Oct 10, 20214 min read

BAD BLOOD

by John Carreyrou.

A leader without integrity will ultimately fail

This book presents a fascinating account of a real-life story that is still unfolding. It involves a cast of characters so unique and events so beyond the norm that it is not an exaggeration to say that they are probably beyond the imagination of even the best fiction writers. The story is about the rise and fall of the company Theranos, founded in 2003 by the 19 years old Stanford Dropout Elizabeth Holmes. The company’s objective, which it later falsely claimed to have achieved, was to revolutionize blood tests by only requiring very small amounts of blood taken by finger stick; and the tests could be performed and the results obtained very rapidly using small automated devices developed by the company. Holmes was CEO and she ran the company with her boyfriend Sunny Balwani, who had the title President. Although not learning much about science, engineering or medicine during her two years at Stanford, her charm, ambition, and deceit were able to raise hundreds of millions from venture capitalists and private investors. She was also able to persuade experienced executives of established businesses to partner with her company, including the CEO of Safeway and the Board of Directors of Walgreens. She convinced famous political and military names to serve on Theranos’ Board of Directors, including former Secretaries of State George Schulz and Henry Kissinger, Four Star General James Mattis, former Senator Sam Nunn, to name but a few. Although dropping out in her second year, her former Stanford Chemical Engineering Professor Channing Robertson stated in an article about Theranos and its CEO: “You start to realize you are looking in the eyes of another Bill Gates or Steve Jobs.” When Fortune Magazine’s legal correspondent Roger Parloff talked to Shultz and Mattis about Elizabeth, Shultz said: “Everywhere you look with this young lady, there’s a purity of motivation. I mean she really is trying to make the world better, and this is her way of doing it.” Mattis went out of his way to praise her integrity: “She has probably one of the most mature and well-honed sense of ethics – personal ethics, managerial ethics, business ethics, medical ethics that I’ve ever heard articulated,” Kissinger told New Yorker journalist Ken Auletta that Holmes had an "ethereal quality." "She is like a member of a monastic order," It is perhaps fortunate for America that the Soviet Union/Russia did not have a charming person of similar caliber capable of misleading folks in high positions in the U.S. Government. While Elizabeth was perhaps the ultimate person of authority in the company, Sunny was mostly in charge of running its everyday operation. Their leadership style included: demanding complete loyalty, complete secrecy, intimidation, and deceit. According to the book, earning projections were not based on realistic estimates, inaccurate blood test results were not made known, machines designed in-house failed to work most of the time. Folks who raised doubts about the company’s operation were fired. Employees who could not live with the thought that patients may be harmed chose to resign. For more than a decade, the company was riding high. By 2015, Forbes had named Holmes the youngest and wealthiest self-made female billionaire in America on the basis of a $9-billion valuation of her company. The downfall began in October 2015, when the author of this book published a "bombshell article", detailing how the company’s Edison device gave inaccurate results, and revealing that the company had been using commercially available machines made by other manufacturers for most of its testing. Sanctions and other adverse actions by the Centers for Medicare & Medicaid Services soon followed, as well as a lawsuit filed by Arizona for violation of the Arizona Consumer Fraud Act. In 2016, Walgreens and Capital BlueCross announced a suspension of Theranos blood tests from the Newark lab. On June 15, 2018, Holmes and Balwani were indicted on multiple counts of wire fraud and conspiracy to commit wire fraud. Due to Covid-19, the trial of Elizabeth was delayed for a year. It began on August 31, 2021. Looks like the trial for Sunny would not take place until 2022. The ending of this saga is nowhere in sight. On September 4, 2018, Theranos announced in an email to investors that it would cease operations and release its assets and remaining cash to creditors after all efforts to find a buyer came to nothing. Most of the company's remaining employees had been laid off on the previous Friday, August 31. Perhaps all of this could have been avoided if Elizabeth had taken a course on Leadership before she dropped out of Stanford. The first thing one learns in Leadership 101 is: A leader without integrity will ultimately fail.