Elizabeth Holmes, the founder of Theranos, has been sentenced to at least 11 years in prison for lying to investors about her blood testing start-up—once valued at $9 billion. Although it’s a cautionary tale for entrepreneurs everywhere, it’s a devastating outcome for the many Theranos employees who believed in her and worked hard to make the company successful.
At the trial of Holmes in San Jose, California, prosecutors said that she misled doctors and patients about Theranos’ main product—the Edison machine—which supposedly could detect cancer, diabetes, and other conditions using only a few drops of blood. The case underscores the importance of growing a business sustainably and responsibly. Leaders should not be lured by the promise of quick success and wealth but instead, strive for long-term sustainability and social responsibility. They should contemplate how their businesses can contribute to society at large—mindful of their direct and indirect impact on their employees, customers, and stakeholders.
SAN JOSE, CALIFORNIA - NOVEMBER 18: Former Theranos CEO Elizabeth Holmes appeared in federal court ... [+]
Holmes first gained attention as a 19-year-old Stanford University dropout who claimed she could revolutionize the medical field with her invention. Her technology was meant to detect diseases at early stages with a few drops of blood, providing a cheaper alternative to traditional lab tests. Holmes and her team raised millions of dollars from venture capitalists and eventually persuaded industry giants like Walgreens to partner with the company. However, in 2015, an investigation by The Wall Street Journal revealed that the technology was not working as advertised, and in 2018, Holmes was charged with fraud.
So, in order to prevent such a tragedy from occurring again, leaders need to remember the importance of honesty and transparency in business. Because as we learn from the downfall of Theranos when integrity is sacrificed for financial gain, everyone suffers in the end. So, if you’re a leader, remember to keep your integrity at the top of your priority list. Here’s four ways you can:
1. Align your vision with ethical principles
According to research published by Harvard Business Review, companies with a clear purpose and values are more likely to be successful. This is because having a definite purpose and set of values gives employees a sense of direction, helping them make decisions about how to act in the face of challenges or difficult situations. Moreover, having a clearly defined purpose and set of values allows organizations to communicate more effectively with their customers and stakeholders, as they can be sure everyone understands what the organization stands for and how it operates. Additionally, having a purpose and set of values can help to create a strong culture within an organization, as it gives employees something to strive for and identify with—which can lead to increased engagement, productivity, and commitment.
That said, although Holmes envisioned creating an easy and accurate way to test blood, she could not carry it out ethically. Culture within her organization was plagued by deception and a lack of transparency. Had Holmes and Theranos been committed to a mission that valued integrity and openness, perhaps the company could have avoided certain scandals and its eventual downfall. Instead, prosecutors subsequently accused Holmes of inflating the company’s performance to deceive investors. The takeaway is that setting out a purpose and values for an organization can be highly beneficial, but only if they are adhered to and executed ethically. Elsewise, the consequences can be severe. Holmes’ story is a warning of what not to do in the realm of innovation and trust-building with stakeholders. But, if done right, it can be powerful. Theranos may have been a failed attempt to revolutionize healthcare, but it is important to remember the lessons we can learn from its story. Holmes’ vision of making healthcare more accessible and affordable may still be achievable, but it must take place within an ethical framework.
2. Transparency is everything
Honesty is the best policy for any business, as it builds trust and establishes credibility. Theranos’ downfall began when the company failed to be transparent about its technology. Holmes was accused of lying to doctors and investors about the accuracy of its tests. To prevent such an outcome, strive for transparency in every function—from operations to communications and customer service. According to an MIT Sloan School of Management study, companies that are more transparent about their social practices are more likely to receive a positive reaction from investors. Moreover, a study published by Harvard Business Review found that transparency can help companies to build trust with customers. So, make sure you’re taking the time to communicate with everyone and be clear about what you’re doing.
By promising a technology that could run hundreds of health tests with only a drop of blood, Theranos attracted notable backers such as former secretary of state Henry Kissinger and defense secretary James Mattis. However, the company did not deliver on its promises, and its lack of transparency effectuated the federal investigation, wherein jurors concluded that Holmes was not transparent about her business practices—a significant factor in her conviction.
3. Engage with your stakeholders
When thinking about the next steps for your business, don’t forget to involve those who have a big part in its success: employees, customers, suppliers, investors, and even the local community. Engaging with stakeholders helps ensure everyone is on board and working toward the same goal. You can use surveys, interviews, focus groups and other methods to get feedback on how you are doing and what areas need improvement. And don’t forget to take the time to thank those who have helped your company get where it is today. Showing appreciation for their efforts will go a long way in creating goodwill and fostering relationships.
Holmes did not consider the stakeholders affected by her company’s actions. In fact, many of those harmed by Theranos’ practices were customers and investors—those who had put their trust in the company. Consequently, jurors found Holmes guilty of four counts of fraud. So, ensure you treat all stakeholders fairly: it’s a vital part of growing responsibly.
4. Lead by example
As a leader, it’s your job to lead by example and create an environment of accountability. This means taking ownership of your mistakes, owning up to your failures, and ensuring you’re doing everything possible to rectify them. It also means asking for help when needed and not sweeping issues under the rug. Accountability ensures that you’re doing your best at all times and that you’re not taking shortcuts. In addition, being accountable creates an atmosphere of trust among those around you and ensures success.
Holmes’ defense suggested she was naive but ambitious in the trial’s opening statement. But the Securities and Exchange Commission (SEC) argued that Holmes was responsible and therefore accountable for her actions. Before her sentencing, Holmes, through tears, expressed regret for her actions. “I am devastated by my failings,” she said. “I have felt deep pain for what people went through because I failed them. I regret my failings with every cell of my body.”
Holmes (C) walks with her mother Noel Holmes and partner Billy Evans into the federal courthouse for ... [+]
In summary, when attempting to achieve success, remember the cautionary tale of Elizabeth Holmes and Theranos. Strive for transparency in all aspects of your business, engage with stakeholders, and lead by example. Doing so will ensure you’re creating an environment of trust, accountability, and responsibility—all vital to growing responsibly. Finally, remain focused on the success of your business and always remember that integrity is one of the most important qualities to have in order to be successful. Without which, downfall is usually always inevitable.
