The Dark Lesson of Elizabeth Holmes’s Theranos Is That Corporate Bullying Works

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The Dark Lesson of
Elizabeth Holmes’s Theranos Is That Corporate Bullying Works

Elizabeth Holmes’s signature black turtleneck hide bruises? The
founder and chief executive of Theranos is preparing to stand trial for fraud and
conspiracy to commit wire fraud, and her defense will present Holmes as
the victim of Theranos’s second-in-command, Ramesh “Sunny” Balwani. The two had
 “an abusive intimate-partner
relationship,” according to a
court filing,
“in which Mr. Balwani exercised psychological, emotional and [REDACTED] over
Ms. Holmes.” The details of this abuse are similarly redacted in a ribbon of
blacked-out lines. Holmes is notoriously mendacious—it’s what she’s on trial
for—but we can’t assume these accusations, when we hear them, will be untrue. (Balwani,
whose trial will follow Holmes’s, denies it.) It wouldn’t
be the first time that a strong woman was terrorized by a male bully.True
or false, it’s doubtful Holmes’s claim that she was abused will bear much
relevance to the fraud charges. But the “Sunny Made Me” defense that Holmes has
settled on seems thematically appropriate, because the Theranos story is
more a cautionary tale about the terrifying efficacy of bullying than it is about
the sufferings of venture capitalists. In this narrative, however, it’s Holmes
who’s the abuser and her onetime employees who are the abused. The sad lesson
is that corporate bullying works.Holmes
is on trial for the harm she allegedly did to Theranos’s investors (and its
thankfully few customers, some of whom
sued successfully for damages). But
it’s difficult to feel sorry for a bunch of rich people who loved being told lies
until they didn’t. The real crime, as opposed to the legal one, is what Holmes
did to the people on her payroll who tried to tell the truth. Those bruises go
unmentioned in her indictment.The
first truth-teller, according to John Carreyrou’s authoritative 2018 book Bad Blood: Secrets
and Lies in a Silicon Valley Startup, was the company’s chief financial
officer, Henry Mosley. Theranos was developing a product that allowed people to
prick their fingers, squeeze a few drops of blood into a plastic cartridge
shaped like a credit card, pop the cartridge into toaster-shaped “reader,” then
beam the information necessary to analyze the blood to a medical professional. Mosley
was troubled to discover that a live demonstration of the product for the
European drugmaker Novartis was faked. One of two readers brought to
Switzerland for the demonstration didn’t work, so a bioinformatics team back in
California beamed in a counterfeit result.In
a private meeting, Mosley told Holmes, “We’ve been fooling investors. We can’t
keep doing that.” In Carreyrous’s telling, “Elizabeth’s expression suddenly
changed…. She leveled a cold stare” and said, “Henry, you’re not a team player.”
Holmes fired Mosley on the spot. Later, a false rumor somehow circulated within
the company that Mosley got fired for embezzlement.The
rest of the book repeats variations of that story over and over. Some
knowledgeable employee reports to Holmes or Balwani that the technology isn’t
working as advertised (it never did), and can’t seriously be expected to (it
never could; the engineering problem was that a few tiny drops of blood weren’t
sufficient to yield reliable lab results). That person gets frozen out and, nearly
always, fired. If that person tries to alert investors, or government regulators,
or the press, Theranos’s very aggressive legal team, led by
Theranos board member David Boies, threatens financial ruin.You
can argue that the fact that Theranos was finally caught out, and that I’m able
to relate all these details to you, demonstrates that corporations can’t bully
truth-tellers into silence forever; eventually the facts will out. Even if Carreyrou
hadn’t broken the fraud
in The Wall Street Journal, evidence that the Theranos product
didn’t work would have accumulated (probably at the cost of some lives).
Eventually the product would have been taken off the market.But
how long “eventually” might have been is hard to guess. Look at the chronology.
Mosley raised his alarm in 2006. Carreyrou’s first Journal piece about
the company wasn’t published until 2015. That’s nine years during which
it was impossible to state out loud that Theranos’s home blood tests were
garbage. Nine years during which Holmes became a darling of Sand
Hill Road and the business press, and Theranos’s
valuation climbed to $9 billion. Nine years when anybody who tried to alert the
public would get sued into oblivion.The
most painful personal story in Carreyrou’s book concerns Tyler Shultz, grandson to
George Shultz, the late secretary of state who died in February. The younger
Shultz met Holmes after his grandfather joined the Theranos board in 2011—Holmes
packed the board with establishment types like George Shultz and Henry
Kissinger who knew absolutely nothing about biomedicine—and Tyler went to work
at Theranos after graduating from Stanford. He noticed pretty quickly that the
blood tests, which were then starting to be marketed to the public, were
extremely unreliable. Balwani, he learned, was ordering employees to ignore
quality-control failures. Tyler alerted Holmes in an email that all was not
right at her company. Holmes didn’t reply, but Balwani wrote Tyler a
threatening email (“had
this email come from anyone else in the company, I would have already held them
accountable for the arrogant and patronizing tone and reckless comments”). In
response, Tyler quit. He later agreed to talk to Carreyrou.Tyler
also talked to his grandfather, who refused to believe him, prevailed on him to
sign a confidentiality agreement, then introduced him to a lawyer who handed
him a temporary restraining order. The resulting litigation cost Tyler $400,000 in legal fees.The Journal
published the Theranos story in October 2015, ignoring legal threats from Boies
and others. This is possibly the only story you will ever read in which Rupert
Murdoch, whose News Corp. owns the Journal, is a hero; printing Carreyrou’s
takedown cost Murdoch his $125 million investment in Holmes’s company.But ask
yourself: How many news organizations in the U.S. would have been in a
financial position even to consider publishing such a story? I count three or
four: the Journal (full disclosure: I’m a proud news-side alumnus), The
New York Times, The Washington Post, perhaps The Los
Angeles Times. Certainly not the TV networks or cable news channels.
Probably not the New Yorker, which had already puffed Holmes in a Ken Auletta
profile. Many news organizations can stand up to libel threats after a story
is published, but it’s the rare one that can withstand aggressive legal
bullying of the type Theranos brought to bear before a word was even written. Carreyrou
reports in Bad Blood that Theranos hired investigators who were able to
identify and intimidate multiple background sources for his stories. They stood
their ground, but that might well have gone another way, foiling Carreyrou’s
efforts to get the story into the paper.We now know
about Theranos’s bullying, and in that sense, of course, it failed. But what
about the bullying we don’t hear about? Holmes and Balwani and Boies and
Theranos didn’t invent the tactics they used to suppress the truth. We don’t
hear about this sort of bulllying much because it usually works. There are
plenty of ways to hide bruises besides wearing a black turtleneck.
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