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Markkula Center for Applied Ethics

Teaching Note: Interview of Theranos Whistleblower, Tyler Shultz

This teaching module for business ethics, leadership and management courses includes two videos, homework assignments, and class discussion, all designed to spark conversation about ethical issues associated with whistleblowers and corporate governance.

These materials are provided at no cost (with written permission for class use) by the Markkula Center for Applied Ethics at Santa Clara University.

Film 1 (Short Version)

Film 2 (Full Version)

Authors

Ann Skeet, Markkula Center for Applied Ethics, Santa Clara University
Joan Lee, Fairfield University
Sarah Cabral, Boston College

Abstract

In this video case, Tyler Shultz recounts his experience as a recent college graduate in 2014, at Theranos, a medical technology start-up. After starting his job on the assay validation team, which was responsible for verifying the blood tests run on Theranos’ Edison machine, Tyler noticed significant quality control failures. In the video, Tyler explains the issues he encountered and how he decided to blow the whistle on the company. He first addressed his concerns internally and faced hostility, to the extent that he resigned from the company after eight months of employment. After leaving Theranos, a Wall Street Journal reporter, John Carreyrou, reached out to Tyler and asked him about his time at Theranos. Tyler, at first, did not want to share his story, as his grandfather, George Shultz, was a board member of Theranos and did not support Tyler’s claims. Ultimately, Tyler became an anonymous source for Carreyrou, despite hefty personal and financial costs. 

Learning Outcomes

After watching the video and completing the assignments, students should be able to:

  1. Identify the organizational and personal challenges faced by whistleblowers.
  2. Describe why some employees decide to blow the whistle, while other employees choose to ignore what they know. 
  3. Describe the role a board properly plays in corporate governance. 
  4. Reflect upon Tyler’s decision to blow the whistle, in light of the specific organizational and personal challenges he faced. 

Suggested Uses

This case is most appropriate for courses in business ethics, leadership, leadership ethics and management. It can be used to focus on one or more of the following topics: whistleblowing, personal and institutional leadership, organizational blocks, and corporate governance.

This is a whistleblowing case in which the whistleblower (Tyler Shultz) is someone with whom today’s students might better identify as Tyler was in his 20’s at the time the case occurred.  In addition, the case was complicated by connections between Theranos and Tyler’s grandfather, George, who served on Theranos’ board.

Option 1: Have the students watch the film prior to a class meeting in which whistleblowing is to be discussed. Assign the Kaiser and Primeaux articles to be read prior to class. The questions below should form the basis for an in-class discussion.

Option 2: Have the students watch the film (the full film or the shorter version) in class, and then use the questions below to guide an in-class discussion. 

  • Do you think Tyler struggled in coming to the decision to blow the whistle?  What actions of his support this?
  • Do you think Tyler regrets blowing the whistle on Theranos?  Why?
  • Do you think other employees at Theranos knew that the blood testing protocol did not work?  If so, why do you think no one else spoke up? 
  • Do you think you would have acted in the same way as Tyler? Why or why not?
  • Will your knowledge of Tyler’s story effect the way you would act if you should find yourself in a whistleblowing situation in the future?

This case allows for exploration of personal and institutional leadership.  

Option 1: Have the students watch the film prior to a class meeting in which whistleblowing is to be discussed.  Assign the Skeet article on the Practice of Ethical Leadership to be read/reviewed before class.

Option 2: Have the students watch the film (the full film or the shorter version) in class, and then use the questions below to guide an in-class discussion. 

Option 3:  Open class with a written reflection, to be used in conjunction with Options 1 or 2.

Prompt for reflection:

  • What personal values would you use to decide your course of action if you were in Tyler’s shoes?  
  • Recall a time when you had to speak up against someone or something you felt was wrong. How did it feel? What values did you draw upon to decide to act.

Questions for in-class discussion following reflection (optional)

  • Did you find certain values carried more weight than others?
  • How might these differ if you did not have a family member directly connected to the circumstances?
  • Do you have a regular set of values you use when faced with dilemmas?

Questions for in-class discussion about the video using the Skeet, Practice of Ethical Leadership article.

  • Can you find evidence of the six practices of ethical leadership in the Theranos story when considering the actions of Elizabeth Holmes.  Which elements were present and which were not?
  • Can you find evidence of the six practices of ethical leadership in Tyler Shutlz’s decision-making and actions.
  • Whistleblowing requires someone to step “out of position” to disclose wrongdoing.  What other guideposts in organizations can people draw upon to decide when it is right to do so.
  • Do you think Tyler is someone born with natural ethical leadership skills or were they developed through experiences and shaped by other people? 

This case allows for students to identify organizational blocks - the structures in place that prevent people from acting on their ethical instincts. The case can be used in the middle of a business ethics course when moving from a unit on the purpose of the corporation to a unit on ethical decision making frameworks.

Option 1: Have the students watch the film prior to the class meeting, and then discuss the organizational blocks present at Theranos during class. Assign the Carucci article and have students respond to the following questions:

  • If the employees of any given organization are typically good people, why do various unethical practices keep recurring?
  • What were some of the organizational blocks at Theranos profiled in the video?
  • How did a lack of open discussion impede the elimination of organizational blocks at Theranos?  
  • Do you think you would have acted in the same way as Tyler? Why or why not?

Option 2: Have the students watch the film in class, and then assign the Carucci article and the above questions as homework for the following class. You also could have students read the Deak article, which focuses on why Timothy Piazza’s Penn State fraternity brothers chose not to seek help for their dying friend. This article highlights another type of organization, a fraternity, in which organizational blocks are also present. Additional homework questions could include:

  • What were the organizational blocks present in Timothy Piazza’s fraternity?
  • What happened as a consequence of no one speaking up?
  • Do you think this could happen at your college or university?

Option 3: Use the video as a case to be analyzed by the students in a final essay assignment, in which they can identify both organizational blocks present at Theranos and the decision making framework(s) Tyler referenced and/or used.

Ask students to respond to the following prompt:

“With reference to class material, answer the following questions in essay format: What were the organizational blocks present at Theranos that made it difficult to blow the whistle? Despite these difficulties, which ethical decision making frameworks would support blowing the whistle? What did Tyler do, and why? What would you do, and why?”

This case allows for an examination of the role of the board of directors in a start-up in undergraduate and graduate settings.

Option 1: Have the students watch the film prior to a class meeting in which whistleblowing is to be discussed. Assign the Jones Unicorn Governance Trap article, and the Ramsey, Business Insider articles to be read prior to class. Can also assign Skeet article on Snap IPO to compare similar issues in another company. The questions below should form the basis for an in-class discussion.

Option 2: Have the students watch the film (the full film or the shorter version) in class, and then use the questions below as to guide an in-class discussion. 

Questions for an  in-class discussion about corporate governance

  • What do we know about the board of directors from this video?
  • What principles is Tyler supporting by his suggestion that board members talk to the “people doing the pipetting?”
  • Did the board of directors for Theranos support the governance principles and duties of a board?
  • Many people serving on the boards of start-ups are familiar with the “fake it until you make it approach”.  How does this play into this case?
  • Is it a conflict of interest for early stage investors to sit on start-up corporate boards?

 

Additional Information

  1. Tyler recaps the story and issues along the way: 8:08-22:41
  2. Tyler talks about the complexities related to his grandfather and family: 26-29:43
  3. Media coverage, legal issues, some aspects of grandfather’s role: 30-45:56
  4. How can we prepare students? 46:00-52:00
  5. “Fake it until you make it” and other aspects of start-up culture, governance, audits: 52-1:00:45
  6. Question and Answer from Jesuit Business Educator audience: 1:00:45 to 1:17
    Questions asked in order:
    • How long did it take your grandfather to get with the program?
    • Was it a matter of Elizabeth and Sunny not understanding the technology or something else?
    • What do you think about the awards available for whistleblowers? Are they enough? Other regulatory ideas?
    • What did the other scientists at the company know and why didn’t they act?
    • Multi-part question/comment on writing, why no one acted, litigation.

At the age of nineteen, Elizabeth Holmes dropped out of Stanford to start Theranos. The business model of the start-up was to create blood-testing technology that only required very small amounts of blood. Holmes first sought out investors who were connected to her family, and she hired Channing Robertson, a chemical engineering professor from Stanford, as an advisor and her first board member. By 2004, Holmes had raised $6 million. The first prototype of the Edison, a blood testing device the size of a desktop printer, debuted in 2007. In 2009, Holmes recruited Sunny Balwani, who had a background in software engineering and business, to be the president and chief operating officer of Theranos. A year later, after multiple rounds of funding, Theranos was valued at one billion dollars. 

George Shultz, who served as secretary of state for President Ronald Regan, joined the board in 2011. Holmes was good family friends with the Shultz family, and George Shultz helped Holmes attract board members with military and congressional backgrounds. In 2014, the Theranos board members were: 

  1. Bill Perry, former Secretary of Defense, 
  2. Henry Kissinger, former Secretary of State, 
  3. Sam Nunn, former U.S. Senator, 
  4. Bill Frist, former U.S. Senator, 
  5. Adm. Gary Roughead, retired U.S. Navy Admiral, 
  6. Gen. James Mattis, retired U.S. Marine Corp General, 
  7. Dick Kovacevich, former Wells Fargo CEO and chairman, and 
  8. Riley Bechtel, former Bechtel Group CEO. 

Holmes, and Theranos raised more than $700 million from late 2013 to 2015, and the company was valued at $9 billion, but Holmes had yet to explain in detail how the blood-testing technology worked. 

Tyler Shultz, the grandson of George Shultz, started as an intern at Theranos in 2013, between his junior and senior year of college at Stanford. While interning at Theranos, Tyler actually decided to change his major from engineering to biology because he was so taken with the mission of the organization. After graduating with a degree in biology, he started work full-time at Theranos, but he quickly figured out that something in the diagnostic numbers wasn’t adding up. He also figured out that Theranos was inaccurately telling other companies and the public about what their machines could do. Instead of immediately blowing the whistle, Tyler decided to take to bring up his concerns internally. He talked to Elizabeth and others in senior leadership positions in the company, only to be met with hostility. He also tried to explain to his grandfather what was going on, but his grandfather didn’t believe him. His parents urged him to quit but to say the reasons for quitting was to get his PhD, so as to not make waves. Ultimately, after only eight months of working at Theranos, Tyler resigned in 2015. He was 23 years old at the time.

Originally, Tyler did not consider talking with a reporter. As John Carreyrou, the Wall Street Journal reporter, explains in his book, Carreyrou sent Tyler a LinkedIn message and asked if he wanted to talk to him about Theranos. Tyler decided to reach out to Carreyrou via burner phone, and he eventually became a central anonymous source for Carreyrou’s articles on Theranos.

In the two years that followed, Tyler had to fight back various legal threats from Theranos. He even had private investigators following him. Theranos’s legal team tried to get him to sign several affidavits saying he had been talking to the Wall Street Journal, and they employed a variety of bullying tactics to convince him to do so. They also tried to convince Tyler to out other whistleblowers.

Throughout this whole ordeal, Tyler remained steadfast in his commitment to doing the right thing while also having the added complexity of his family’s involvement in the company.  His grandfather didn’t believe Tyler when he came to him with his concerns, and his grandfather tried to broker a deal between Tyler and Theranos. All the while, Elizabeth Holmes continued to attend Shultz family functions.

Eventually, Carreyrou’s reporting exposed Theranos for what it was:  an elaborate corporate fraud. Tyler’s family had to spend $400,000 on legal fees to fight back against Theranos’s threats. 

In March of 2018, Holmes and the Company’s former president, Sunny Balwani, were charged with massive fraud by the SEC.  Holmes paid a fine, gave back stock, and is barred from being an officer or director of any public company for ten years.  Balwani did not settle with the SEC, and in June of 2018, the US District Attorney for Northern California announced an indictment of Holmes and Balwani on wire fraud and conspiracy charges.  Theranos ceased operations on August 31, 2018, and the company was dissolved. Elizabeth Holmes and Sunny Balwani will stand trial on criminal charges they lied to investors and doctors about the start-ups product capabilities, set for August 2020.  The pair allegedly duped investors into funneling more than $700 million into the start-up.

After leaving Theranos, Tyler worked at Stanford’s Center for Magnetic Nanotechnology.  Currently, he is the CEO and Co-Founder of Flux Biosciences Inc., a start-up that aims to bring medical grade diagnostics into the homes of consumers.  

 

Additional Resources

Carucci, R. (2016, December 16). Why Ethical People Make Unethical Choices. Harvard Business Review. Retrieved from: https://hbr.org/2016/12/why-ethical-people-make-unethical-choices

Deak, M. (2017, May 6). The Shocking Final Hours of Penn State Pledge Timothy Piazza’s Life. USA Today. Retrieved from: https://www.usatoday.com/story/news/nation-now/2017/05/06/shocking-final-hours-timothy-piazzas-life/312187001/

Jones, Renee, M., The Unicorn Governance Trap, 166, U. PA. L. REV> ONLINE 165 (2017), Retrieved from: http://www.penlawreview.com/online/166-U-PA-L-Rev-Online.165.pdf

Kaiser, R. (2019, September 27). Why are there more whistleblowers than ever? Washington Post. Retrieved from: https://www.washingtonpost.com/outlook/why-are-there-more-whistleblowers-than-ever-because-theres-more-fraud/2019/09/27/47ecd31c-df16-11e9-be96-6adb81821e90_story.html

Primeaux, E. (2019, September/October). Whistleblower helped dismantle biotech juggernaut Theranos in his 'zero-strategy' defense. Fraud Magazine. Retrieved from: https://www.fraud-magazine.com/article.aspx?id=4295006794

Ramsey, L. (2019, March 19). How Elizabeth Homes convinced powerful men like Henry Kissinger, James Mattis and George Shultz to sit on the board of the now disgraced blood-testing startup Theranos, Business Insider. Retrieved from: https://www.businessinsider.com/theranos-former-board-members-henry-kissinger-george-shultz-james-mattis-2019-3

Skeet, A. (2017, April 12). The Practice of Ethical Leadership. Markkula Center for Applied Ethics at Santa Clara University. Retrieved from: https://www.scu.edu/ethics/leadership-ethics-blog/practice-of-ethical-leadership/

Skeet, A. (2017, February 21).  Ethical Issues in Snap’s IPO.  Originally published on Marketwatch.com.  Retrieved from https://www.scu.edu/ethics/leadership-ethics-blog/ethical-issues-in-snaps-ipo/

Carreyrou, J. (2018). Bad Blood: Secrets and Lies in a Silicon Valley Startup. Alfred A. Knopf.

Carreyrou, J. (2016, October 16). Hot Startup Theranos has Struggled With Its Blood-Test Technology. Wall Street Journal. Retrieved from: https://www.wsj.com/articles/theranos-has-struggled-with-blood-tests-1444881901

Carreyrou, J. (2016, November 18). Theranos Whistleblower Shook the Company and his Family. Wall Street Journal. Retrieved from: https://www.wsj.com/articles/theranos-whistleblower-shook-the-companyand-his-family-1479335963

The Dropout (2019) Produced by Nightline. ABC. Retrieved from: https://abc.com/shows/2020/episode-guide/2019-03/15-the-dropout

Ethics Unwrapped video series featuring Mary Gentile’s Giving Voice to Values. Retrieved from: https://ethicsunwrapped.utexas.edu/

Gardner, H., with Fryer, B. (2007, March). “The Ethical Mind: A Conversation with Psychologist Howard Gardner.” Harvard Business Review, pp. 51-56.

Green, B. P. (2015, February 14). Conscience, Edward Snowden, and the Internet, The Conscience Project. The Markkula Center for Applied Ethics. Retrieved from: https://www.scu.edu/ethics/focus-areas/religion-and-ethics/resources/the-conscience-project/conscience-edward-snowden-and-the-internet/

The Inventor: Out for Blood in Silicon Valley (2019). Directed by Alex Gibney. HBO. Retrieved from: https://www.hbo.com/documentaries/the-inventor-out-for-blood-in-silicon-valley

Jarvis, R. (2019, January 23). The Dropout, Episodes 1-6. ABC News. Accessed through Apple 

Jensen, J.V. (1987). Ethical Tensions in Whistleblowing. Journal of Business Ethics. 6:321.

Oliver, C. R. and Daly, F. J. (2007, June 1). Encouraging Internal Whistleblowing (And More!). Santa Clara University. Retrieved from: https://www.scu.edu/ethics/focus-areas/business-ethics/resources/encouraging-internal-whistleblowing-and-more/

Parloff, R. (2014, June 12). This CEO is Out for Blood. Fortune. Retrieved from: https://fortune.com/2014/06/12/theranos-blood-holmes/

Skeet, A. (2018, September 10) When Leadership and Whistleblowing Meet. Bension: The Practice of Ethical Leadership, The Markkula Center for Applied Ethics, Santa Clara University.

Tamny, J. (2019, October 14). Elizabeth Holmes Is a Visionary, and We Need More Like Her. RealClearMarket. Retrieved from: https://www.realclearmarkets.com/articles/2019/10/14/elizabeth_holmes_is_a_visionary_and_we_need_more_like_her_103946.html

Zingales, L., Dyck, A, and Morse, A. (2007). “Who Blows the Whistle on Corporate Fraud?   University of California, Berkeley, Law and Economics Workshop Paper. Summary of findings from this study Harvard Law School Forum summary of findings from Who Blows the Whistle on Corporate Fraud. Retrieved from: https://corpgov.law.harvard.edu/2010/02/15/who-blows-the-whistle-on-corporate-fraud/

A Foreign Corrupt Practices Act Case Study (10 minute video)
This is a much dryer, more typical whistleblowing story, not as sexy as the Theranos story and the whistleblower is much later in his career.  It might serve well as a juxtaposition to the Theranos’ story, involving early career whistleblowers. The protagonist has more experience and perspective to draw upon having worked longer.  He is interviewed by former Markkula Center executive editor, Kirk Hanson. This would also be a good case for finance and/or accounting classes.

Apathy over Anonymity
This is a very short, written case, authored by a student, about blood testing in a lab setting, so relevant to being used with Theranos.  It presents a much more likely early-career scenario that students can likely relate to more easily than the issues presented in Theranos. 

Trimming Data
Another short case written by a student, in a business lab setting where an employee is asked to fudge data to improve testing results.  Would be useful in a bioethics class and as an accompaniment to Theranos.  

A Lengthy Dilemma
A short case written by a student, again set in a blood testing lab.  An employee uncovers a ridiculously long consent form that participants are most likely not really reading or using and wonders what to do.

Questioning the Average
A short written case by a student about clinical trials that may be harmful to participants.  Highlights the need for care in calculations and procedures as an ethical issue.

Off the Clock
A short case written by a student about a new employee who realizes colleagues work off the clock without pay and wonders what to do.

A Sinking Situation
Another short written case about eliminating a phase of testing, but this one is in an engineering setting.

Odd One Out
A short case written by a student about an employee who uncovers corruption and is asked by her supervisor to suppress it. Set in a government work setting.

WorldCom
This is a much longer, more traditional business case that touches on issues of whistleblowing, bankruptcy, mergers and acquisitions and the relationships between companies and the professional services firms they work with.  Provides a look at a more proactive investigation to uncover wrongdoing by the whistleblower.

 

Contact

For more information, please contact:

Ann Skeet, Senior Director of Leadership Ethics at the Markkula Center for Applied Ethics
Vari Hall, Santa Clara University
500 El Camino Real, Santa Clara, CA 95053
Email: askeet@scu.edu
Phone: 408-554-5466