The Holmes of Crisis: Magnifying Theranos’ Demise

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When corporations are in times of crisis, famed Public Relations Executive, Leonard Saffir once said, “In crisis management, be quick with the facts and slow with the blame.” Unfortunately for Theranos, that was not the case.

The disgraced blood diagnostic company was always shrouded in secrecy and was never transparent about how their products worked, which ultimately led to its demise. Their strategy was to be not be transparent about their products and fabricate lies to shareholders, in order to invest in their start-up.

Through the lens of crisis communication management, Theranos has failed to mitigate its crisis.

The Wunderkind Narrative 

Elizbeth Holmes always had a knack for being a billionaire. When asked about her career ambitions, a relative recalled that she wanted to be a billionaire, despite being the granddaughter of Charles Luis Fleischmann who is a billionaire himself. 

Her paternal grandfather was the founder of Fleischmann Yeast granted her with a lot of generational wealth. Therefore she was used to excellence and had a silver spoon in a mouth. You can say that her family had a talent for making dough and has a linage of being the breadwinners!

Undoubtedly, she was one of a kind. She has mesmerising blue eyes and a polished demeanour that can make anyone listen to her. She excelled academically and made it into Stanford.

She formulated an idea of Theranos when she undertook a biotechnology internship at the Genome Insitute of Singapore and was reportedly has an irrational fear of needles.

Her idea was to miniaturised blood testing and doing away the laboratories, whilst making the modernised blood draw accessible to the public via commercialisation. 

 The most significant selling point is in the miniaturisation of the blood cartridges, using less blood for the samples and the Edison machines’ efficiency, which run over 800 different blood tests. The Edison machines and the miniLabs would have inevitably replaced traditional Venous blood draws and blood tests produced in a lab.

She started to create a narrative to appeal to her shareholders, who look to her as being “the Silicon Valley’s Next Great inventor.” Aligning herself with the genius college dropout archetype, she set out to change the world with “ground-breaking” technology, which “will revolutionise the medical industry”.

She even changed her whole demeanour to suit the narrative. Theranos investors were some of the wealthiest businessmen and influential politicians who contributed to legitimising its vision. With the likes of the former U.S. Education Sectary, Betsy DeVos, Rupert Murdoch, News Corp founder and CEO, Walmart founder, Sam and Jim Walton, Theranos raised a hefty amount of money which roughly amounts to billion dollars.

(Right to Left) Henry Kissinger, George Schultz and James Mathis were some of the influential politicians who were part of Theranos boardmembers.

(Right to Left) Betsy DeVos, former Sectary of Education and Sam Walton, Founder and CEO of Walmart.

Holmes, herself was a celebrity in her own right. She named as “The World Youngest Self-Made Woman Billionaire’ and (dis)graced the cover of Forbes Magazine and Fortune Magazine, holding a miniaturised test tube.

Theranos was at a high when they secured a 50 million dollar deal with Walgreens in 2015. This deal has solidified Theranos’ status as a Silicon Valley disrupter and bought into the narrative that both investors and the media reinforced. 

The Tirade against the Wall Street Journal

Wall Street Journal’s John Carryou and CEO and Founder, Elizabeth Holmes

As the media glorify Holmes as the next ground-breaking inventor next to Steve Jobs, Thomas Edison and Albert Einstein, the Edison machines was a mess. John Carreyou’s Wall Street Article exposed the lies and charades that plagued Theranos’ image. There were several allegations:

  • Theranos has fabricated the Edison and miniLab test results and has used lab-tested results in its place. Carreyou recalled in his book, “Bad Blood” that one of the board members was on a site visit. To appear suitable to the board member, Holmes demonstrated Edison’s system to the board member. Theranos employee took out the tiny test tube and tested the lab’s blood before they put it back into the machine.
  • Theranos claims that they can run over 500 tests; however, according to the article, the machine can barely perform them. They only run less than 10% of the tests.
  • Although Theranos’ main selling point was the finger prick as a blood draw method, Theranos claims to diversify their strategies, so they decided to include the venous blood draws, which defeats the purpose of the finger prick draw.
  • According to The Securities and Exchange Commissions (SEC), Theranos has claimed that their Edison machines were deployed to Afghanistan in battle. “The U.S. Department of Defense deployed Theranos’ products on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014. In truth, Theranos’ technology was never deployed by the U.S. Department of Defense and generated a little more than $100,000 in revenue from operations in 2014.”

When the Wall Street Journal article’s allegations, Theranos’ response wrote a prompt but lengthy response to the article on October 15th 2015, denying claims and denounced the article, instead of addressing and taking ownership for allegations. Timothy Coombs, a well-known crisis communication scholar, stated that a company in times of crisis can employ different narrative frameworks to mitigate the situation. The most effective is “owning the narrative. “and admitting to their mistakes. However, Theranos’ situation, they did the complete opposite.

With the use of denial strategies, Theranos employs a denial frame, by calling the article, “factually and scientifically erroneous and grounded in baseless assertions by inexperienced and disgruntles former employee and industry incumbents,”, which in turn removed all connection between the organisation and their crisis.

Instead of apologising or addressing the claims, they were insistent that their machines were effective.

 “We have consistently said in public statements, on our websites, and to our customers in Wellness Centres that some of our tests are performed on venous draws, in part because we have been becoming a full-service laboratory.”

 The quote in their statement confirms with WSJ article’s allegations claims of the blood withdrawal method, as it is not entirely by finger pricking, which was the company’s original selling point. When addressing the FDA’s filing allegations, the organisation did not take accountability or responsibility for the article’s presented evidence. Instead, they were insistent that blood tests were accurate, “With each FDA filing, Theranos is showing that our finger-stick tests are just as accurate as venous draws, starting our first FDA clearance this summer.” However, later on in the statement, 

Theranos shifted the blame to John Carreyou, the author and Pulitzer award-winning journalist and questioned his journalistic integrity. In their statement, it stated “From his very first interactions with Theranos, the reporter made it abundantly clear that he considered Theranos to be a target to be taken down, not simply the subject of an objective news story. The articles that appeared last week are the inevitable product of that approach.”   

According to William Cormcowich, a CEO of Cyber alert called the crisis communication strategy aggressive, forceful and battling the media is a mistake, as it will open on to suspicion into further FDA investigation and alert shareholders about their loss of investments. Theranos’ rebuttal to the Wall street journal was reactive. Coombs stated that typically a crisis response would include an apology, which asks for forgiveness to the people who have been hurt by the situation. Compensations are being offered money, goods or services, and bolstering to reaffirm their reputation a high-class organisation in the health technology industry. Coombs stated that “showing concern can lessen anger towards an organisation while omitting to instruct and adjusting information can increase anger. Anger motivates stakeholder to engage in negative behaviour toward the organisation and erodes the organisation reputation.” Consequentially, it led John Carreyou to publish more articles on Theranos because the organisation continues to ‘minimise the situation’ to prove the allegations to the public further. 

The Mad Money Incident 

When a company leader conveys accountability, it has long-lasting effects on the stakeholders who have been affected. According to Boin, another well-known Crisis Communication Scholar:

 “Rendering accountability does not only satisfy a legal and moral requirement, but it also allows restoration of trust in the functioning of public institutions. In practice, crisis managers find it very hard to perform this task.” 

Carreyou observed in the Mad Money interview that Holmes was never transparent about the allegations. 

“But, Cramer asked her about specific elements of the article, such as the company’s use of third-party analysers for most of its tests, she turned defensive and gave evasive and misleading questions.”.

 Cramer directly quoted, “Theranos hasn’t disclosed the results publicly that it does the vast majority of its test with traditional machines bought from companies like Siemens AG” True or False?”

 Her response was long-winded and very vague. She reinforced on “expanding the test menu,” which includes the traditional venous test and said at least twice in 1 minute and said nothing of substance.

Sense-making requires a level of understanding to all the nature, characteristics, consequences and potential scope and effects of an evolving threat.” Obviously, under duress, there is an unwillingness to share vital information, and in turn, it may not be wise to talk to the media on the circumstances of their allegations. However, effective sense-making requires “a well-rehearsed method to process information, share it with the right people, consider their feedback, create a dynamic picture that everybody understands, and analyse possible “futures and consequences.”

 A simple true or false question. It exemplifies how her response has no sense-making capabilities, and she was not correctly media-trained for this response.   

The Greater the Fall, The Greater the Punishment

April 17, 2013 – Palo Alto, United States – Healthcare technology company Theranos Founder and CEO Elizabeth Holmes listens to U.S. Deputy Secretary of Defense Ashton Carter speak at Stanford University April 17, 2013 in Palo Alto, California. (Credit Image: © Glenn Fawcett/Planet Pix via ZUMA Wire)

Theranos was charged in 2018 for “massive fraud,” by the U.S. Securities and Exchange Commission and has been stripped of control of the company and ordered Holmes to return millions of shares to investors and is “barred from serving as an officer or director of a public company for ten years .”

Holmes falsely created a narrative of herself by presenting herself as an inventor genius and conned her way into investors’ pockets. She was the definition of the Silicon Valley mentality of ‘Fake it til you make it.” However, her pitfall is that she shifted the blame onto John Carreyou’s journalistic integrity and WSJ’s reputation . She then tries to control the narrative by going on Mad Money, where now in 20/20 hindsight, she reveals clues of her fraudulent claims. Because of her defensive attitude and utter refusal to take responsibility for the crisis, Theranos suspected their alleged claims and was further under investigation.

Theranos a cautionary tale to the innovators and disrupters although their products may revolutionise an industry. Upholding an moral obligation to be transparent with shareholders and the public is key requirement to sustaining a company’s well-known reputation.

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