Lessons Learned from the Theranos Trial: Fraud is Painful, Honesty is Best Practice

13 January, 2022

This month, the former CEO of Theranos, Elizabeth Holmes, was convicted on 4 of 11 counts relating to wire fraud and conspiracy to commit wire fraud. This was with regard to blood analysis technology, sold to investors and patients as a world breakthrough (see Note 1). Legally-speaking, wire fraud is financial fraud involving the use of telecommunications or information technology.  Ethically speaking, wire fraud violates any corporate code of conduct, erodes stakeholder trust, and destroys corporate reputation.  The fact that convictions were not obtained on the remaining 7 fraud counts is immaterial because reputational damage is already done when the legal charges are filed.

The Theranos case is ethically important because the product central to the matter is a healthcare product.  The device, called Edison, was a lab testing machine intended to analyze patient blood specimens.  Accurate analysis would be essential for regulatory approval and patient safety (see Note 2).  Edison didn’t work correctly.  As such, the device put some patients in harm’s way because they and their doctors used incorrect information to make medical decisions as they responded or failed to respond to Edison’s test results (see Note 3). The lesson here is that while innovation is laudable, false hope with a futile product is harmful to patients and also corporate investors.  Cover ups, fabrication, and falsification are types of fraud that can sometimes unfortunately occur in the setting of soured innovation.

The saying, “honesty is the best policy,” holds true in corporate innovation.  If research does not identify the problem and find solutions to faltering technology/product, the answer should not be fraud, but rather honesty.  It takes moral courage to say a product or technology is failing, does not work, won’t work, needs re-work.  The costs of starting over or design changes can be enormous, but perhaps not as much as the cost of criminal convictions, job loss, business closure, and likely permanently losing your personal reputation (no matter how many degrees you hold).

The corporate path of innovation honesty is transparency.  Theranos didn’t have to end the way it did.  Numerous checkpoints along the way could have guided R&D in a measured and thoughtful way, ensuring resultant technologies had integrity.  Lab books and oversight signoffs, lab meetings, data presentations/seminars, and internal audits foster openness and honesty in R&D settings.  The inclusion of a whistleblower problem with an anonymous Speak Up channel is also important.

If your organisation needs help with corporate integrity training or establishing a whistleblower management system, reach out to our sister company Your Call at hello@yourcall.com.au

Notes

1: https://www.medscape.com/viewarticle/966000

2: https://www.theverge.com/22834348/theranos-blood-testing-innovation-drop-holmes

3: https://www.wsj.com/articles/theranos-voids-two-years-of-edison-blood-test-results-1463616976