Monday, March 19, 2018

The Founder of Theranos: A Flawed Charismatic Vision and Leader

“Theranos rose quickly from being a college dropout’s idea to revolutionize the blood analysis industry to a hot tech bet that accrued $700 million in funding and many famous names for its board.”[1] Elizabeth Holmes, the company’s founder, was stripped of her position at the company in 2018 after the SEC discovered her deep involvement with the fraud at the company. Her “smarts, fierce determination and Steve Jobs-inspired look . . . were critical” to her being able to perpetuate the lie that the company had a device that could do blood tests with just a scant amount of blood, obviating the unpleasant experience of having blood drawn by needle.[2] Although Jack Welsh, Bill Gates, and Steve Jobs accomplished enough to warrant their fame, I submit that companies are too prone to create “champions”—even strangely calling them “rock stars.” In other words, even though charismatic vision is of value to a business, neither such a leader nor his or her vision itself should be overplayed. Business, I submit, has a marked tendency to do just that, and often with impunity.
At 19, Elizabeth Holmes dropped out of Stanford University because she had an idea of how blood tests could be done without the need of so much blood that a needle is required. She was “determined to create a company that would help anyone who, like herself, was afraid of needles and dreaded taking blood tests.”[3] Where the school Northern Illinois University or the University of Arizona, her decision to drop out for such a reason could be reasonable, but to give up a Stanford education so people wouldn’t have to feel a needle for “blood work” indicates a flawed judgment. Where were her parents? She was 19! Finish college then start your company. That it took her a decade of work before she debuted her company—and even then without the requisite technology—suggests that there was no rush. Simply out, it is very odd that she dropped out of Stanford. Yet this point was somehow missed by investors such as Rupert Murdock, Cox Enterprises, and Walgreens, and board members including George Schultz and Henry Kissinger, former U.S. Secretaries of State,  former U.S. Senator Sam Nunn, former Secretary of Defense William Perry, and the current Defense Secretary James Mattis. Did they all show up drunk at board meetings? Was there even an audit committee that reported directly to the board?
Clearly, we can be dazzled by celebrity, and the famous can cash in on their reputations. That no flags were raised concerning the founder raises larger questions in business related to the troublesome transfer of power and position from charismatic founders to managers. Investors should not rely on the charisma of founders; even the promises of Bill Gates and Steve Jobs warranted being independently checked out. CPA firms should not have to rely on founders, or even managers, for renewals. Business, in other words, can easily get too cozy, leaving investors out in the dark.
In terms of leadership, charismatic vision should be distinguished from the implementation of strategy. I’m not even sure “avoiding needles” is big enough to warrant being reckoned as a vision. Founders and managers alike may distend what are actually good ideas into charismatic vision.[4]
In conclusion, the background of Theranos, including that of its founder, should have raised red flags. Likening her to Steve Jobs because she wore black turtle-neck shirts borders on the ridiculous, and yet a self-aggrandizing company can easily get on that band-wagon, ignoring the hypertrophy. Leadership vision is valuable, but in a business context the vision thing must be related to concrete strategies, with realizable benchmarks. This is not to say that leadership vision should collapse into strategic interests, for such reductionism rids the vision of its own integrity and coherence.[5] The point is not to get carried away with charismatic vision in business even as such vision should not reduce to strategy.




[1] Marco della Cava, “Behind the Scenes of Theranos’ Dramatic Rise, Fall,” USA Today, March 16, 2018.
[2] Ibid.
[3] Ibid.
[4] On leadership vision, see Skip Worden, The Essence of Leadership: A Cross-Cultural Foundation
[5] Skip Worden, “The Role of Integrity as a Mediator in Strategic Leadership: A Recipe for Reputational Capital,” Journal of Business Ethics, 48 (August, 2003) No. 1, 31-44.