant really just iterate and debug as youre going. Of course, Theranos was actively deceiving regulators, too. She assured her investors that projected revenues would be approximately $100 million, when in fact the revenues in 2014 were closer to $100,000. Theranos sold a noble vision to its investors and the world. First, we review the stakeholder approach to corporate governance as an alternative to the shareholder-focused conception of the firm. The lab director is core to their business. The reason? Just three years later, in 2010, the company was valued at $1bn. I know you will enjoy it. It's almost a situation of where to begin, but with regard to the board of directors, where would you suggest we begin? Businesses need to ensure they remain disciplined, transparent, independent, accountable for their actions, responsible, and fair. But, who was she and what did she promise? Mar 2018. We should look into that. The culture of Silicon Valley created the conditions for someone like Holmes to come along, to thrive. Keep in mind that one reporter did have the courage to pursue the truth, but what all the other so called journalists? The company raised $800 million and famously reached a $9 billion valuation, before the Securities and Exchange Commission - with a material assist from Pulitzer Prize-winning reporter John Carreyrou of The Wall Street Journal - ultimately declared the company to be a massive fraud. Theranos's fall from grace is one large-scale compliance failure. There were so many red flags for shareholders and investors and clients, but they were ignored because of some blanket that was pulled over their eyes by Holmes. She used phrases and words that had a magical ring to them. But what we also are learning is that the media, for the most part, did not do their job in uncovering the massive fraud and instead decided to promote the hell out of Ms Holmes. Theranos founder Elizabeth Holmes epitomized Steve Jobs, which attracted Silicon Valley investors who didnt look too closely at the health companys claims, says John Carreyrou, the Wall Street Journal reporter who investigated Theranos. But it failed to acknowledge that this vision made patients their ultimate customer. Text. International Corporate Governance is an essential text for those . www.barnardbahn.com@amiibb. Macro-Finance, Initiative on Business and Environmental Sustainability, Stanford Latino Entrepreneurship Initiative, Stanford Innovation and Entrepreneurship Certificate, Cynt Marshall: Workplace Culture as a Measure of Success, Gwynne Shotwell on Aiming High and Taking Big Risks, Malala Yousafzai on How Everyone Can Inspire Change, Overview of Center for Entrepreneurial Studies, Overview of Certificate & Award Recipients, Public Policy Lab: Homelessness in California, Overview of Real-Time Analysis and Investment Lab, Overview of Facilitation Training Program, Overview of the Impact Design Immersion Fellowship, Stanford Impact Founder Fellowships and Prizes, Personal Information, Activities & Awards, Overview of Operations, Information & Technology, Driving Innovation and New Ventures in Established Organizations for Teams, Harnessing Data and Tech for Ocean Health, Junior Faculty Workshop on Financial Regulation and Banking, Quantitative Marketing PhD Alumni Conference, Theory and Inference in Accounting Research, Overview of Centers & Research Initiatives, Overview of Corporate Governance Research Initiative, Overview of Corporations and Society Initiative, Overview of Policy and Innovation Initiative, Overview of Stanford Latino Entrepreneurship Initiative, Overview of Value Chain Innovation Initiative, Alison Elliott Exceptional Achievement Award, John W. Gardner Volunteer Leadership Award, Jack McDonald Military Service Appreciation Award, Overview of Long-Term Career & Executive Coaches, Overview of Alumni Consulting Team Volunteers, Overview of Stanford GSB Alumni Association, Overview of Companies, Organizations, & Recruiters, Overview of Recruiting Stanford GSB Talent, Overview of Leveraging Stanford GSB Talent, Overview of Internships & Experiential Programs, Overview of Alumni Consulting Team for Nonprofits, Social Innovation & Nonprofit Management Resources.