When culture goes wrong: the Theranos story

What’s the real impact of a negative culture?

If you’ve experienced one yourself, this question will be easy to answer. But if not, it’s hard to pin down.

I find that people learn best through stories. You might know this one already, and it sits at the extreme of what can happen, but extremes are often instructive. So allow me, if you will, to recount the tale of a company called Theranos.

The idea behind Theranos was admirable. 

Founded in 2003 by Elizabeth Holmes at the age of just 19 with a goal of making blood tests cheaper, more convenient and more accessible to consumers, the company aimed to develop a device that could run hundreds of tests on just a fingerprick’s worth of blood. The boldness of this vision combined with Holmes’ persuasiveness attracted the attention of investors and industry partners, funding flooded in and by 2014, Theranos was valued at $9bn, making Holmes the youngest self-made female billionaire in the world, with commentators comparing her to visionary figures like Steve Jobs. 

From the outside, the company looked solid and credible, establishing high profile partnerships with the likes of Walgreens and an all-star board of directors including former US cabinet ministers and investors like media tycoon Rupert Murdoch.

In hindsight, there were plenty of red flags. 

Theranos operated under extreme secrecy and the close watchful eye of Holmes and COO Ramesh “Sunny” Balwani, with information silos the norm within the company and those in the labs physically separated from each other. Dissent was not tolerated, even when driven by genuine scientific rigour - even C-level executives weren’t exempt, with early CFO Henry Mosley summarily dismissed and branded as “disloyal” after discovering that a product demo provided to Novartis had been faked.

The demand for unquestioning loyalty led to unethical practices. Data was cherry picked and manipulated, and if experimental or test results didn’t match expected outcomes, they were redone repeatedly until they did. Proving Holmes right was valued much more highly than following the science. When employees did speak up, they were pursued aggressively with legal action. Stress, alienation and ethical turmoil became the price of working at Theranos for all who got a glimpse behind the curtain.

Inevitably, Theranos’ culture led to major regulatory issues and legal consequences. The distinct unwillingness to listen to the concerns raised by staff meant that the company failed to address fundamental flaws in their technology. 

In 2015, the Wall Street Journal ran an exposé on Theranos after being tipped off by the few whistleblowers brave enough to raise the alarm, and this was followed by a federal investigation. The Centers for Medicare & Medicaid Services declared findings so severe that Holmes was banned from owning or operating a clinical lab for two years, Theranos’ lab license was revoked and the company was ordered to re-run tests and issues tend of thousands of corrected reports to patients, effectively acknowledging that their technology had never been reliable.

The water only became hotter, and in March 2018 the US Securities & Exchange Commission charged Theranos, Holmes and Balwani with “massive fraud”, which led first to Holmes giving up most of her stock, paying a penalty and agreeing not to lead a public company for a period of 10 years, then to indictments on counts of wire fraud and conspiracy to commit wire fraud. 

Theranos ceased operations and dissolved in September 2018, but the story didn’t end there. In January 2022, Elizabeth Holmes was found guilty on four counts of defrauding investors and was later sentenced to 11 years and 3 months in federal prison. Ramesh Balwani was convicted on 12 fraud charges and sentenced to nearly 13 years in prison.

In total, Theranos raised $724m from venture capitalists and private investors over its lifetime, who lost more than $600m when the company collapsed. Walgreens’ partnership with Theranos led to them investing $140m into the business and into building wellness centres based around the technology in their stores, and Safeway spent $350m building in-store clinics for Theranos testing which never opened. Patients were given a raft of false and missed diagnoses, leading to escalating health conditions that were left untreated, emotional stress and significant personal costs from unnecessary treatments. Employees of the company were left psychologically scarred and practically unemployable.

Theranos’ culture was built over time through small actions and behaviours that compounded to become massive corporate fraud. Left unchecked, a toxic culture can lead to consequences of a similar scale in any organisation, especially when amplified by success. 

What can you do today to check in on yours?

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