Powerful people were enthralled and invested without seeing audited financial accounts. With the fraud exposed, Elizabeth Holmes drew harsh criticism from the media and public, but never showed any signs of regret, remorse, or even responsibility. The Inventor: Out for Blood in Silicon Valley; a documentary produced and directed by the Oscar-winning Alex Gibney was released in 2019 and a feature film is in development. ">, EPIC: An Effectuation Boot Camp for Startups in Bangalore Despite intimidation and threats of legal action, former Theranos employees Erika Cheung and Tyler Schultz, whose Grandfather George Schultz was a member of the Theranos board, began sharing their experiences of the company, its technology and practices with John. The downfall of Theranos was triggered in part by two whistleblowers, Erika Cheung and Tyler Schultz. In 2014, Theranos, a blood-testing startup pitching a supposedly revolutionary technology, was flying high. Stakeholders: . She was sentenced on Friday to 11 years and three months in prison. Blood could be diagnosed easily without the need for many vials of blood drawn from patients veins or expensive lab work. Testifying in her own defence, Holmes admitted to mistakes in Theranos' operation, but continued to maintain that she never knowingly defrauded patients or investors. He told HBO in a documentary that if a hundred people who had syphilis came and got tested on the Theranos devices, the company would only tell 65 of them that they had syphilis and told the other 35 that they were healthy: no need for medical intervention. Theranos even threatened to sue John himself who became a perceived enemy to the company, with some Theranos employees even chanting Fuck you Carreyrou. As a former Theranos lab director told Carreyrou, a false positive on a blood test might cause a. Copyright 2023 Entrepreneur Media, Inc. All rights reserved. Let's consider a case study's functional area of unethical product development. She already settled with the Securities and Exchange Commission (SEC) for a $500,000 penalty and 10-year ban on serving as an officer or director of a public company. . Having received a tip doubting the performance of the Theranos technology, Johns interest was triggered further by Holmess purported ability to invent ground-breaking medical technology after just two semesters of chemical engineering classes at Stanford . 5. She is fighting to avoid eating toast in a jail cell for the next 20-years. Theranos completely ignored the issue and . It began to unravel in 2015 when a whistleblower raised concerns about Theranos' flagship testing device, the Edison. Her first key connection was Don Lucas, a well-known venture capitalist (VC) in Silicon Valley, and he, as the Chairman of the Board of Theranos, introduced Holmes to his VC contacts. . The core values of EIE are beliefs in service and community, innovation, integrity, transparency, diversity and inclusion. "When I testified, we could do it, I fully believe we could do it," said Holmes. Click to share on Twitter (Opens in new window), Click to share on Facebook (Opens in new window), University of Colorado Denver Business School, Turning a string of tragedies into inspiration, Information Systems students and faculty excited to host Big XII+ MIS Research Symposium in 2020, Brewing a Business: Crafting Community with Colorado Coffee, Theranos: A cautionary tale of ethics and entrepreneurship, Stephen Goldberg Named 2023 Bill Daniels Ethical Leader of the Year. She could face 20 years, or she could walk away with a new book deal, television appearances and another movie. They offered testimony from more than 130 people on her behalf, including Senator Cory Booker. In March that year, Holmes settled civil charges from financial regulators that she had fraudulently raised $700m from investors. Harris is an expert on both ethics and strategic management. If they believe expectations are unachievable, they may be inclined to cut corners. By She was able to raise hundreds of millions of dollars until Tyler Schultz blew the whistle. In 2018 Theranos was dissolved. Now, the facility is a dust-filled space. The reaction from Theranos was astonishing. Course Hero is not sponsored or endorsed by any college or university. There was a long and well-documented history of Theranos employees raising concerns and suspicions, often at great personal risk. She was passionate about that defense, and then it somewhat faded away into the standard, stock line of I believed we could do it. In addition to Balwani, she has thrown former subordinates under the bus and denied she had any knowledge of problems. So, it is a personal failure of the leaders of these companies. In March that year, Holmes. The technology didnt work. Holmes's attorneys had said she should not face prison time on the grounds that she was not a danger to society. View more articles by Tiffany Ramsdell. The company claimed that its technology could offer over 240 tests from just a prick of the finger. The literature on ethical issues and challenges in the research stage of the overarching research-and-innovation process is substantial. She told the reporter that This was not an environment, that is not a culture, where they really care about what consequences this might have on patients.. In hindsight, the Theranos Board was a big red flag, said Carreyrou. She was very secretive, Carreyrou said. He and his family fought it spending between $400,000 and $500,000 in legal fees. Is it possible that someone who went to Stanford, who patterned her dress after genius Steve Jobs, and who was constantly praised as the young woman who was going to revolutionize health care in the United States might naturally suffer from the overconfidence bias? When you start out, your reputation as an entrepreneur may be the only thing you have to gain a client's trust. Previously, Carr worked for CNN andspent nearly 10 years as a broadcast journalist with ABC NewsWorld News Tonightwith Peter Jennings. They both worked in the lab and grew concerned about what they believed was faulty technology. Copyright 2023 The Rector And Visitors Of The University Of Virginia. Elizabeth Holmes dropped out of Stanford University at the age of 19 to found the health care start-up Theranos. Introduction and background of the scandal | Legal, Social, Ethical and Professional issues relating to Theranos: The company by Elizabeth Holmes Discover the world's research Public. Phyllis Gardner, an expert in clinical pharmacology at Stanford, recalled discussing Holmes's skin-patch idea and telling her it "wouldn't work". She now faces a maximum sentence of twenty 20 years in prison, a fine of $250,000, and restitution. Of the real-life people who saw the rise and fall of Theranos, one is Erika Cheung, a whistleblower who blew open the Theranos faade alongside fellow former employees Tyler Shultz and Adam Rosendorff. In 2014, Elizabeth Holmes, then 30 years old, was on top of the world. Can you think of an example of another company leader who demonstrated overconfidence bias? She promised it would revolutionize the health care industry. The lessons attorneys and law students can learn from Bad Blood are highly complex. While the Board was made up of successful and well-respected older men, none had any knowledge of medicine or diagnostics. Follow him on Facebook and onTwitter . Under scrutiny, the company faced lawsuits from investors, pharmaceutical partners, and the state of Arizona, where it provided blood-testing directly to consumers. The idea was to make blood tests cheaper, more convenient, and accessible to consumers. The labs didn't run according to regulations and guidelines set out by health authorities. She likely also suffered, as many people do, overconfidence in the ethicality of her own character, which was just as great a flaw. Carr is co-author ofThe Panic of 1907: Lessons Learned from the Markets Perfect Stormwith Darden Dean Emeritus Robert F. Bruner. As a 19-year-old college dropout, Holmes didnt have much credibility, but she did have passion and an innate sense for business. as the company had promised. I understand that the data I am submitting will be used to provide me with the above-described products and/or services and communications in connection therewith. Harris worked as a certified public accountant and consultant for several leading public accounting firms in Boston and Portland, Oregon, and served as the CFO of a small technology firm in Washington, D.C. https://www.wsj.com/articles/theranos-has-struggled-with-blood-tests-1444881901, Blood, Simpler She connected to former Secretary of State George Schultz and wowed the ninety-something year old, who then opened up even more well-known and respected connections to join him on a Board of Directors stacked with stars from the political and military worlds. At issue was the company's use of so-called "nanotainers," which the FDA considers to be an unapproved medical device. His research centers on the interplay between ethics and strategy, with a particular focus on the topics of corporate governance, business ethics and interorganizational trust. Fears of excessive interference cloud proposal for protecting children whose genomes were edited, as He Jiankui's release from jail looks imminent. THERANOS: UNETHICAL PRODUCT DEVELOPMENT INTRODUCTION Ethical issues may occur in various functional business areas, such as marketing, research, development, HRM, production, and finance. They failed to conduct effective research and. The company claimed to be protecting its trade secrets, but in truth, it was hiding flaws and poor quality control results. . The limited series follows Holmes from her time at Stanford University, to her. The story of Theranos is a cautionary tale where one lie leads to another and before you know it the story snowballs out of control and coverups ensue. It claimed to having devised blood teststhat required only exceedingly small amounts of blood and could be performed very rapidly using small automated devices the company had developed. The article brings the attention of regulators to potential fraudulent actions at the company and Holmes is hit with a two-year ban from owning or operating a certified clinical laboratory. Failures: . We'll be in your inbox every morning Monday-Saturday with all the days top business news, inspiring stories, best advice and exclusive reporting from Entrepreneur. For the latest Darden thought leadership and practical insights, subscribe to the Darden Ideas to Action e-newsletter. https://www.newyorker.com/magazine/2014/12/15/blood-simpler, This CEO is out for blood He consults with several top financial services companies on the topics of strategic management, ethics and compliance. However, the claims later proved to be false. She has maintained that (according to the AP, December 7, 2021): "Theranos was on the verge of perfecting a blood-testing technology that she began working on in 2003 after dropping out of Stanford University to start the company.". In January 2022, Holmes was found guilty on four charges of defrauding investors, and in November she was sentenced to over eleven years in prison. How might that have worked? Earlier, the company had raised a lot of money and valued at 10 billion dollars. But this wouldnt have been possible without them. EIE believes that addressing ethical issues early in the business cycle is the most cost-effective approach and avoids larger problems down the road. "It seemed a bit odd, but I didn't come away thinking it was a fraud.". Theranos promised to simplify and streamline the expensive, arduous process of lab testing blood samples, which, at its current rate, can cost an uninsured patient over $1,000 just to test for diseases (via Advisory Board ). The company continued to show off its technology at conferences. "She accepts no responsibility," they wrote in court filings. Explain. In Holmes' case, the intent to defraud holds serious weight and could result in up to 20 years in federal prison and millions of dollars in fines. Elizabeth Holmes, CEO, Chairman and Founder of Theranos, settled with the Securities and Exchange Commission ("SEC) when she was charged with committing $700 million of fraud against its investors and the public. Other allegations include: Tyler Schultz claimed to know something unethical was going on and could have major repercussions on the company. Nonetheless, in 2018, Holmes stepped down as CEO and, alongside former company president Ramesh Balwani, was charged with criminal fraud, having allegedly misled investors and deliberately made false claims made about the efficiency of the companys blood testing technology. Theranos chair, CEO, and founder Elizabeth Holmes. Holmes did not admit her wrongdoing despite appearing in many interviews and publishing . Despite being the subject of a book, HBO documentary, TV series and an upcoming film, it is still unclear why Holmes took such a gamble on technology she knew didn't work. Adam McKay (The Big Short) is attached to direct; Jennifer Lawrence confirmed to star as Holmes and Vanessa Taylor (The Shape of Water) to write the screenplay. Once you have established the facts surrounding the decisions made by Theranos and Zenefits: Identify and discuss the ethical issues associated with each company. Theranos whistleblowers Erika Cheung and Tyler Shultz have established an organization called Ethics in Entrepreneurship hoping to prevent other tech and health startups and employees from. Along with identifying a new compliance officer, they also added a "compliance and quality committee" to their board. More information around the downfall of Theranos was revealed in the trial, with prosecutors accusing Holmes of destroying evidence in Theranos' final days in business. She didnt want to hear No. What was your training in statistics?Im tired of people coming in here and starting fires where there are no fires and sort of thinking that there are problems when there are no problems., Cheung realized her concerns were falling on deaf ears. http://fortune.com/2014/06/12/theranos-blood-holmes/, Theranos, CEO Holmes, and Former President Balwani Charged With Massive Fraud tailored to your instructions. 1 However, the technological breakthrough that CEO Elizabeth Holmes and former company. At first, Holmes vehemently denied the claims made against her and the company. May 11, 2022. Holmes founded Theranos in 2003 as a 19-year-old Stanford dropout. The culture of the company was such that it hid important information from the public, pharmacies, medical professionals, and the government. With Holmes expected to appeal her sentence, the story isn't over yet. Allegedly, the defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests. The world has been captivated by the stunning collapse of Theranos and its supposedly wunderkind founder Elizabeth Holmes, who now faces trial for fraud. According to a statement from the SEC, Theranos, Holmes, and Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key productcould conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood-testing industry., In March 2018, Holmes reached a settlement with the SEC, without admitting or denying any wrongdoing. The issue here was that Theranos promised to deliver something, raised funds, but did not deliver in the end. He is executive chair of the Jefferson Innovation Summit, presented with CNBC to convene national leaders from business, government, academia, media and the arts for a constructive conversation about creating a robust entrepreneurial ecosystem. The defendants represented to investors that Theranos would generate over $100 million in revenues and break even in 2014 and that the company was expected to generate approximately $1 billion in revenues in 2015; when, in truth, Theranos would generate only negligible or modest revenues in 2014 and 2015. According to the indictment, investors and doctors, and patients were defrauded. The Inventor: Out for Blood in Silicon Valley is the latest documentary from Oscar-winner Alex Gibney, director of Taxi to the Dark Side. She wasn't interested in my expertise and it was upsetting.". Holmes and the president being indicted and charged with wire fraud. The event was moderated by Melanie Kay, DFEI Director at the CU Law School, with over 400 attendees joining either in person or via live stream in Boulder. When analyzing this case, it seems at first that it is ethical in the eyes of an individualist. 2023 Chuck Gallagher. The once heralded blood-testing start up in Silicon Valley, Theranos, eventually became, one of the most epic failures in regards to corporate governance. Theranos introduced products that did not work and that could do customers a great deal of harm. Third, ethical crises are preventable when people recognize ethics are an essential and structural part of research practice. Your employees are your first line of defense. Holmes disagreed with the reporting, saying that Carreyrou had the story wrong. Simply by using a pin prick, blood could be analyzed quickly for diseases. JPMorgan has worked closely with the company for years, providing both equity and debt for the company as . A TikTok is making its rounds showing a mock scenario where a tenant is asked to give a tip to their landlord. Related: Seven Elements of a strong work ethic. Jason Hennessey is an entrepreneur, internationally-recognized SEO expert, author, speaker, podcast host and business coach. The Theranos saga reads as an ethical tragedy that had an opportunity to be anything but. At one point the company reached a valuation of $4.5 billion. Why Alex Murdaugh was spared the death penalty, Why Trudeau is facing calls for a public inquiry, The shocking legacy of the Dutch 'Hunger Winter'. The trial of Holmes and Balwani was set to begin in October 2020, although Holmes asked for a delay to April 2021 because of Covid-19. How did Elizabeth Holmes and Theranos demonstrate overconfidence bias? Before long she had developed a pattern, befriending older man after older man to believe in and champion her. For twelve years, Holmes essentially ran a Ponzi scheme by attracting investment funds from primarily venture capitalists that saw it as a unique opportunity to cash in on the boom in Silicon Valley. Now, she is on a witness stand fighting for her life. Create a culture and system that cultivates an environment of trust amongst your employees. She raised $945 million and was crowned the world's youngest billionaire, but was accused of lying about how well Theranos's. Accredited by the Higher Learning Commission. I followed the story with particular interest as an entrepreneur. Can Nigeria's election result be overturned? Ethical Issues of Theranos. He found that the company did not even use its own technology in tests and often relied on older technology from other companies. business ethics, CSR, fraud, workplace ethics. Since the trial, Holmes has been living in California with partner William "Billy" Evans, 27, an heir to the Evans Hotel Group. It was John Carreyrou, twice-Pulitzer-prize-winning journalist of The Wall Street Journal who first broke the story in 2015. 16. When Holmes took the stand at her trial, the media was quick to say that she refused to accept full responsibility for her actions and tried to place the blame on others. ">, How Process and Practice Can Combat Bias Sometimes, as Shefrin points out, people engage in wishful thinking. Professor Jared Harris worked with Theranos whistleblower Tyler Shultz to develop a series of cases that reveal how the advanced nature of the technology allowed the ruse to go on so long and the high cost Shultz paid for his part bringing down the house of cards. 36 short illustrated videos explain behavioral ethics concepts and basic ethics principles. Holmes seems to have used all of these older men for credibility. https://www.forbes.com/sites/hershshefrin/2018/04/14/the-theranos-con/2/#7cb4245a974a, Disgraced Theranos founder Elizabeth Holmes indicted on criminal charges She was "the world's youngest self-made female billionaire", trumpeted Forbes magazine. for only $13.00 $11.05/page. B.A., Northwestern University; M.S., Columbia University; MBA, Ph.D., University of Virginia, What Theranos Can Teach Us About Ethical Challenges in Murky High Tech Waters. Comments (0), Tags: The pressure and unrealistic expectations she created formed an incredibly toxic work culture. Medina Williams. US Treasury Secretary George Schultz, media tycoon Rupert Murdoch and America's richest family, the Waltons, were among her backers. However, most tests were not a needle prick but actually a venipuncture. Theranos promised to deliver a groundbreaking blood testing technology that could revolutionize health care, and it was led by a young, charismatic, Silicon Valley sensation named Elizabeth Holmes, who turned out to be nothing but a fraud, fooling the media, the public, and stealing millions from savvy investors. These Sisters Quit Their Jobs Mid-Pandemic to Risk It All for Their Brand. The scandal is also set to come to the big screen. Theranos' actions were unethical to a stakeholder theorist because they did not consider several stakeholders prior to taking destructive actions. The Food and Drug Administration and the Centers for Medicare & Medicaid Services opened investigations into Theranos. . Defining a company's culture early on is essential. On the day Theranos doors were closing, Holmes chose to attend the Burning Man festival, wearing fur. 2023 BBC. It is a classic case of the ethical slippery slope. The Theranos saga encompasses many discrete areas of law. Unfortunately, in recent decades, Silicon Valley has become somewhat synonymous with an expression which is 'Fake it till you make it.' There. This makes it clear, according to Carreyrou, that Holmes pushed out the product before it was ready for the express purpose of misleading investors. 4. Holmes and Balwani both pleaded not guilty and await trial as of June 2018. The company owed at least $60 million to unsecured creditors. Theranos promised to deliver a groundbreaking blood testing technology that could revolutionize health care, and it was led by a young, charismatic, Silicon Valley sensation named Elizabeth Holmes, who turned out to be nothing but a fraud, fooling the media, the public, and stealing millions from savvy investors. What is impossible to resurrect is a reputation, much like the airline that loses your suitcases and serves stale peanuts in first class. A TV adaptation of the scandal, also called The Dropout, came out in March 2022 internationally across Hulu and Disney+, and starred Amanda Seyfried as Holmes for which she won a Primetime Emmy Award. https://www.vanityfair.com/news/2016/09/elizabeth-holmes-theranos-exclusive, Everything You Need to Know about the Theranos Saga So Far The company offered a solution to a longstanding problem - the arduous, expensive and time-consuming process of carrying out blood-based diagnostics. He recently publishedThe Strategists Toolkit,a primer on strategic thinking, with Darden Professor Mike Lenox. There was still work to be done is a different (and ethical) mindset from purporting to having a workable technology in place that could run as many as 300 blood tests from a drop or two of blood. Why do you think investors would back a product that had not been proven? From the initial excitement of a revolutionary biotech startup, to the sudden suspicions and accusations, to the jaw-dropping exposure of a multibillion-dollar fraud, the journey of Theranos has been nothing if not captivating. What were the consequences of overconfidence bias for Holmes and Theranos? Inventor and businessman Richard Fuisz, 81, speculated there must have been immense pressure on Holmes to succeed. The FDA estimated the cost of misdiagnosis at nearly $800,000. Theranos's business model was based around the idea that it could run blood tests, using proprietary technology that required only a finger . Develop a core value statement and live it everyday. It was slower than competing devices and, in some respects, could not compete with existing, more conventional machines. The Theranos controversy, explained What will the jury decide? Creating a culture where employees feel empowered and listened to goes a long way to heading off problems like this one. https://arstechnica.com/tech-policy/2018/06/disgraced-theranos-founder-elizabeth-holmes-indicted-on-criminal-charges/, Theranos Founder Elizabeth Holmes Indicted on Fraud Charges Theranoswas aprivately held health corporation that was touted as a breakthrough technology company. View all access and purchase options for this article. Holmes became the darling of the business media. 7. Tyler Schultz is an advisor for Ethics in Entrepreneurship, and CEO and co-founder of medical diagnostic company Flux Biosciences, Inc. The technology simply couldn't deliver as promised. It examines the same scandal covered by John Carreyrou's . The misconduct at Theranos and the reaction to it were thus taken out of the start-up's hands. Reporting on Theranos, most notably John Carreyrou's Bad Blood, highlights the questionable ethical decisions that many of the attorneys involved made. Amazon announced in mid-February it would ask its employees to come back to the office at least three days a week. Theranos accused him of leaking trade secrets and violating the agreement. Test results could be delivered to a patients phone in hours, and a single test would cost less than half of the reimbursement rate of Medicare and Medicaid. The cult of the genius young founder has been a problem in Silicon Valley for decades, Carreyrou said. The CU Denver Business School and the CU Law School each received a five-year grant in 2015 from the Daniels Fund to participate in the Daniels Fund Ethics Initiative Collegiate Program, aimed at strengthening ethics education for students and extending ethical behavior beyond campus and into the community. Harris speaks with the Batten Institutes Sean Carr about what it took to make an ethical stand and how increasingly complex technology will present challenges for ethical leaders. Owners could also find themselves without A/C if they fall behind on payments. With a few drops of blood, Theranos promised that its Edison test could detect conditions such as cancer and diabetes quickly without the hassle of needles. Jason Hennessey Authors Affiliations. Published online: March 30, 2022. Theranos did become a huge success- a massive operation worth 9 billion dollars. Live those values in all your interactions. VideoRussian minister laughed at for Ukraine war claims, The children left behind in Cuba's mass exodus, Xi Jinping's power grab - and why it matters, Snow, Fire and Lights: Photos of the Week. In September, Theranos was dissolved. The original Theranos laboratory, in Palo Alto, 2014. When she got to Stanford University in 2002 to study chemical engineering, she came up with an idea for a patch that could scan the wearer for infections and release antibiotics as needed. Let's start at the beginning. By all appearances, Elizabeth Holmes, President Obama's 32-year old Ambassador for Global Entrepreneurship was one of those people who caused inspiration, aspiration and celebration. "Her tragic error," Marketwatch columnist Francine McKenna wrote, "was touting financial projections that never materialized based on technology that she never delivered." Ethical Issue 1 One of the massive ethical issues involved the CEO and founder Elizabeth Holmes, who apparently had almost total control of the company even in the presence of the board members' whose fiduciary and oversight duties were an epic fail as a result.