Business People and Community

Theranos trial highlights the dark side of leadership

The high-profile fraud trial of Theranos startup founder Elizabeth Holmes exposes a shadow side of leadership that undermines healthy workplace culture, according to Linda Neider, chair of the Miami Herbert Business School’s Management Department.
Elizabeth Holmes leaves the United States Federal Courthouse in San Jose, Calif., Wednesday, Sept. 8, 2021. Her company Theranos failed in 2018, a few years after a series of explosive stories in The Wall Street Journal exposed serious flaws in its technology and spurred regulatory investigations that shut down the testing. (AP Photo/Nic Coury)
Elizabeth Holmes leaves the United States Federal Courthouse in San Jose, Calif. on Wednesday, Sept. 8, 2021. Photo: The Associated Press

Once the poster child for Silicon Valley entrepreneurship, Elizabeth Holmes appeared on the covers of Forbes, Fortune, and Inc., and was selected one of Time's “100 Most Influential People.” As the CEO and founder of Theranos, a health technology company, she became the youngest self-made female billionaire. Holmes raised millions of dollars from investors around the country and stocked her board with powerful magnates in pursuit of her dream to create a portable blood-testing machine that would eliminate the need for laboratories.

The dream and company dissolved in 2018 when the Centers for Medicare and Medicaid CMS revoked Theranos’ license to operate, and allegations spread that Holmes had intentionally misled investors and patients as to the viability and veracity of the technology. Her trial for wire fraud launched last week, and she faces 20 years in prison. Her defense appears to rest in large part on convincing jurors that she was the victim of psychological, emotional, and sexual abuse perpetrated by Ramesh “Sunny” Balwani, her former COO.

“Elizabeth Holmes is a fascinating case study of charismatic leadership gone wrong,” said Linda Neider, chair of the University of Miami Patti and Allan Herbert Business School’s Management Department. “She possessed many of the classic characteristics that we normally associate with charismatic leaders—a captivatingly optimistic vision of the future, an exceptionally high confidence level, and adept communication skills marked by the ability to modulate her voice and mesmerize others with her piercing eye contact.”

Neider, the current chair of the University Faculty Senate, pointed out that at just 22 years old, Holmes managed to convince an impressive group that included Channing Robinson, her former professor at Stanford University, and an all-star list of board members—politician Henry Kissinger, economist George Schultz, and former secretary of defense James Mattis, among others—to buy into her vision that she would change the world of health care.

What went wrong? 

“Her excessive optimism and early successes convincing people like [former CFO Henry] Mosley, [former head of software Tim] Kemp, and others to be part of her team, led to a strong belief in her own invulnerability,” Neider said. “Although she did not have the deep knowledge necessary to truly understand the engineering requirements behind creating a miniaturized blood analyzing system, she began to believe her own hype.” 

Neider noted the “outstanding research” in journalist John Carreyrou’s book, “Bad Blood,” in which he demonstrates that Holmes displayed characteristics of a narcissistic personality disorder. 

“As a negative charismatic leader, Holmes sought to do whatever was necessary to cover up design flaws and preserve her power and image as a visionary,” Neider said. “She rejected and hid information that was inconsistent with the success she needed and the adulation she craved. Sadly, her obsession to cover up serious flaws in her design put people’s lives at risk.” 

According to Neider, Holmes’ lawyers will have little success if they suggest that their client simply followed the norms of other Silicon Valley leaders.

“It’s very difficult to take a broad brush and generalize about the culture or leadership styles in Silicon Valley or in the high-tech field, in general,” she said. “However, if Holmes’ defense tries to make the case that ‘this is just how Silicon Valley works,’ it will certainly be a weak strategy.” 

Neider listed a cadre of Silicon Valley CEOs—Jeff Wiener, LinkedIn; Pat Gelsinger, formerly of VMWare and recently appointed at Intel; and Shantanu Narayen, Adobe, Inc.—who have cultivated healthy workplace cultures that hire the very best, give employees challenging goals with the resources necessary to succeed, share information, create climates where ideas can be expressed without fear of retribution, and develop ways to reward success.

She contrasted the cultures at those companies with the one at Theranos. As the company spiraled downwards, “a culture in which fear, intimidation, and turnover were the norms.”

Neider referenced a Gelsinger article on leadership style in which he notes that a culture must be developed where teams feel comfortable enough to express divergent viewpoints. “Clearly that was not the case at Theranos, where teams were not even allowed to communicate transparently, let alone raise issues that might go against what Holmes hoped to hear,” she said.

In “The Inventor: Out for Blood in Silicon Valley,” a 2019 HBO documentary, Holmes attempts to cast the blame for the company failings downstream. “We didn’t have the right leadership in our labs,” she told a critic.

“Although part of the Holmes’ defense will certainly be that she was under the spell of Balwani, the reality is that he did not even join Theranos until 2009,” Neider pointed out. “The massive firings, IT surveillance, silos, and most importantly, deceptions about the progress of the product were already part of the culture—a culture totally created by Holmes as CEO,’’ she added. 

“Leaders clearly set the tone for an organization’s culture. Employees look to the leader for guidance—in terms of what they say and what they do—to learn more about what is valued and what is not within an organization,” said Neider, who served as the director and developer of the business school’s M.S. Leadership Program.

“A leader may develop a vision statement claiming to value ‘people’ and ‘innovation’, but if employees are fired for speaking their minds or expressing views that differ from those at the top, this sends a very different message about what is valued,” she explained. “The best organizations develop internal systems—rewards, communications, and structures—to reinforce core values.”

Tyler Shultz and Erika Cheung, Theranos employees in 2013 and 2014, respectively, were the whistleblowers that outed the alleged fraudulent practices. Shultz is a grandson of George Shultz, a former secretary of state who served on the Theranos board.  

Given the widely publicized abuses in government and in business—such as that of Holmes and Theranos—the Miami Herbert Business School has committed to encouraging principle-centered leadership and to exposing students to practices that will prompt them to lead with integrity when they enter the professional world, Neider pointed out.

“Many of the courses students take throughout the curriculum utilize cases or experiential exercises that highlight how to use influence and power wisely,” Neider said. “Starting with our first-year students, we encourage collaboration within teams, understanding the diverse interests of multiple stakeholders, being transparent, and acting in ways that are consistent with one’s values.”