Stanford graduate Tyler Shultz probably thought he had landed the perfect job. After interning at Theranos labs, he was hired on full time. He started as a member of the team that verified the accuracy of blood tests and later moved to the company's production area. Tyler wasn't the only family member connected with Theranos. His grandfather George Shultz, who had served in the cabinets of Richard Nixon and Ronald Reagan, sat on the Theranos board of directors. In fact, Tyler first met Theranos founder Elizabeth Holmes at his grandfather's house and was inspired by her vision for the company.

A college dropout, Holmes started Theranos (the name is a combination the words of "therapy" and "diagnosis") at age 19. She claimed that her company had a new, less painful and less intrusive way to conduct blood tests. Instead of using a needle to draw blood from the arm, Holmes touted the fact that Theranos's Edison machine could analyze a drop of blood taken from a finger prick. She told investors and the public that this new technology could save lives and "change the world." Holmes raised $680 million for the company (at one time valued at $9 billion) and partnered with Walgreens to establish wellness centers in a number of its stores. She was featured on the covers of Fortune, Forbes, Inc., and other publications and was inducted into the Harvard Medical School Board of Fellows.

Holmes liked to think of herself as a "female Steve Jobs," dressing like her hero in black turtlenecks, never taking a vacation, sitting in his favorite type of office chair, and becoming a vegan like him. Most importantly, she adopted Jobs's obsession with secrecy. Employees were strictly forbidden to share information about their projects with each other, and the company prevented outside scientists from writing peer-reviewed papers on its Edison device. Theranos was quick to threaten to sue employees to prevent them from speaking to the media. When a company scientist committed suicide, a Theranos representative called his widow—not to offer condolences, but to demand that she return any confidential company property. Holmes herself was always vague about how her technology worked, saying at one point, "A chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel."¹

Shortly after taking his new position, Tyler Shultz discovered that the company's touted Edison blood testing technology produced wildly varying results from the same blood sample. The company discarded some findings and made inflated claims about how accurate the tests were. For example, Theranos claimed that the Edison machine could detect sexual transmitted diseases 95% of the time even though the tests were only 65% to 85% accurate. Shultz also discovered that blood-testing machines failed quality controls. Alarmed, he emailed CEO Holmes with his concerns. Holmes then turned his message over to company president Sunny Balwani. Balwani responded by belittling Shultz for not understanding basic math or laboratory science. "The only reason I have taken so much time away from work to address this personally is because you are Mr. Shultz's grandson," Balwani said dismissively. "Had this email come from anyone else in the company, I would have already held them accountable for the arrogant and patronizing tone and reckless comments."²

George Shultz came to the defense of Theranos, not his grandson. (Tyler claims that he spoke out in part to protect the reputation of his grandfather.) When Holmes told George that his grandson was being "unreasonable" and would "lose" if he continued to challenge the company, he called Tyler's parents. They phoned Tyler with a frantic message the day he quit the firm, asking him to stop "whatever you're about to do." On one of Tyler's visits to his grandfather, the elder Shultz ushered in two attorneys, who served Tyler with a temporary restraining order, a notice to appear in court, and a letter alleging he had leaked company trade secrets. (George Shultz later said he thought that the lawyers were going to present a confidentiality agreement for Tyler to sign.) Tyler resisted the legal pressure, asserting, "Fraud is not a trade secret."³

Tyler took his concerns to New York regulators and writer John Carreyrou at The Wall Street Journal, who produced a series of articles exposing the fraud. Holmes and Theranos were initially defiant. Holmes went on CNBC's Mad Money, defending herself with a variation of a line from Steve Jobs: "This is what happens when you work to change things. First they think you're crazy, then they fight you, and then, all of a sudden, you change the world."⁴ At a company pep rally, Holmes vented her anger at the Journal, claiming it had a vendetta against the company. Employees starting chanting "F*** you, Carrey-rou!"

Ultimately, Holmes was forced to admit that Theranos outsourced nearly all of its tests to other labs, and the company invalidated all in-house results for 2014 and 2015. Federal regulators shut down the company's California lab after finding problems that posed "immediate jeopardy" to patient safety. Holmes and Balwani were banned from running laboratories for two years. The CEO's net worth went from $4 billion to nearly nothing. Theranos laid off 40% of its workforce and no longer does blood testing, focusing instead on manufacturing medical equipment for clinics.

Fallout from the fraud continues. The company is being investigated by the U.S. attorney's office, the FBI, and the Securities and Exchange Commission. It faces lawsuits from investors as well as patients. Walgreens filed a $140 million suit alleging that Holmes and Balwani had broken their promises and made false statements. Theranos assured Walgreens that its Edison machine had been validated by the 10 largest pharmaceutical companies and was widely used by research institutions, governments, and military organizations. Neither statement was true.

For Tyler Shultz, vindication has not reduced the financial and relational costs of whistle-blowing. His parents may have to refinance their house to pay for $400,000 in legal bills generated by his court battles against Theranos. His family remains split. A spokesman for George Shultz says he is proud of Tyler, but the two communicate only through lawyers. Tyler didn't attend the elder Shultz's 95th birthday party (though Holmes did).

Questions:

1. How do or don't the Carters exemplify Servant Leadership?
2. How do or don't the Carters exemplify Authentic Leadership?
3. How have (or haven't) the Carters demonstrated the Components of Ethical Behavior?

Answer rating: 100% (QA)

1 The Carters are the epitome of servant leadership Tyler one of the companys empl... View the full answer