Leadership Style and Downfall: The Case of Elizabeth Holmes and Theranos Inc

Question

Task: How did Elizabeth Holmes' leadership style contribute to the rise and fall of Theranos Inc., and what ethical, legal, and regulatory issues played a role in the company's downfall?

Answer

Introduction:

The assignment critically analysed the leadership style of the founder and CEO of Theranos Inc. Company, Elizabeth Holmes, and it also critically discussed the firm's performance under the leadership of Elizabeth Holmes as founder and CEO. Theranos Inc. was considered as one of the breakthroughs in Health Technology Companies. Elizabeth Holmes founded the company in 2003 at the age of 19. By 2014, the company had raised more than $400 million, and the company is valued at $9 billion (watchdocumentaries.com2019). In 2016, the net worth of the company was $800 million. The assignment also discussed the risks and ethical and legal issues associated with the firm and the reason behind its failure.

Critical evaluation of management and leadership style of Elizabeth Holmes:

Patrick (2022) stated that Elizabeth Holmes founded a breakthrough and innovative health technology company in 2003 at 19 years old with the vision of creating an innovative blood test technology which required small amounts of blood from the human body to detect any disease accurately and rapidly. The main vision of Elizabeth Holmes was "More people should have access to their own health information, and fewer people have to say their last goodbye too soon to their loved ones". Based on her perception, the right to protect the health and well-being of every person is a basic human right of a human being. According to Patrick (2022), Elizabeth Holmes's communication was unprepossessing and ingenuous when communicating about a topic other than diagnostic testing. However, she became intense and focused while communicating about the mission and business. She always focused on gathering all facts related to the business to convey the proper information and data to other people regarding the business of Theranos Inc. According to the opinion of Patrick (2022), the article claimed that Elizabeth Holmes, founder of Theranos Inc., may be a fraud; however, Holmes knows the psychology of leadership. In 2003, the medical lab industry was dominated by two companies named quest and Labcorp, and they controlled 80% of the market. The blood test processes of these companies were always high and never transparent. Diagnosing the disease from different blood testing techniques became challenging for those companies (watchdocumentaries.com2019). In this stage, Holmes introduced the automated device "The Edison" with extraordinary facility. Holmes is never a minute a late while developing decisions. She doesn't want to show any type of excitement, and she always focuses on business. Holmes was not an impulsive person, and she had the knowledge of every outcome for every encounter the company met. Holmes didn't hesitate to constantly make decisions and change all decisions as per the requirement.

High convincing power:

Fernandez (2022) found that Holmes was always successful in convincing wealthy people, including the media empire Rupert Murdoch to invest in the company. The media empire Rupert Murdoch also claimed that this degreeless and turtleneck-jumpered female entrepreneur had an intuitive understanding of business psychology and had deep leadership insights.

Decisive, punctual and directive:

Punctual, directive and decisive are the best leadership quality which describes the leadership style of Elizabeth Holmes. The main rule of Holmes was to eschew all excitement. Holmes always revolutionised the entire healthcare system, and she always focused on strictly controlling her emotions to manage the staff, gave interviews and convinced billionaires to make investments in the company. She always focused on creating an aura of control. She spends all her time at the office from when she wakes up and then works until going to sleep every day.

Robotic nature:

Malone, (2021) stated that Many critics claimed Holmes was a Robotic. Holmes probably just slept for an hour, and she was always ready to give all the outcomes and circumstances of every encounter, and the media of the US called her as mechanical and robotic. Holmes's high communication ability helped her be friendly and flexible with her subordinates (Malone, 2021). According to Fernandez (2022), Holmes always focused on listening to all the facts and issues of her subordinates and didn't hesitate to take control of any mistake. It helped her build a strong and loyal relationship with her subordinates. It helped her to uncover all information and facts regarding the daily operations of the company from the employees.

Business Commentary skills:

Murphy (2021) found that the most counter-orthodox skill of Holmes was to keep quiet and speak as per the requirement because she believed that too much communication and interrogation make staffs confuse (Murphy, 2021). It is necessary to have a gap between words and actions to help build loyal relationship bonds with employees.

Team building skills:

As stated by Macmillan (2023), Holmes always focused on being an honest and transparent team leader for her employees. She believed that honesty is the best way to control employees, motivate and inspire them to do their best for the company and share the issues with their leaders for prompt action and improve the organisation's productivity (Macmillan, 2023).

Smith (2019) stated that her leadership style can be considered as a charismatic leadership style. The captivating optimistic vision for the company's future, exceptionally high self-confidence level, and convincing communication power with others and ability to modulate her voice to mesmerise employees and other people with powerful eye contact represented her as a charismatic leader. The main strength of her management and leadership ability is to understand the public perception regarding her blood testing technology, attract skilled and talented people for the company, attracting and convince investors and advocates to raise the valuation of the company. Holmes had the high capability to create strong connections and establish strong networks for the company based on her intelligence and intellectual power in health technology to boost the company’s credibility.

However, Macmillan (2023) stated that her involvement in unethical activities that led to civil and criminal charges against her activity and the dissolution of the Theranos Inc. company. Narcissism is another personality of Holmes. Narcissism personality helped her to motivate her own encouragement to achieve individual desires, gains, praise and admiration to engage in new initiatives. As found by Murphy (2021), she relentlessly tried to achieve her vision of developing innovative blood testing technology for years. However, personality of narcissism became a weakness for Holmes when Holmes only focused on individual gains that drove and forced her to ignore recommendations from other higher authorities of the company to rectify the issues of the blood testing technology.

Critical analyse of impact of Elizabeth Holmes’s leadership in relation to the performance of the business:

Murphy (2021) also claimed that The Company developed a compact automated device which required small amounts of blood and performed more rapidly and quickly than the traditional blood testing system to detect any disease and inform the person about the condition of health and well-being. Under the leadership of Elizabeth Holmes, Holmes obtained the first contact for her business from Stanford University. As stated by Malone (2021), It helped Holmes make important health technology related connections through a Professor of Stanford Universityand introduced her to major people with good health technology knowledge. It helped Holmes make a positive reputation for the company and build her credibility. One of the strengths of Elizabeth Holmes was her positive brand image (Malone, 2021). According to Dundeset al. (2019),the story of building Theranos Inc. Company was compelling. Holmes's visionary and scientific genius personality and the decision to drop out of the university and establish a company to develop an innovative health technology facility for others worldwide. Holmes adopted many leadership attributes of Steve Jobs. As stated by Ho (2021), Holmes always wore a black turtleneck dress to make her look more sensible to people. Holmes communicated with her employees with a deep and low voice. Holmes's unblinking and large eyes made her look more passionate, committed and success driven. Holmes's hard-working personality and the routine of working for 16 hours a day helped the company to rise in its first year in 2004. The company was able to raise fund more than $45 million in 2006. In the visionary leadership of Holmes, the company developed an automated and miniaturise device for blood tests using microscopic blood volumes. According to Williams (2022), The Company dubbed its blood collection vessel as a "nanotainer" and called its analysis machine as The Edison. Moreover, her charismatic promotion of Holmes' blood testing technology helped her get support for the company’s blood testing facility by sharing personal and relatable stories with audiences (Williams, 2022). Elizabeth Holmes always recounted her relatives' stories who died at a younger age because of skin and brain cancer. She claimed that her company offers relatively quick and cheap blood testing facilities to detect cancer earlier to save the life of people across the world. In many seminars, interviews and public gatherings, Holmes claimed that Theranos Inc. Company's blood testing technology requires a small amount of human blood to perform multiple blood tests which make the system easy. This technique of business commentary skills and stories made blood testing technology of Holmes more understandable and useful for people. Holmes believed that the successful launch of this blood testing technology facility would help in getting praise and admiration from health practitioners, the scientific community, governments and consumers to address the health problem in the initial stage. However, her narcissistic personality of Holmes creates a misunderstanding between her decisions and other recommendations to focus on rectifying and modifying the accuracy issues of the analysis machine "The Edison", which increases the issue of misrepresentation of blood tests of people based on the result of blood testing technology that led to the fraud case and also misrepresented the value of the company to attract investors. She always guarded her business trade secret intentionally and fervently and prevented scientific examination and reviews of her blood testing technology. Under the leadership of Elizabeth Holmes visionary and charismatic leadership qualities of Holmes helped her and the company to experience the first stage of the "Arrogance nature of personality due to achieve huge success". Based on her strengths in personality, she was able to build her credibility, a hugely positive reputation for the company and huge and widespread acceptance of the blood testing technology facility. It led to hubris and the company's second stage, "Undisciplined and unethical pursuit of getting more success and advantage". Holmes widely distributed the blood testing technology for their clients despite of having inaccuracies in the report. It leads to the third stage of the company, which is considered as a "Denial of peril and risk". Peiris and Ulluwishewa (2022) found that in this stage, Holmes amplified the value and worth of the company for attracting large investments from big investors from 2013 to 2015, and Holmes also fired people who raised their voices against the questionable tactics of Holmes. It led to the fourth stage of the company, "Trying for escape and relief". In this stage, in 2015, the CEO, Elizabeth Holmes, reorganised the management board and hired and brought reputable and skilled members to boost the company's credibility and avoid the irregularities in making business reports. In 2018 the company entered into the last stage, "Surrender to death", which happened with the dissolution of the Theranos Inc. Company.

Critical evaluation of risks, ethical and legal issues of the Theranos Inc. Company:

Apart from having charismatic and visionary leadership qualities, Holmes crossed all ethical boundaries. According to Dal Bo and Xu (2021), The unethical behaviour of her and the company had increased the effect on the community. In the first stage, Holmes ignored the confirmation bias and also prevented the scrutiny of the blood testing technology through the scientific method. She always tried to protect blood testing technology. Brundin and Ekblad Voltaire (2023) stated that the blood testing technology of Holmes appeared to be sensible when the patent regarding the analysis machine "The Edison" was unclear to clarify how much amount of blood "the Edison" is required for conducting all blood tests (Brundin and Ekblad Voltaire, 2023). In one section of the patent, it claimed that the sample needed 10 drops of blood; in another, it claimed it needed less than one drop of blood. As found by Jeske (2020), The entire technology of "The Edison" was criticised for not having "peer-reviewed" reviews. Scepticism regarding the analysis machine increases due to a lack of external scientific review and internal evidence of the technology. The strategy of firing the people who raise their voices against her unethical behaviour also creates distrust, low morale and dissatisfaction among employees within the company (Jeske, 2020). As stated by TALA KHALIFEH (2022), Secondly, Elizabeth Holmes put the life of their customers at risk by concealing and disregarding laboratory reports regarding the accuracy issues of the "The Edison". As stated by Dal Bo and Xu (2021), It has been identified that laboratory employees of the company also claimed that the accuracy report of "The Edison" was low, leading to false blood test reports. Apart from having these issues, Holmes ignored and disapproved of this scientific evidence regarding "The Edison" and also fired the people who disapproved of the decision taken by Holmes.

Boni and Sammut (2019) found that, In 2015, the American Medical Association claimed that Holmes created a fake lab and concealed the true operating conditions of the lab for the tour of the Vice President to boost credibility of Theranos. Macmillan (2023) found that The wall street journal reporter John Carreyrou also claimed that the company was using the method of traditional blood testing process and machines instead of their innovative device "The Edison" to run the blood tests because the machine might provide inaccurate results. However, the company also claimed that all the allegations regarding the company were scientifically and factually erroneous. According to Trautmanet al. (2022),In 2016, the Centers for Medicare and Medicaid Services also suspended the blood testing technology of Theranos due to inaccuracies in the blood test report. It has been defined that regulatory loopholes increased the opportunities for Elizabeth Holmes to ignore and break the regulation for years. As stated by Macmillan (2023), The CEO sought approval to categorise "The Edison", the blood testing technology, as a Laboratory Developed Test because the LDT is exempt from the regulation developed by U.S. Food and Drug Administration. As stated by McGinn (2022) After amendments to the laboratory development procedure under the "Clinical Laboratory Improvement Amendments of 1988" in 2014 and 2015, the FDA alleged multiple violations on "The Edison" and claimed that the company needed to meet the performance standards and use special labels before using it in the market. According to Gandolfi and Stone (2022),In 2018, the U.S. Securities and Exchange Commission also filed civil fraud charges against the company. It claimed the company and the CEO had engaged in a "fraud" for years, and also the CEO deceived the investors and forced them to believe that the portable blood analyser "The Edison" could conduct the blood tests using the small portion of blood (Gandolfi and Stone, 2022). The Government also claimed that Holmes was involved in a conspiracy to commit the wire fraud. They alleged that the CEO was aware of the inaccuracy and unreliability of its products but ignored that information. In 2021, the Federal prosecutors also accused Holmes, and other executives are destroying the evidence of the company's final days of business. Faktorovich (2019) stated that the defrauding case by Holmes created ripple effects on the health start-up companies. In 2018, the company was forced to stop all the business operations and release all its business assets and remaining business cash to investors and creditors.

Conclusion:

The overall analysis concluded that the unethical actions of Elizabeth Holmes led to the shutdown of the company. Moreover, the regulatory loopholes allowed her to easily operate these illegal and unethical operations. The strongest trait, narcissism, helped her to meet her desire and reach her company as a disruptor in health technology with the help of a huge investment. Her convincing power helped create a positive image of the company and build a strong network. However, this personality became the reason for her downfall by involving her in unethical behaviour. Holmes failed to lead her company and employees to achieve the finishing goal of the company. Effective leadership is all about maintaining transparency, facilitating the exchange of information with each other and motivating the employees to contribute their best for the company's interest. However, the defrauding case against Holmes led and forced her to stop all the operations of the company and return all the assets to investors.

References:

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