An Ethics Lesson

By: | October 1, 2018 • 3 min read
David Shadovitz is editor of HRE. He is also co-chair of the HR Tech Conference and chair of the Health & Benefits Leadership Conference. He can be reached at [email protected]

I’m sure, by now, many of you are familiar with the Theranos saga.

Earlier this year, I finished reading John Carreyrou’s Bad Blood: Secrets and Lies in a Silicon Valley Startup. The book is an extremely well-written tale detailing the rapid rise and sudden fall of the healthcare-technology company. (Carreyrou, a two-time Pulitzer Prize-winning journalist for the Wall Street Journal who latched on to the story in 2015, eventually became a part of the story himself.)

Just to recap, Theranos was founded in 2003 by Elizabeth Holmes, who was 19 years old at the time. The privately held company claimed that it had found a way to revolutionize the blood-testing industry through a machine that required just a small blood sample. The only problem: The technology, for the most part, didn’t really work.

Yet, despite the machine’s shortcomings, CEO Holmes was able to line up prominent investors such as Larry Ellison and Tim Draper, and retail partners such as Safeway and Walgreens.

Throughout the company’s expansion, more than a few employees expressed their concerns to Holmes and Chief Operating Officer Ramesh “Sunny” Balwani, but most were either shown the door or quit in frustration when nothing was done. Eventually, one employee, Tyler Shultz, brought the company’s troubling practices to the attention of state regulators.

As you might expect, Holmes, Balwani and Theranos—which is now in the process of winding down its business—have since been charged by the Securities and Exchange Commission with committing massive fraud.

Like most gripping stories, Theranos’ tale includes obvious villains (like Holmes) and heroes (like Shultz). But one of the elements that shouldn’t be overlooked in its retelling is the apparent passivity of the company’s star-studded board of directors.

Wowed by Theranos’ charismatic CEO, the board, at one time, included the likes of former Secretaries of State George Shultz (Tyler’s grandfather) and Henry Kissinger, former Secretary of Defense William Perry, former U.S. Sens. Sam Nunn and Bill Frist, and retired U.S. Marine Corps Gen. James Mattis, who now serves as Secretary of Defense in the Trump administration.

I couldn’t help but think about Carreyrou’s book when I recently read the findings of a new reported titled What’s the Tone at the Very Top? The Role of Boards in Overseeing Corporate Ethics and Compliance, issued by consultancy LRN Corp. According to in-depth interviews with 26 past and present chief ethics and compliance officers, only 40 percent of the respondents reported their boards have metrics in place for measuring E&C effectiveness. Further, only 40 percent said their boards are willing to hold senior executives accountable for misconduct.

What’s more, half noted that their boards spend two hours or less working on E&C each year.

Together, these findings suggest that many boards aren’t giving E&C the serious attention it deserves—and, in turn, are creating a major risk for their respective organizations.

To be sure, HR leaders aren’t interacting with board members on a daily basis. But as LRN Corp. Senior Advisor David Greenberg recently reminded me, the opportunities to make E&C a higher priority at the board level are certainly there.

In particular, Greenberg cited two key and potentially impactful areas where HR leaders frequently do have the board’s ear: compensation and succession planning.

By ensuring that E&C are key parts of those discussions, HR leaders can unarguably have a powerful impact on the ethical behaviors of their respective organizations—and thereby ensure that they don’t become the next Theranos.

It simply comes down to making sure that those opportunities (or any others that may present themselves) don’t go to waste.

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