HRM Five: Toxic leadership lessons from Theranos

If you're looking for advice on how to be a terrible leader, the founder and CEO of US company Theranos is here to help.
By: | September 16, 2018

HRM Five offers  important pointers on everything you wanted to know about HR practices today, but were too afraid to ask. Check out previous editions of HRM Five here.

 

At HRM Asia’s Future of SME Workforce Congress 2018, one HR practitioner brought up the subject of governance in her organisation. The company had established committees, she explained, where employees were given the opportunity to weigh in and question decisions made by senior leadership. “Our management is not afraid of questions – they welcome them,” she said.

This sentiment struck me because it was so markedly different from something I had recently read in Bad Blood: Secrets and Lies in a Silicon Valley Startup, written by Wall Street Journal’s John Carreyrou. In this book, Carreyrou outlines the rise and fall of a US company called Theranos.

As recently as three years ago, Theranos was claiming that it had created a disruptive new technology that could run hundreds of laboratory tests on just a single drop of blood.

Investors pumped hundreds of millions of dollars to help Theranos scale up, and the “technology” was even rolled out for patient use across dozens of pharmacy stores.

But, as the book explains, the whole company was a sham. The tech simply did not work.

To keep that a secret from investors and the public, founder and CEO Elizabeth Holmes was reportedly ruthless in enacting an office culture of fear, paranoia, and secrecy.

Concerned employees went on to file complaints with federal regulators (or spill the company’s secrets to Carreyrou), and Holmes has now been charged with criminal fraud.

However that pans out, here are just a few of the many leadership lessons to be learned from the story of Theranos and Elizabeth Holmes:

 

1. Embrace critical-thinking and questioning from employees.

Bad Blood highlights the experience of multiple workers who became concerned with the company’s unethical, and sometimes illegal, practices. These workers were frequently ostracised and/or terminated (sometimes immediately).

Companies can no longer fudge their ethics in favour of profits – not that this was ever morally sound to begin with. But employees these days, especially those from the so-called millennial and Gen Z generations, want to be part of a company that does good and gives back to society. (Though, ironically, this is exactly what Theranos, when facing investors and customers, purported to be doing.)

It’s also worth pointing out that great innovations have frequently come about because people questioned the status quo, and set out to disrupt the established way of doing things.

 

2. Your company is not a cult.

After a series of resignations from employees who became disillusioned with the company’s unethical and illegal operations – which would have implications for the patients who were using their blood tests – Elizabeth Holmes called a town hall meeting in which she declared that “she was building a religion”, and that anyone “not prepared to show complete devotion and unmitigated loyalty to the company” should leave immediately. But this sounds like a cult.

As noted by Hubspot CEO, Dharmesh Shah, there is a distinction to be drawn between “toxic cults” and “strongworkplace cultures”. Cults can provide a sense of community, certainly, but they also frequently demolish individualism — because, above all things, they are about “subjugation and subservience“.

That brings us to our next point…

 

3. Employees are not your indentured servants.

Carreyrou writes that Sunny Balwani, the number two executive at Theranos, expected employees to “be at his disposal at all hours of the day or night and on weekends. He checked the security logs every morning to see when they badged in and out. Every evening, around seven thirty, he made a fly-by of the engineering department to make sure people were still at their desks working.”

There are many leaders who want to suck every last bit of energy and productivity out of their employees, but the first mistake with this approach is that it treats people as slaves.

The other problem is that even if your employees work 80 hour weeks at the office, they are not necessarily producing 20 hours of productive work: in fact, putting it more than 50 hours a week is likely to make a person less productive.

 

4. Integrity is one of the most important traits a leader can demonstrate.

Elizabeth Holmes, for all intents and purposes, did not seem to act or lead with integrity. She told “outright lies more than once”. One employee, after five years at Theranos, is described as “no longer [trusting] anything she said”.

This filtered down to the rest of the organisation, leaving another worker “troubled by what he saw as a culture of dishonesty at the company”.

An executive’s integrity can determine their success. Integrity came up in my own discussion with PSA’s Regional CEO for Southeast Asia, Ong Kim Pong, who highlighted it as a key trait he looks for in the next generation of leaders.

Indeed, former US president Dwight Eisenhower once made a statement that affirms this notion: “The supreme quality for leadership is unquestionably integrity.”

 

5. A culture of communication & transparency is better for everyone.

Employees would frequently turn up at Theranos and realise that their colleagues were gone. They would joke, bleakly, that said colleagues had been ‘disappeared’. This is a colloquial phrase generally used to refer to someone who has been murdered, perhaps by ‘the mob’ or some other equally shadowy organisation.

Even when one employee had outwardly provided a perfectly legitimate reason to leave the company – in this case, to move to another city to be with her partner – Holmes allegedly still did not allow her to “say goodbye to her team and to tell them why she was leaving”. The employee had to sneak off immediately, almost like a thief in the night.

Such actions will inculcate uncertainty and confusion among employees, and result in them feeling disengaged from work, rather than motivated to help the company achieve its goals.