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Ethical Issues of Theranos
Apart from Holmes and Balwani, the board of directors and employees had a moral responsibility to protect patients using the blood tests from harm because they had information that the technology did not provide accurate results. Holmes did not admit her wrongdoing despite appearing in many interviews and publishing articles with misleading information. Theranos’ established a corporate based on secrecy, fear, non-compliance, and lack of transparency in business operations. Holmes was more concerned about saving the firm’s face rather than disappointing investors and commercial partners by disclosing the actual business performance. She was optimistic that her technology would work even though things turned out to be difficult for her to achieve the business goals. Holmes controlled her employees and directors in order to create a positive public image. The board of directors, investors, and employees should also be held accountable for supporting Holmes’ secret to mislead patients, health care professionals, health care providers, and other stakeholders.
Theranos’ directors had a moral duty to protect the investors’ interest by ensuring the firm disclosed all material facts about its operations. The agency theory argues that the board of directors should act in the best interest of investors. However, Theranos’ board of directors failed to protect investors’ interest in the company. Holmes controlled the board’s decision-making process by controlling the largest percentage of the firm’s shares. Therefore, the board failed to balance Theranos, shareholders, and patients’ interests. The directors had a duty to ensure the firm disclosed the correct and accurate information. Thus, investors and other stakeholders relied on Theranos’ disclosure in decision making. The House Health Committee argued that Theranos conducted patients’ blood tests even without a doctor’s order. Indeed, the investors relied on the board members to protect their interest in the company.
Besides, investors had a duty to conduct due diligence to assess Theranos’ culture fit and ethical standards that would affect business performance. Due diligence would reveal risks related to the investment opportunity through investigation, verification, and auditing the investment based on all relevant facts. Thus, investors had a duty to conduct due diligence before buying Theranos’ stocks. Indeed, investors would have involved legal experts and other investment consultants in confirming and verifying Theranos’ information, identify potential risks, and assess the investment’s viability. Therefore, investors also failed to conduct due diligence to expose the fraudulent business operations at an earlier stage.
The employees also had a duty to issue red flags to protect investors, patients, and other stakeholders from fraudulent activities. Theranos sustained the fraud by suing ex-employees who disclosed the firm’s unethical operations. Also, Balwani fired workers who dared talk about the faulty blood test device. Holmes created a culture of fear to suppress workers in order to keep the business secret at the expense of investors, patients, and other stakeholders. Thus, Holmes and Balwani bullied employees in order to defraud investors and compromise patients’ safety with faulty equipment. The employees had a moral duty to disclose fraudulent activities in the organization. Both utilitarianism and deontological ethical approaches require employees to act as whistleblowers. According to utilitarianism, disclosing the fraud generate the greatest happiness to many people, including shareholders, potential investors, patients, patients’ families, and other stakeholders. The deontological ethical approach suggests that employees had a moral duty to disclose the fraud without considering the consequences. Theranos workers (Cheung and Shultz) issued red flags, which exposed their employer’s secret.
However, Holmes, directors, top management, and most of her employees kept the secret to protect the firm’s public image. Holmes was overconfident with her multibillion business empire. Thus, she was determined to create a positive image to attract more investors. The top managers and directors also collaborated with Holmes to benefit from the rising stock price. Likewise, the employees feared losing jobs or facing lawsuits after exposing the fraud at the workplace. Carreyrou argues that Holmes did not start the business with malicious or fraudulent intent. She was ambitious and dreamed of revolutionizing the healthcare industry. However, the application of the technology in blood testing proved more difficult than she anticipated. Thus, the unrealistic expectations created a toxic work culture. She was not ready to pull back from her dreams. In other words, the fraud caught Holmes in the cycle of lies before she achieved her real vision.
The board of directors, investors, and employees were accountable for unethical practices because they failed to raise flags to protect other stakeholders from the faulty device’s harm. Holmes created a culture of fear to intimidate employees from disclosing business secrets. Therefore, there was a collective responsibility between the board members, employees, and investors to expose the firm’s fraudulent operations. Investors relied on directors as their agents in the business. Therefore, investors had less information compared to insiders (directors and employees). However, Holmes was optimistic that technology would revolutionize the healthcare system. Employees feared losing jobs and income after disclosing unethical practices in the business. Both utilitarianism and deontological ethical approaches suggest that directors, investors, and employees had a duty to disclose unethical practices.