As the former executives of Theranos return to the news following the debut of the miniseries The Dropout and the start of the trial of Ramesh “Sunny” Balwani, it’s worth revisiting the rise and fall of Elizabeth Holmes and her company as a reminder of why transparency is so vital to creating a healthy, functioning organization.
When we examine the rise and fall of Theranos, one thing is clear: long-term business success rests on the implicit and explicit trust established with company leadership, and trust is impossible without transparency. Here are three important reminders:
1. No One Knows Everything
“[C]omplete certainty is artificial,” writes Aaron Patrick in Financial Review. “A leader who never hesitates will make easily avoidable mistakes. Pausing to listen to subordinates is powerful in two ways. It builds loyalty and uncovers information” that can prevent large-scale errors and long-term failure.
Leaders who project complete certainty and shut down feedback or input from others may seem confident on the surface, but that image is brittle. It can quickly shatter with accurate information that exposes the truth, and once broken, that image is difficult or impossible to recover.
Elizabeth Holmes intentionally structured Theranos to give herself ultimate authority and prevent others from interfering with her decisions. In his book Bad Blood: Secrets and Lies in a Silicon Valley Startup, journalist John Carreyrou recounts how Holmes forced a board resolution that gave her one hundred votes for every share she owned. With 99.7% of the voting rights, the board never had a quorum unless Holmes was present, ultimately giving her complete decision-making authority.
A trustworthy leader will remain humble and invite feedback and input, especially when making important decisions. Admitting that you don’t know everything isn’t a weakness; instead, it’s an admission that you’re human. By remaining transparent about gaps in your knowledge or perspectives, you will engender trust and loyalty with employees, colleagues, and stakeholders.
2. Secrecy Destroys Trust
One clear lesson from Theranos is that daylight disinfects, and if doors had been opened much earlier in the process, much damage could have been avoided. Holmes built her organization around untruths about the capabilities of the technology, but she maintained that illusion through a culture of secrecy. To keep them from sharing information internally, employees were tightly monitored and forcibly siloed. Firings were frequent and public, and potential whistleblowers were threatened with lawsuits based on tight non-disclosure agreements.
Secrecy destroys trust. This is not to say that all information should be laid bare for all employees or public view; indeed, there are levels of private or proprietary information that should be guarded for various reasons. But when an entire corporate culture revolves around enforced secrecy, there is no room for trust to grow.
Transparency dictates that leadership be as open as possible with boards, investors, and employees. There’s no reason to fear questions, reviews, or pushback in an honest and open environment. When leaders encourage a culture of psychological safety and open conversation, mistakes and harmful behaviors are exposed much more quickly, preventing long-term damage to people and the business.
3. Be Cautious About a Cult of Personality
A considerable part of Holmes’ success was built around her charismatic, winning personality. Boosted by media hype and bolstered by support from a board full of important names, Holmes had an efficient machine around her that helped keep people from looking too closely at the substance underneath the image. Indeed, Holmes often won over skeptics of the Theranos technology once they interacted with her or heard her speak.
History is full of larger-than-life leaders who inspire big changes. The danger comes when no one can penetrate the hype to discover if there is real substance and value underneath. An inspiring leader is a tremendous boon to any organization, but when leaders can’t support their claims, values, or products with real substance, they’re building a house of cards that will fall at the first light breeze.
Transparency helps ensure that a company is built around more than just a personality. A true leader will inspire commitment and encourage investigation into the substance behind the person.
The story of Holmes and Theranos is an important cautionary tale for all leaders and entrepreneurs. As you work to build a healthy organization, remember that transparency and openness are crucial to creating trust and building long-term value.
Self-Check:
- What is one thing I can share with employees and colleagues today that would open a door or build trust?
- What questions can I ask to promote open conversation and improve communication?
- What areas in my organization can be more open without jeopardizing private or proprietary information?
