How Elizabeth Holmes fooled everyone and violated business Ethical Rules.
Theranos is a now-defunct consumer healthcare technology company founded by Elizabeth Holmes in 2003. Elizabeth Holmes, a Stanford dropout, started Theranos a word that combines “therapy” and “diagnosis” when she was just 19 years old. The company was once valued at about $10 billion, and its leadership claimed that it would revolutionize the blood-testing industry. It was established with the mission to make actionable health information accessible to people everywhere in the world at the time it matters, enabling early detection and intervention of disease.
Elizabeth Holmes said she was inspired to start the company in response to her fear of needles and started building the company through the sales pitch that it could detect health problems with just a few drops of blood from a finger prick that would make blood tests cheaper, more convenient and accessible to consumers. She had an idea to develop a portable patch that could adjust the amount of drug delivery and notify doctors of variables in patients’ blood. This would help decrease the wait times for patients for vital information and revolutionize health care all over the world. Theranos claimed that its technology was a groundbreaking innovation and its tests process required only about 1/100 to 1/1,000 of the amount of blood that would ordinarily be needed and cost far less than existing tests. The company’s original name was “Real-Time Cures” which was later changed by Elizabeth to “Theranos”.
The business did not go as planned to result in a massive scandal. The U.S. Securities and Exchange Commission (SEC) charged Holmes and former Theranos president “Sunny” Balwani, accusing them of “raising money from investors through an elaborate, years-long fraud making false statements about the company’s technology, business, and financial performance.” A federal grand jury indicted both Holmes and Balwani on two counts of conspiracy and nine counts of wire fraud. In the wake of the indictment, Elizabeth Holmes stepped down as CEO of the company. Theranos was forced to close, announcing it will pay its creditors with its remaining cash. Theranos ultimately got dissolved in September 2018 and its founder Holmes went from promising young genius to discredited liar and brought down Theranos with her.
Legal Issues
Legal issue is the issue of law which a legal question is the foundation of a case, It refers to a point on which the evidence is undeniable and the consequence of which it ultimately depends on the court’s interpretation of the law. After various suspicious reports on Theranos, with the shortcomings and inaccuracies of the company’s technology were exposed, and Theranos and Holmes were charged with massive fraud.
On October 27, 2015, the FDA(Food and Drug Administration) released two partially redacted Form 483 reports from an ongoing investigation into Theranos. The reports were less than satisfactory and claimed that Theranos had “uncleared medical device(s),” poor records, was mismanaging complaints, and the company had failed to conduct audits and produce supplier qualifications. Regarding an unspecified medical device, an investigator noted “the design was not validated under actual or simulated use conditions.” Further, Theranos failed to ensure the device conforms to defined user needs and intended uses.
On March 14, 2018, The U.S. Securities and Exchange Commission (SEC) charged Holmes and former Theranos president Ramesh “Sunny” Balwani with massive fraud. The complaint alleged Holmes, Balwani, and Theranos had raised more than $700 million from late 2013 to 2015 while deceiving investors by making it appear as if Theranos had successfully developed a commercially-ready portable blood analyzer that could perform a full range of laboratory tests from a small sample of blood. They deceived investors by, among other things, making false and misleading statements to the media, hosting misleading technology demonstrations, and overstating the extent of Theranos’ relationships with commercial partners and government entities, to whom they had also made misrepresentations. (US Department of Justice, 2020)
On June 15, 2018, A federal grand jury indicted both Holmes and Balwani on nine counts of wire fraud and two counts of conspiracy to commit wire fraud. According to the indictment, the charges stem from allegations that Holmes and Balwani were engaged in a multi-million dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients. Both schemes involved efforts to promote the company. Scams that takes over regional wire, such as telemarketing fraud, phishing, or spam related schemes are all called wire fraud. Holmes and Balwani were charged wire fraud, which meant the action of Theranos lied under the jurisdiction of the federal government. As the wire transfers included were regional because of the alleged fraud, the state government opposed to California was were able to go after them. Holmes and Balwani were charged with and two counts of conspiracy to commit wire fraud, due to numerous misrepresentations to potential investors about Theranos’s financial condition and its future prospects.
In this action, the U.S. Securities and Exchange Commission (SEC) seek an order enjoining Holmes and Theranos from future violations of the securities laws, requiring Holmes to pay a civil monetary penalty, prohibiting Holmes from acting as an officer or director of any publicly-listed company, requiring Holmes to return all of the shares she obtained during this period, requiring Holmes to relinquish super-majority voting shares she obtained during this period, and providing other appropriate relief.
Social Issues
Issues that arise and are recognized by society as a problem that is preventing society from functioning at an optimal level is known as social issues. If a business functions with clear, corporate policies regarding social issues and programs to dynamically document changes, as well as in its supply chain, can help ensure company’s good intentions which was an opposite case for Theranos.
Holmes and Theranos told that they developed a new machine called “miniLab,” that could screen for a multitude of diseases using just drops of blood obtained by a prick of the finger, a selling point for the needle-phobic Holmes. They said their device was more accurate, more reliable and faster than conventional blood tests. After the analysis of device, Prosecutors said that Theranos lied. Theranos allegedly made fraudulent efforts to hide their product’s flaws. Sometimes, the company used the industry-standard Siemens machine instead of its own miniLab to test pinpricks of blood, which they first diluted to produce a big enough sample for the Siemens. Sometimes they simply drew blood the old-fashioned way.
Theranos also gave investors fake demonstrations and misleading information about its clinical trials. When visiting Theranos, potential investors would have their blood sampled and taken away for processing, leaving them with the impression that it was being tested on one of Theranos’s devices. But Theranos often tested the blood on outside equipment because its own equipment wasn’t capable of doing all the tests it was offering, according to the SEC. Investors also got binders with information on clinical trials that Theranos had supposedly run with pharmaceutical companies. Theranos told investors it was going to generate more than $100 million in revenue and break even in 2014, and that it was on track to generate $1 billion in 2015 which couldn’t have been further from the truth. From 2013 to 2015, Holmes repeatedly told potential investors that Theranos didn’t need to get FDA approval for its equipment and tests but was voluntarily applying for and was necessary.
Theranos blood tests were rolled out at Walgreens in Arizona, which resulted putting hundreds of patients at risk of receiving inaccurate results that failed to catch a dangerous condition with a false negative and pushed them into costly and unnecessary tests and procedures due to a false positive. The Centers for Medicare and Medicaid Services, one of the federal bodies that regulate laboratory blood tests, showed Theranos blood test process had violated at least five clinical-laboratory regulations. Other violations included analytic systems and three instances of laboratory-personnel problems. Most of the tests conducted where very inaccurate due to failure of the device.
Elizabeth Holmes carefully crafted and maintained a persona while heading up her blood testing startup, Theranos. Including adopting a distinctively deep voice that former employees suspect she fabricated altogether. The former employee speculated that Holmes depended her voice because she was trying so desperately to fit in and be taken seriously as a young woman in the male-dominated Silicon Valley scene. Holmes had this obsession with Steve Jobs and walking in his footsteps and manifesting him in so many ways. One of those ways was wearing those black turtlenecks. She really turned had herself into the female version of Steve Jobs, without exaggeration.
Elizabeth Holmes lied about Theranos’s military contracts. Holmes told multiple investors that Theranos’s technology had been deployed by the US Department of Defense in the battlefield, in Afghanistan, and on medevac helicopters that transported casualties. It’s true that Theranos’s technology was used in a Department of Defense burn study, but it was never actually used in the battlefield, in Afghanistan, or on medevac helicopters. Theranos also had pumped its false claims up to the media while Holmes got glowing write-ups that contained lies she’d fed to reporters.
Ethical Issues
Ethical issues in business encompass a wide array of areas within an organization’s ethical standards which comprise promoting conduct based on integrity and trust, complex issues including accommodating diversity, empathetic decision-making, and compliance and governance that is consistent with the organization’s core values. Though ethical laws existed in Theranos to hold workers and employers accountable, it did not entirely deter the business from behaving unethically.
Theranos labs didn’t run according to regulations and guidelines set out by health authorities. They didn’t even have a lab director to do the decision making and for the phlebologists to report to. Holmes and Balwani lied to investors and the board that their product actually worked and was ready to be used on patients when it didn’t. When Theranos technology was available in Wallgreens, Theranos used third-party machines to do the testing instead of using Theranos technology. They had to dilute the blood samples taken from the nanotainer. The results were very inaccurate and left patients in grave danger. They were not honest with their data either and only submitted the ones taken from the third-party machines rather than Theranos technology. The results were so bad that FDA and CDC shut down the labs and banned the nanotainer.
A Utilitarian viewpoint focuses on the overall happiness of the stakeholders- an ideal utilitarian company will maximize their happiness. When looking at the Theranos situation, it is apparent that the company did not maximize the happiness of any stakeholders. Theranos lost pretty much all of its value, including all of the investor’s money. Its partners, Walgreen’s, Safeway, and Capital Blue Cross were also unhappy, as they had contracts to use their devices. Now they had to change back to the old technology that worked, which took time. The unhappiness continued considering the patients and their doctors, who have had to make medical decisions based on the false readings from faulty devices. The only one in this whole case looked as being happy about this outcome is Siemens, the company who made the units that Theranos used instead of their “Edison” machine. It was very clear that Theranos was unethical from a utilitarian perspective, because it seemed that it actually maximized unhappiness.
Theranos case involved Kantianism which is mainly concerned with respect and rationality. A company should respect their own rationality and the rationality of others. Kantianism also says that you should only do something if it is for the right motive. It seemed that the company started as a botched ploy to get rich quick. From the very beginning, Theranos was lying to the public, and especially the patients who used their product. Holmes wasn’t respecting the patients. She didn’t give them the right of accurately analyzing their blood. Instead, she sabotaged their medical decisions. Kantian theorist analyzed this case, they argued that Theranos acted in an unethical way.
Theranos had a horrible treatment and work conditions for employees. Employees of different departments couldn’t communicate with one another and couldn’t tell anyone outside about the Theranos technology. This was a prevention method to stop the information about technology from leaking out. They all had to report to Elizabeth who didn’t have the knowledge to make the best decisions. They had to live with paranoia and secrecy throughout their time working for Theranos. Employees were constantly monitored by Holmes and Balwani. If they sent an email to someone else, they were questioned. They had to over-work. Elizabeth pit two engineering teams together, the loosing team was fired. Employees couldn’t criticize or question about the technology, otherwise they would be immediately fired.
Looking from the Virtue Theory part of view, Theranos had violated some ethical issues. There are a couple main virtues that apply to this case. For example, some virtuous traits that one should strive to exemplify include Authenticity, Dignity, Generosity, and Integrity. Elizabeth Holmes and her company Theranos, have displayed none of these virtues- in fact, she presented the exact opposite. Holmes’s whole company was founded on lies and deceit. Holmes showed no dignity when she tried to lie her way out of the situation instead of coming out and telling the public the truth and working to fix it. Instead of being generous by providing a pain-free service to analyze blood samples, Theranos threw off medical decisions by not being accurate.
Professional Issues
Professional issues are principles that govern the behavior of a person or group in a business environment. Professional ethics in the business encompass the personal and corporate standards of behavior expected by professionals. Being the founder of multi-billionaire company, Holmes did not follow any of the professional issues.
As from certain reports, the labs in Theranos didn’t run according to rules and regulations set out by health authorities. They didn’t even have a lab director to do the decision making and for the phlebotologists to report to. The machines used were poorly constructed which would often malfunction and the blood could spill as a result. Medical companies, unlike Tech companies had to be transparent with their data and technology because someone’s life is involved in it. Theranos was never transparent regarding the data and only submitted when they were questioned by the public and the medical community. Also, blood testing with small amounts of blood for various types of tests was deemed impossible by experts. This is why Elizabeth Holmes didn’t include any medical experts as the board of directors.
There were also problems with the management at Theranos as seen with the firing of Mosley, but also with the hiring of Sunny Balwani with whom Holmes was having a relation that time. On 2009, Balwani joined Theranos as the chief operating officer. One of the major problems with this was that Balwani did not have any training in medical or biological science and his inexperience showed itself to the top researchers at the company as he was seen to be clueless in meetings especially as a top executive. Balwani also had a huge problem with a lot of the employees by yelling orders and continuing to humiliate and often fire them if they did not follow his commands. This created a toxic work environment for Theranos with an underqualified boss barking orders and high temper firings of competent people which caused a high turnover rate.
Theranos hired inexperienced employees. Employees who were inexperienced or didn’t have a license were hired to work in the labs. As Employees with work experience would often question Holmes about the machine but they were fired, or they resigned. Holmes would then hire someone who was far less experienced to avoid criticism. There was also a lot of problems with the lower level employees as many had described the company management as a “South American dictatorship or a drug cartel.” Holmes would constantly micromanage the employees that created distrust between the staff and herself.
Elizabeth Holmes wasn’t honest in the interviews either. She bald faced lied in the interviews and said that the claims made by the wall street journal were false. She got glowing write-ups that contained lies she’d fed to reporters. Elizabeth went so far to complain the investor of Theranos and owner of Wall greens journal, Rubert Merdoch to stop the articles being published.
Conclusion
Though Elizabeth Holmes’ vision was to create a product that would change the life of people, it didn’t work out and ended badly. She turned out to be a liar and a fraud giving false hopes about her product to everyone. In my opinion the worst mistake Theranos made was that most companies that have non-working products don’t get as far as Theranos did, because most companies are bound to both corporate and personal ethics that seemed to be absent at Theranos. Instead of refining their product, Theranos started advertising in vast majority focusing on the monetary gains. From my point of view, the measures that could have been done for minimizing the scandal are:
· No one in Theranos had deep information on what they were doing leaded by Holmes herself having no proper knowledge on medical field.
· Holmes blinded investors and general public with hare false hopes. Investors should had focused on how test process is being carried out rather than results.
· Holmes was concerned with skilled people enquiring and doubting her works. For this reason, she never hired skilled employees.
· Holmes handled the fraud accusation in wrong way. She should have been transparent with the company’s data and worked on its correction in a respectful and professional manner.
