by Professor Dennis Tourish
- 18 April 2023
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Elizabeth Holmes, once the youngest female billionaire in the history of Wall Street, was set to begin an eleven-year jail sentence for fraud by the end of April 2023 (before her last-minute appeal on 27 April). She gained fame as the CEO of Theranos, a biotech company she founded in 2003 at the age of nineteen. It raised more than US$700 million from venture capitalists and private investors, and it once had a valuation of US$10 billion. The company claimed it had developed a revolutionary technology that could administer hundreds of tests on small blood samples, thereby speeding up diagnosis and treatment. In fact, its technology never worked, and the blood tests Theranos said it had run were mostly carried out with technology bought from other companies for this purpose. The other senior person involved with Theranos, Ramesh “Sunny” Balwani, also begins a long jail sentence this month. How could this massive deception have been sustained until 2018, when Theranos was forced to file for bankruptcy? What leadership style was used to conceal the truth from employees and silence any who dissented? And what are the lessons for leadership within business beyond Silicon Valley?
The first clue lies with the board that Holmes appointed. Corporate boards are supposed to offer appropriate expertise, oversight, and feedback on key decisions. This assumes they have good access to information and sufficient expertise to help them make sense of it. None of this was the case at Theranos. Its board was populated by many of the great, the good, and the notorious of American society, including William Perry (former Secretary of Defense), Henry Kissinger (former Secretary of State), Sam Nunn (former U.S. Senator), and another former Secretary of State, George Shultz. None of them had any expertise in the biotech industry. They were appointed so Theranos could benefit from the halo effect of their pasts rather than for their ability to offer useful feedback and scrutiny. Holmes and Balwani themselves lacked any medical training, medical-device experience, or healthcare background. Notably, venture capitalists with knowledge of the industry in which Theranos worked all declined to invest in the company, showing a degree of skepticism that its ill-informed board did not.
Despite this, some board members tried to be critical. Avie Tevanian, a former senior figure at Apple and a friend of Steve Jobs, challenged the increasingly rosy financial projections that Holmes was presenting. He was forced to resign. A similar fate befell its one-time Chief Finance Officer, Henry Mosley, who was fired in 2006 for asking questions about the reliability of its equipment. In case this didn’t ensure his long-term silence, the head of IT was tasked with compiling a dossier that could be used against him should the need arise. So many ordinary employees suffered a similar fate that, in the gallows humor that developed within Theranos, they were known as “the disappeared.” Structurally, the board’s power was further limited because Holmes held 99.7% of the voting shares. When a leader has so much power, the potential for abuse and hubris is ever present.
These dangers were sharpened by fawning media coverage. Holmes was named one of the hundred most influential people in the world by Time magazine and compared to Steve Jobs and Bill Gates by the Wall Street Journal. She was featured on the front cover of Fortune magazine alongside the strapline “This CEO is out for blood.” Holmes herself took the comparison with Jobs seriously and began to mimic his style of dress at work while also lowering her voice to sound more masculine. She was profiled in the New York Times Style Magazine in a feature with the hyperbolic headline “Five Visionary Tech Entrepreneurs Who Are Changing the World.” Elizabeth Holmes had become a bona fide business celebrity. Much flowed from this. President Obama appointed her as a Presidential Ambassador for Global Entrepreneurship; she was filmed on different occasions with Obama, Bill Clinton, and Joe Biden; and she was invited by Harvard Medical School to join its board of fellows. Her external and internal credibility soared.
A luxury lifestyle became part of the package. Holmes flew by private plane and had a private chef who would prepare food to her exacting and idiosyncratic standards. When Theranos relocated to a new headquarters, she had her new office designed and furnished to look like the Oval Office. Its windows were made of bulletproof glass. She insisted on her own private security detail and had personal drivers and assistants. Any sense of proportion about her own role or the importance of Theranos was long gone.
Holmes and Balwani’s leadership consisted of trying to control people’s behavior, thoughts, and feelings.
Surveillance and control
To an inordinate extent, Holmes and Balwani’s leadership consisted of trying to control people’s behavior, thoughts, and feelings by an extraordinary use of surveillance and by placing strict limits on how much information employees could share with each other. Security cameras were omnipresent as were security guards. The company’s computer network was set up so no one could exchange instant messages. Chat ports were blocked. Cross functional teams, the norm at other diagnostic companies, became impossible. Unintended effects multiplied. Carreyrou (2018) cites the example of a laboratory director who was unable to access quality data, despite its importance for his job. By this stage, in a dynamic often found in high control environments, the desire for conformity and obedience had triumphed over the need for effectiveness.
But there was another factor at work as well. Holmes and Balwani tried to conceal their fraud by articulating noble goals (transforming healthcare in the world) and encouraging people to show absolute devotion to the corporate ideal. Following some resignations, an angry Holmes called a staff meeting in which she “told the gathered employees that she was building a religion. If there were any among them who didn’t believe, they should leave” (Carreyrou, 2018, p. 173). At another event, she claimed that Theranos’ technology was “the most important thing humanity has ever built. If you don’t believe this is the case, you should leave now… Everyone needs to work as hard as humanly possible to deliver it” (Carreyrou, 2018, p. 103). On at least one occasion, Sunny Balwani declared that its blood testing technology would have the same impact on public health as antibiotics. At the same meeting where Holmes talked of building a religion, Balwani declared that anyone not prepared to “show complete devotion and unmitigated loyalty to the company should ‘get the fuck out’” (Carreyrou, 2018, p. 173). The aim, it seems, was to create an atmosphere of cult like devotion in which those raising criticisms would be treated like someone attending church with the sole intention of renouncing God.
What next?
We can draw many useful lessons for leadership from this sad and sorry saga:
- We should be wary of all powerful leaders and reframe corporate governance to limit their power. No one should own as many voting shares as Holmes did in Theranos. Alongside this, boards need members with the expertise to challenge the claims that are presented to them. Diverse boards are useful, and there is a place for non-experts who are unafraid to ask the dumb questions that others might shirk from. But when no one has any real insight into the company’s operations, unscrupulous leaders can take advantage of their ignorance to promote their own agendas, acquire too much power, and conceal fraud.
- The media, and all of us, need to be more wary of portraying corporate leaders as superhero figures. Such myth building can mask unsavory practices, encourage hubris on the part of the leaders involved, and, of course, make it harder to voice dissent. Once a business leader appears on the cover of a prestigious magazine it might be time to worry!
- Dissent is the crux of the matter. No leader is all wise and all seeing — and it is dangerous when they become all powerful. Keith Grint (2000) puts it very well: “We are left with a paradox: the most successful leaders appear to be those who cultivate the least compliant followers, for when leaders err – and they always do – the leader with compliant followers will fail” (p. 420). In my book, The Dark Side of Transformation Leadership, I devote a chapter to discussing the importance of what I call “critical upward communication” in organizations, and how we can get more of it.
Theranos is a salutary lesson. Today, corporate leaders (in general) have too much power. It damages them, their organizations, and our wider society. As the management scholar Sydney Finkelstein (2004) has said, “Being the CEO of a sizable corporation today is probably the closest thing to being king of your own country.” If this sounds attractive, he went on to add, “that’s a dangerous title to assume.” I agree. We need to rethink models of leadership and practices of corporate governance that have enabled this to happen.
References
Carreyrou, J. (2018). Bad Blood: Secrets and Lies in a Silicon Valley Startup. Picador.
Finkelstein, S. (2004). The Seven Habits of Spectacularly Unsuccessful Executives. Ivy Business Journal, January/February. https://iveybusinessjournal.com/publication/the-seven-habits-of-spectacularly-unsuccessful-executives/
Grint, K. (2000). The Arts of Leadership. Oxford University Press.
Tourish, D. (2013). The Dark Side of Transformational Leadership: A Critical Perspective. Routledge.
Tourish, D., & Willmott, H. (2023). Despotic Leadership and Ideological Manipulation at Theranos: Towards a Theory of Hegemonic Totalism in the Workplace. Organization Studies. https://doi.org/10.1177/01708406231171801
About Professor Dennis Tourish
I am a Professor of Leadership and Organization Studies at the University of Sussex Business School. I have a particular interest in dysfunctional and dark side leadership, which probably comes from growing up in Northern Ireland at a time of great conflict between its two main communities. We had many dark side leaders, and miserable times as a result of their activities. All this fed into my book The Dark Side of Transformational Leadership: A Critical Perspective, published by Routledge in 2013.
I also have a strong interest in organisations that we commonly think of as cults, particularly but not exclusively those of a political nature. There are more of these than we normally imagine, and most of us can be vulnerable to the appeal of cult membership when we are going through some major crisis in our lives. Put simply, we are in pain – and a cult and its leaders offer to make the pain go away. This interest is reflected in what is now an old book that I co-authored with Tim Wohlforth – On the Edge: Political Cults Right and Left, published by ME Sharpe in 2000.
More recently, I have also become interested in research ethics and in research fraud. It seems to me that much of the research which appears in academic journals is bogged down in trivial issues, that its methods are often unable to really address the issues being investigated, and even that an unknown but significant amount of it is based on fraud. Leadership studies is far from immune. There are many reasons for this, but the pressure put on academics to publish to advance their careers is one of them. This led to my book Management Studies in Crisis: Fraud, Deception and Meaningless Research, published by Cambridge University Press in 2019. It seems that many people share my concerns. I published a paper in the journal Academy of Management Learning & Education in 2020 called ‘The triumph of nonsense in management studies,’ based on my book. To my surprise it won their best paper of the year award.
Leadership really matters, in business, society and politics. My interest is in helping people to spot where it is going wrong, and encouraging everyone not to put too much reliance on the alleged wisdom of powerful people at the top. We face many problems. An engaged and critical citizenry, at work and elsewhere, is vital if we are to overcome them.
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