How the blood-testing start-up failed on governance and disclosure
As a product of the 1970s, I remain fascinated by the movie, Jaws and the ability of sharks to detect blood in the water up to several hundred meters away. Similarly, Theranos and its high-profile founder, Elizabeth Holmes, boasted of technology that was able to process more than 304 tests from just a few drops of blood.
Who would have thought a few drops of blood could have resulted in such destruction? Clearly, not Holmes. What started out as rumors of questionable technology, internal employee strife and issues related to its partnership with Walgreens culminated on July 8, 2016 when the Centers for Medicare and Medicaid Services revoked the certificate of Theranos’ California lab and banned Holmes from owning or running a lab for a minimum of two years.
As a long-time IR professional, I have a simplified view of business: if a company – regardless of whether it’s a public or private company – sources outside capital, it has an obligation to transparently communicate with its investors. In the case of Theranos, as a result of having raised a significant amount of money (approximately $400 mn) and attaining a $9 bn valuation, Holmes should have held herself (and been held) to the highest standards of honesty, transparency and consistency in communications.
For me, the issues surrounding Theranos are two-fold: Holmes believing her own press clippings, and management’s overall lack of disclosure. For the better part of a decade, Holmes was a media darling and active participant on the corporate speaking circuit. For a while it seemed like a day didn’t go by without her appearing on the Today Show or CNBC or being featured in Forbes or Fortune. And let’s not fool ourselves: she was a great story going from Stanford dropout to the multi-billionaire CEO of a revolutionary healthcare company.
But when taken to task about a variety of purported issues within the company, instead of addressing concerns and questions head-on, Holmes was known for stonewalling. While I am sure she has been well counseled by her legal representatives, I’m afraid she has dug a hole she is unlikely to exit intact.
From my perspective, Theranos has been a tremendous failure in terms of disclosure. As a company that was destined to one day list on a major exchange, management and its advisers dropped the ball. And therein lies the challenge for Theranos: to stem the flow of blood and regain stakeholders’ trust in its technology, its management team and its ability to execute its business plan.
While it’s way too early to know how this story ends, for the sake of the company and its investors, I hope the Theranos story sequel is better received by audiences than Jaws 2.
Jeffrey Goldberger is managing partner at consultancy KCSA Strategic Communications