The CEO With Blood On Their Hands?

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The real cause of the Theranos collapse – it’s not what you might think

In January 2022, Elizabeth Holmes, founder and CEO of Theranos, was found guilty on four charges of defrauding investors, and now faces up to 20 years in prison. Sentencing is scheduled for late September 2022.

John Carreyrou, a reporter at The Wall Street Journal for the past two decades, described the collapse of Theranos as: “One of the most epic failures in corporate governance in the annals of American capitalism”.  How did the once high-flying CEO, and the company she founded, end up in this position, and what were the governance issues which led to their downfall?

In 2003, at just 19 years old Elizabeth Holmes dropped out of Stanford University to set up her own company, Theranos. The company promised revolutionary technology which would provide affordable and reliable blood testing that could check for a variety of health conditions with only a few drops of blood from a finger-prick. The problem was the technology didn’t work and wasn’t accurate. Not only did these false claims defraud investors out of millions of dollars it also endangered the lives of patients by providing inaccurate results which were used to make major medical decisions.

Board oversight and control

It would appear that there was a serious lack of controls and oversight both within the company and from the regulator which played a significant factor in its demise. The board has a responsibility for overseeing the company’s compliance by establishing a framework of prudent and effective controls, but here there is no evidence to suggest that the Theranos Board implemented any oversight or monitoring system.

Holmes ensured she retained overall control of the company with a dual class share structure which saw her receiving 100 votes for every one vote of other shareholders. It is suggested that Holmes later multiplied the voting rights of her shares to give her 99% of the total voting rights. This made it almost impossible for anyone in the company, even those on the board, to go against Holmes and her decisions.

In 2018, Holmes returned a large amount of her shareholding and relinquished her voting control in the Company. She was also disqualified from serving as an officer or director of a public company for ten years.

Board Composition

Decision making is ultimately driven by the board and better decisions are made with good governance. Governance includes reviewing and analysing the best makeup of the board to achieve the business’s goals. A board containing a diversity of age, gender, social and ethnic backgrounds can lead to better governance through wide-ranging discussion, resulting in better decision making. A diverse board offers a variety of perspectives drawn from a broad range of experience, skills and knowledge.

Holmes had complete control of the composition of the company’s board which was comprised of politicians, military advisors and others with no substantial scientific or medical expertise and little, if any, experience of running companies. The board was largely composed of males in their 70s.

The lack of diversity and industry specific expertise on the board begs the question, how can they fulfil their duty to provide effective oversight and constructive challenge of management? In fact, during the trial prosecutors revealed a presentation which Holmes had made to the board that said 10 of the 15 largest pharmaceutical companies had validated the company’s machines. This gave directors confidence in the Theranos technology as they believed this proved that Holmes’ claims were being substantiated by third parties. However, this would suggest that the information provided to the board wasn’t being questioned and was only being taken at face value.

It has been suggested that the directors were intentionally selected for the purpose of leveraging their connections, raising funds and gaining publicity for herself and the company with a complete lack of consideration for diverse views and opinions or the provision of constructive challenge.

Corporate Culture

The Board should set the tone from the top and ought to promote a culture of integrity and openness and be responsive to the views of stakeholders. It is widely reported that Theranos operated a corporate culture of fear and secrecy where employees raising ethical concerns were threatened with lawsuits or fired. The company also disregarded large numbers of complaints from their customers which were often escalated to Holmes, including an email sent from Christian Holmes (Elizabeth Holmes’ brother), where he stated that tests were “causing serious complaints and patient issues”.

A strong corporate culture can help a company attract and retain a high calibre workforce by providing a working environment where they are engaged and motivated to do their best for the company and they are free to raise issues or concerns without fear of reprisal. The opposite was true at Theranos, where highly experienced staff were driven out by the toxic culture which was fostered by those in charge. The rate at which well respected members of staff left the company should have been a major concern for directors and the reasons for their departures discussed at Board meetings but there is nothing to suggest any such discussions took place.


Reputation is an extremely important governance consideration for the Board. A good reputation helps a company attract talent and investment and entices customers to use the services or buy the products offered by that company.

Reputation was particularly important to Theranos achieving a valuation of $9 billion and Holmes being recognised by Forbes as the world’s youngest self-made female billionaire. It is now known that the technology offered by the company does not work and therefore investment in the company was obtained from the dream which Holmes sold and the reputation she formed for herself and the company. Former Theranos lab director Adam Rosendorff testified that he believed “the company was more about PR and fundraising than patient care.”

As part of a Board’s risk management processes, they should consider the level of reputational risk the company is exposed to. In the early days, the reputation of Theranos was much more positive than the underlying reality of the company. This poses a substantial risk which the Board should have been aware of. The failure of the company to live up to its reputation ultimately had a significant impact on its collapse.


Good governance is a critical factor in the sustainable long-term success of a company. It provides structure and processes for decision-making, control and company culture.

It is important to note that, apart from Elizabeth Holmes and Ramesh “Sunny” Balwani, no other member of the Theranos Board is facing prosecution or the threat of indictment for their role in the collapse of the company. It is believed that none of the other directors participated in the fraud.

James Mattis, who served on Theranos’ board of directors from 2013 until December 2016, testified in the trial of Holmes. He stated: “There became a point when I didn’t know what to believe about Theranos anymore … Looking back now I’m disappointed in the level of transparency.” He added “we (the directors) were being deprived of fundamental issues.”

It is clear that a combination of governance failures within Theranos facilitated by misinformation provided to a Board of directors who lacked the relevant industry knowledge to effectively carry out their duties, contributed significantly to the company’s ultimate collapse.

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