Theranos Makes Us All More Cynical About Business

Now that a jury has found former Theranos chief operating officer Ramesh “Sunny” Balwani guilty of scamming investors and patients, commentators will raise familiar questions about the blindspots and excesses of Silicon Valley’s start-up culture. But the Theranos episode has done far more than tarnish the technology industry. It has reinforced widespread cynicism about companies everywhere that purport to pursue a higher purpose.

Early in its history, Theranos stated that its mission was “to facilitate the early detection and prevention of disease and to empower people everywhere to live their best lives.” That sounded noble, but while Holmes along with Sunny was assuring her investors that “you can build a business that does well by doing good,” Theranos’s employees were discovering serious defects in the company’s blood-testing devices. Eventually board members, investors and board members realized that they had fallen prey to a massive deception.

Theranos is hardly the only company to throw a cloak of high-minded rhetoric over bad behavior. Another health care company, Turing Pharmaceuticals, asserted that it was “dedicated to helping patients, who often have no effective treatment options, by developing and commercializing innovative treatments.” And yet the company’s CEO, Martin Shkreli, raised the price of a life-saving drug from $13.50 to $750 a pill and was later jailed for fraud.

And look at Purdue Pharma. It has proclaimed that “compassion for patients and excellence in science inspire our pursuit of new medicines.” This from a company that fueled the deadly opioid crisis through its irresponsible marketing of highly addictive painkillers such as OxyContin.

These companies and others across an array of industries are the worst of the worst,
particularly egregious practitioners of so-called virtue signaling–professing a belief that a company knows will play well with stakeholders, but isn’t actually backed by its actions.

Research by James D. Westphal and Sun Hyun Park has shown that virtue signaling at companies can be surprisingly effective. That’s because no one has enough incentive to hold companies accountable for it.

Executives deploy a mix of ingratiation, reciprocity and retaliation to keep employees and external stakeholders from questioning actions that appear to be at odds with their words, the researchers found. Using ingratiation and reciprocity, they practice flattery and confer favors to build goodwill. Using negative reciprocity and retaliation, they punish and exclude those who seek to expose them.

These tactics, when placed in the hands of sophisticated executives, can lull and fool both employees and external stakeholders including board members, securities analysts, management consultants, and even investors.

All these strategies were in play, to some degree, at Theranos, Turing, Purdue and others. But the abyss between words and actions eventually became so deep that the truth inevitably emerged.

Some companies, in the name of corporate purpose, have managed to make their way onto ESG (Environmental, Social and Government) lists intended to encourage ethical investments, while at the same time engaging in highly unethical behavior. The game company Activision Blizzard, for instance, obtained a spot on the coveted list despite allegedly being rife with workplace sexual harassment that its executives reportedly knew about and failed to stop.

As a business professor who studies purpose-driven organizations, I have seen people roll their eyes at my insistence that a company should articulate a mission that serves both a business and a social goal. They regard such statements as time-wasters that merely pay lip service to nice-sounding concepts. Such skeptics would point to companies like Theranos and others in a range of industries to make their case.

And yet, my research shows that purpose can and should be so much more than a public relations exercise. Deployed properly, it can truly energize an organization and deliver for shareholders, employees, customers, the planet, and society as a whole.

Take another company, Livongo. At its inception, seven years ago, its mission was “to empower people with chronic conditions to live better and healthier lives.” These were not just words. The CEO, Glen Tullman, used that statement to successfully guide his company through expansions, an IPO, and ultimately an acquisition by another company–all without losing sight of its original purpose.

For Tullman and many of his employees, purpose was driven partly by personal experience. Tullman’s own son has Type 1 diabetes, and most of his employees either had a family member with a chronic health condition or were dealing with one themselves. Many of them knew firsthand what it was like to continually monitor diabetes with a glucose strip. Their empathy for Livongo’s clients led to holistic ways of treating illness, including regular in-home data collection, free medical supplies, individual advice and interventions.

Throughout its rapid growth Livongo remained committed to giving its members more control over their own health and less reason to visit expensive clinics and hospitals. In achieving these goals, the company sometimes had to take on more costs than some investors thought wise. But by holding true to its purpose, Livongo managed to prove the doubters wrong.

Sunny, too, stated that Theranos sought to empower people to lead healthier lives. But that statement proved to be a facade meant to conceal deceit and greed. Other CEO’s must not start down the same path of misusing the concept of purpose, even when their intent is much less malign.

When companies profess beliefs that do not withstand scrutiny, they betray a cynicism that the public can sense, perpetuating a cycle of distrust. But my research has shown that when companies follow through on a stated purpose that is both profit-minded and socially conscious, they have a significant advantage over those that do not.

Let companies like Theranos, Turing, and Purdue stand as a lesson to those whose trumpeting of purpose is mainly a vacuous PR effort. The public deserves better. Customers, employees and investors deserve better. It’s up to corporate America and its leaders to back up their noble words with lasting and concrete actions.

The opinions expressed here by columnists are their own, not those of

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