1. Were there signs that Theranos was engaged with fraud before the scandal broke? Explain.
2. What "shadows" did CEO Holmes cast? (See "The Shadow Side of Leadership" in Ch. 7 of your textbook.)
3. Do you fault investors for not doing enough investigation into Theranos before investing? Do you fault Walgreen's for partnering with Theranos?
4. Why do you think George Schultz sided with the company instead of with his grandson? If you were George Schultz, how would you use ethical philosophies to help you decide what you should do?
5. Should Theranos be required to pay Tyler Schultz's legal bills?

Sources:Eligon (2015). Eligon and Perez-Pena (2015). Lecci (2016). Nadkarni (2015). "One Year After" (2016). Pearce (2015). M. Pearson (2015). Svriuga (2016). M. Tracy and Southall (2015). (Continued) machine had been validated by the 10 largest pharmaceutical companies and was widely a Theranos representative called his widow- Shultz ushered in two attorneys, who served used by research institutions, governments, CASE STUDY 7.3 not to offer condolences, but to demand that Tyler with a temporary restraining order, a notice and military organizations. Neither statement was true . she return any confidential company property. to appear in court, and a letter alleging he had For Tyler Shultz, vindication has not Holmes herself was always vague about how leaked company trade secrets. (George Shultz reduced the financial and relational costs of Putting Fraud Before Family her technology worked, saying at one point, later said he thought that the lawyers were going whistle-blowing. His parents may have to refi- A chemistry is performed so that a chemical to present a confidentiality agreement for Tyler nance their house to pay for $400,000 in legal bills generated by his court battles against reaction occurs and generates a signal from the to sign.) Tyler resisted the legal pressure, assert- Theranos. His family remains split. A spokes- Stanford graduate Tyler Shultz probably thought public that this new technology could save lives chemical interaction with the sample, which is ing, "Fraud is not a trade secret."3 man for George Shultz says he is proud of Tyler, he had landed the perfect job. After interning and "change the world." Holmes raised $680 translated into a result, which is then reviewed Tyler took his concerns to New York reg- but the two communicate only through lawyers. ulators and writer John Carreyrou at The Wall Tyler didn't attend the elder Shultz's 95th birth- at Theranos labs, he was hired on full time. He million for the company (at one time valued by certified laboratory personnel." day party (though Holmes did). Shortly after taking his new position, Tyler Street Journal, who produced a series of articles started as a member of the team that verified at $9 billion) and partnered with Walgreens Shultz discovered that the company's touted exposing the fraud. Holmes and Theranos were Discussion Probes the accuracy of blood tests and later moved to to establish wellness centers in a number of Edison blood testing technology produced initially defiant. Holmes went on CNBC's Mad 1. Were there signs that Theranos was engaged in fraud before the scandal broke? the company's production area. Tyler wasn't the its stores. She was featured on the covers of wildly varying results from the same blood sam- Money, defending herself with a variation of ple. The company discarded some findings and a line from Steve Jobs: "This is what happens Sources: Durden (2016a, 2016b). Farr (2016). Masnick (2016) only family member connected with Theranos. Fortune, Forbes, Inc., and other publications and made inflated claims about how accurate the when you work to change things. First they think His grandfather George Shultz, who had served was inducted into the Harvard Medical School tests were. For example, Theranos claimed that you're crazy, then they fight you, and then, all in the cabinets of Richard Nixon and Ronald Board of Fellows. the Edison machine could detect sexual trans- of a sudden, you change the world." At a com- mitted diseases 95% of the time even though pany pep rally, Holmes vented her anger at the Reagan, sat on the Theranos board of direc- Holmes liked to think of herself as a "female the tests were only 65% to 85% accurate. Shultz Journal, claiming it had a vendetta against the tors. In fact, Tyler first met Theranos founder Steve Jobs," dressing like her hero in black tur- also discovered that blood-testing machines company. Employees starting chanting "F** you, Elizabeth Holmes at his grandfather's house and tlenecks, never taking a vacation, sitting in his failed quality controls. Alarmed, he emailed CEO Carrey-rou!" Holmes with his concerns. Holmes then turned Jltimately, Holmes was forced to admit was inspired by her vision for the company. favorite type of office chair, and becoming a his message over to company president Sunny that Theranos outsourced nearly all of its tests A college dropout, Holmes started Theranos vegan like him. Most importantly, she adopted Balwani. Balwani responded by belittling Shultz to other labs, and the company invalidated all (the name is a combination the words of "ther- Jobs's obsession with secrecy. Employees were for not understanding basic math or laboratory in-house results for 2014 and 2015. Federal reg- apy" and "diagnosis") at age 19. She claimed that science. "The only reason I have taken so much ulators shut down the company's California lab strictly forbidden to share information about time away from work to address this person- after finding problems that posed "immediate her company had a new, less painful and less their projects with each other, and the com- ally is because you are Mr. Shultz's grandson," jeopardy" to patient safety. Holmes and Balwani intrusive way to conduct blood tests. Instead pany prevented outside scientists from writ- Balwani said dismissively. "Had this email come were banned from running laboratories for two of using a needle to draw blood from the arm, ing peer-reviewed papers on its Edison device. from anyone else in the company, I would have years. The CEO's net worth went from $4 bil- already held them accountable for the arrogant lion to nearly nothing. Theranos laid off 40% of Holmes touted the fact that Theranos's Edison Theranos was quick to threaten to sue employ- and patronizing tone and reckless comments." its workforce and no longer does blood testing, machine could analyze a drop of blood taken ees to prevent them from speaking to the media. George Shultz came to the defense of focusing instead on manufacturing medical from a finger prick. She told investors and the When a company scientist committed suicide, Theranos, not his grandson. (Tyler claims that he equipment for clinics. spoke out in part to protect the reputation of his Fallout from the fraud continues. The com- grandfather.) When Holmes told George that his pany is being investigated by the U.S. attorney's CHAPTER SEV (Continued) grandson was being "unreasonable" and would office, the FBI, and the Securities and Exchange "lose" if he continued to challenge the company, Commission. It faces lawsuits from investors as he called Tyler's parents. They phoned Tyler with well as patients. Walgreens filed a $140 million a frantic message the day he quit the firm, ask- suit alleging that Holmes and Balwani had bro- ing him to stop "whatever you're about to do." On ken their promises and made false statements. one of Tyler's visits to his grandfather, the elder Theranos assured Walgreens that its Edison CHAPTER SEVEN . LEADERSHIP AND FOLLOWERSHIP ETHICS 225