In October of 2018, Ann Skeet, senior director of Leadership Ethics, interviewed Tyler Shultz, a whistleblower in the Theranos case, at the Markkula Center for Applied Ethics.
Getting to know and interview Tyler Shultz was an educational and inspirational experience. Tyler’s candor, humility, and action contributed, along with efforts by others, to bringing a significant corporate fraud to light. I’m struck by so many aspects of the Theranos story and can’t help but note how high interest in it has been from students, corporate compliance officers, investors, and more.
Sales skills and charisma do not equal leadership
Students were especially troubled by descriptions of Elizabeth Holmes as a great leader, pointing to her ability to get so many others aligned with her vision and make employees feel, at least initially, that each of them was important to fulfilling it.
Serving self-interests instead of institutional interests when in a formal executive role is not leadership. For those who argue Holmes was advancing Theranos’ interests, facts have borne out otherwise. Misleading people intentionally, including regulators, employees, investors, and board members does not serve institutional interests. The most effective ethical leaders are relentless about prioritizing the interests they serve well—they play their position. Tyler Shultz’s ability to sort through many competing relationships and priorities he held in this situation is one of the most impressive skills he displayed, considering throughout his obligations as an employee, colleague, grandson, and son.
People who raise objections are often stigmatized and harmed
A questioner noted how many individuals were in a position to be aware of the issues at Theranos but took no action. We can’t know that, as some may not have been shared. We do know the stories of action taken that have been told.
It is not uncommon for people to pay a price for dissent. In a work group, they can be labeled as “not being a team player.” In a boardroom, they might be referred to as a “flamethrower.” If they take issues over other people’s heads, outside of the chain of command, they can be seen as “troublemakers.” The Theranos story is rife with people who speak up and are then fired. One of Shultz’ fellow whistleblowers even moved to another country.
It is legitimate for people to be concerned that getting fired after speaking up might influence future employment opportunities. And many recognize the lengths that companies will go to protect their investments.
This does not make all the other people who worked at Theranos bad people, or even mean that they are good people who made bad decisions. Many people did speak up and found it did not make a difference. They were overlooked, shut down, or terminated.
Not everyone converts privilege into action
Tyler Shultz is unique in several ways. He was in a privileged position and recognized it. Many do not. He understood he had family connections that gave him access to players in this tale and opportunities to influence them and he tried. To some degree he was serving one of his own interests, if you can call love for his grandfather self-interest. That love, I believe, motivated him to expose the fraud so his grandfather could see it. Tyler Shultz seems keenly aware of his grandfather’s reputation for moral leadership and took more than a few personal risks to protect it.
That Shultz has retained, maybe even developed more, humility as a result of this experience is also to his credit. He can identify mistakes he made, times when conflicting interests he held clouded his judgment. He says now that he wishes he had taken his information directly to the SEC and, at some level, understands his relationship with his grandfather likely influenced his decision not to do so. His ability to reflect on this chapter in his life is helping him to contain it so it is not his entire story writ large. He has other things to do with his life.
There is still more to do to unravel gender dynamics in the workplace
A compelling part of this story is the number of people, particularly older men, taken in by Elizabeth Holmes. Even as the company was heading for dissolution, some with close knowledge of the company still contend she was innocent of any wrongdoing, misused by Sunny Balwani.
It is tragic for the many qualified, hard-working female entrepreneurs that Elizabeth Holmes is the female, start-up CEO who ended up gracing magazine covers. Perhaps it points to yet another challenge women face at work—superficial qualities being used to measure their contribution more than their true achievements. If being able to build relationships, one might say suck up to, older, powerful men, generates this level of investment and support for a woman in a position of influence, what are we teaching girls and young women about what it really takes to get ahead? The power is still with the men.
Investors should recognize the role of culture in value creation
Venture capitalists and start-up CEOs often characterize culture management as a luxury that comes later in a company’s life cycle. In the early days, it is seen as distraction from getting product out the door and returns to investors’ coffers. Managing culture is a hard skill, with measurement capability and markers for success. The sooner investors factor this into their decisions, the more shareholder value they can create and sustain.
Tyler Shultz made many key points about how corporate culture contributed to the epic start-up failure Theranos has become. He described responses to concerns that were or could be interpreted as retaliatory. He pointed to the very different way facts were handled in the “carpeted world” and the “tiled world” indicating that those in the tiled world understood how far off the mark their products were from promises being made on the carpeted side of the company. This likely contributes to Shultz’s suggestion in our conversation that investors, executives and board members talk to the people, as he put it, “doing the pipetting.” Open-ended questions to employees at all levels of the company generate useful data for governance, strategy, and further investments.
The buck stops with the board
People who have the greatest capacity have an obligation to influence operating systems. An individual manager can do this through mentorship. More senior executives can look at reward and compensation systems, call for regular assessment of a variety of cultural elements, and work to design operating systems that align goals with desired behavior. And those with the greatest capacity, whether time, talent, access, money, influence or some combination, can and should shape systems at the company, industry, and regulatory level.
People serving on boards should have significant capacity to analyze and shape systems design. They are uniquely positioned and legally charged with doing so.
The Theranos story has a compelling, unique characteristic. Someone in a hands-on, frontline role—Tyler Shultz in the lab—had access and a trusting relationship with someone on the board of directors, his grandfather, and he chose to act.
Even with conditions favorable to identifying issues like fraud, the charade lasted through many quarters and rounds of investing. At least three factors contributed to this. First is board composition. I have touched on gender, but note here that there was not a single woman on the board of directors. Nor was there a person of color on the board. There was a dearth of medical research expertise on the board as well.
Second is the relative youth of the CEO. Moral judgement is developmental; young CEOs are a real risk factor that boards must counterbalance.
Third, there is a fundamental weakness in Silicon Valley investing, where early investors allow founders to retain control of a company, rendering boards effectively unable to fulfill the duties they are held to by law, to look out for the interests of all investors, not just the founder. Elizabeth Holmes was playing too many conflicting positions—founder, chief shareholder, board chair and CEO.
There’s a place for the common good, even in business
It’s common for people to identify the common good as public goods—workable, affordable healthcare systems, clean environment, fair and just political systems. John Rawls defines the common good as a set of general conditions contributing to everyone’s advantage. Increasingly, business leaders see that trust and reputation are conditions that advantage traditional corporate stakeholders: shareholders, employees, communities, customers.
We also see that business leaders will prioritize moral truths, such as the sanctity of life and the benefits of transparency, ahead of short-term profits. They may be doing so in response to a perceived leadership void in the public sector. Regardless, their willingness to act for a common good, is a mark of their ethical leadership practice, just as it was in Tyler’s Shultz’s case.
We all fill many roles in our daily lives—family member, employee, citizen, human being. Sorting out the hierarchy of interests we must protect in each role is the work of personal leadership we do every day. A case like Theranos gives us one lens to look through, a lens that reinforces the power of healthy, strong relationships in all walks of life and the wisdom of investing in them in business and in life.