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POV: Justice served for Elizabeth Holmes, but what about Theranos’s board?

The board of directors at Theranos failed to govern the compliance function, which ultimately contributed to the company’s downfall.

POV: Justice served for Elizabeth Holmes, but what about Theranos’s board?

[Photo: Philip Pacheco/Getty Images]

BY Fast Company Staff3 minute read

With Elizabeth Holmes having reported to federal prison this week, the story of Theranos is now a footnote in the history of founder fraud. 

There is no doubt that Holmes’s fake-it-until-you-make-it startup ethos went too far and crossed the line. What hasn’t been discussed enough during or since the Theranos trials is the egregious failure of the Theranos board of directors to govern the company. 

It’s not like they were out of their element here. This snapshot of the Theranos board is a perfect capture of not only a moment in time for a startup that promised to change the world but also of the gravitas of the people involved with the business. 

While Holmes and former Theranos COO Sunny Balwani were held to account for their actions, the board of directors escaped any criminal liability. Any rational historic retrospective of Theranos would hold that the board should have been held liable just as the company executives.

The board of directors at Theranos failed to govern the compliance function, which ultimately contributed to the company’s downfall. The board should have ensured that the company was operating within legal and ethical boundaries. However, it failed to do so, which allowed Holmes and Balwani to perpetrate a massive fraud on the public for several years. 

For example, in operating its lab, Theranos went months without a director, which violated licensure requirements. When Theranos eventually appointed a lab director, it was a dermatologist who was not actually qualified to run a clinical laboratory and was mostly an absent figurehead. 

The board also set up an ethics hotline that was not independent and did not provide adequate protection for whistleblowers. Crucially, it also had an obligation to ensure the company was operating in a legal and ethical manner.

The board should have been aware of what was happening within the company and taken action to prevent it.

There are plenty of lessons here for future corporate directors to digest. Specifically, directors in the medical and high-tech industries can learn several lessons from the Theranos debacle. 

It is imperative to put in place and maintain governance structures and internal controls to facilitate accuracy in financial statements and marketing claims. According to several sources, Theranos’s board of directors failed in this regard. 

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Directors must also be engaged overseers who understand, in significant detail, how the company’s technology works; this is the essential obligation of a board member. 

Finally, directors must foster a strong culture of compliance rather than allow management to have it be an afterthought. This is why we have boards—they are supposed to take care of the high-level governance work while the founders stay deep in the weeds of operating the business.  

Back to the list of directors. There is no rational argument to be made that a list of such accomplished individuals, all of whom voluntarily joined the Theranos board, were out of their depth in the role. 

This all plays into this deeply flawed narrative that drove the Holmes prosecution: that a 19-year-old Stanford dropout was able to dupe some of the most accomplished investors in the world. If we buy into that logic, it should have been criminal that we didn’t spend a lot more time questioning the responsibility of the Theranos directors, whose actions and inaction surely fueled any fraud. 

We expect corporate directors in the tech world to be engaged overseers who understand exactly where the line is between the company’s technology capabilities today and where it might be one day if a lot of things go right. 

If Theranos is ultimately a really sad story of lives and ideas gone wrong, we should return to this story to wonder how things could have been different had the corporate directors met their responsibilities and fostered a strong culture of compliance.


A Pulitzer Prize-nominated writer, Aron Solomon is the chief legal analyst for Esquire Digital and the editor-in-chief of Today’s Esquire.

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