The company was valued at $10 billion. Its founder was heralded as a visionary. Its influential board of directors included the renowned economist George Shultz, who previously led the US departments of Labor, State, and Treasury as well as the Office of Management and Budget. Shultz so believed in Theranos that he even recommended his grandson work at the Silicon Valley health-care startup.
A young kid fresh out of college, the younger Shultz then had the gall to call Theranos a fraud.
“I didn’t see myself as a whistleblower,” Tyler Shultz said during a recent visit to the Business School organized by the student board of the Sanford C. Bernstein & Co. Center for Leadership and Ethics. “I was just doing what I thought was best.”
Shultz’s decision to speak up about fraud inside Theranos led to his being fired by the company, pressured to stay quiet by his family, and served with $400,000 in legal bills before he was ultimately vindicated. Theranos dissolved in September 2018 and founder Elizabeth Holmes now faces up to 20 years in prison for fraud and conspiracy. She already settled with the Securities and Exchange Commission (SEC) for a $500,000 penalty and 10-year ban on serving as an officer or director of a public company.
The Theranos story has been turned into an HBO documentary(which includes commentary from Shultz) and is being adapted into a Hollywood feature starring Jennifer Lawrence as Holmes, the company’s founder and chief executive. In real life, Shultz is already providing a picture of ethical leadership under pressure.
“There actually are a lot of protections for whistleblowers that I was completely unaware of when I was doing all this,” says Shultz. “The safest thing you can do is file a report to the SEC. You can’t be sued for something that you told the SEC. The government will protect you.”
Shultz’s visit to the Business School came just ahead of the launch of a new MBA course called Executive Ethics, which aims to help students know how to respond to a wide range of ethical challenges in the workplace. Given that millennials are considered more motivated by doing good than past generations, it’s been argued that they are more likely to blow the whistle on ethical lapses—a heavy decision often fraught with legal difficulties and obstacles to returning to the workplace.
“Institutional denial, obfuscation, and retaliation are hallmarks of many whistle-blowing cases,” according to a recent New Yorker feature titled “The Personal Toll of Whistleblowing.” The story mentions how the whistleblower Sherron Watkins helped expose accounting fraud at Enron, which led to passage in 2002 of the Sarbanes-Oxley Act—the subject of a panel discussion during this month’s Leadership and Ethics Week at the Business School.
The case of Theranos is an example of why a strong code of conduct is important to help prevent a situation where one feels the need to be a whistleblower. During Shultz’s presentation to a packed room in Uris Hall, he spoke about his difficult decision to blow the whistle on Theranos.
Shultz began as an intern at the company in 2013, before his senior year at Stanford University. He’d met Holmes over lunch at the home of his grandfather, George Shultz, an emeritus professor at Stanford Business School who had joined Theranos’ board of directors in 2011. After graduation, Tyler joined Theranos full time.
Red flags immediately started going up. On his first day, Tyler saw Holmes get into a screaming match with a manager, who was then fired. He heard skepticism from coworkers about the firm’s blood-testing technology. He also personally saw that the company’s blood-testing devices did not meet the advertised capabilities of diagnosing illnesses.
At first, Tyler was optimistic that leadership might address his concerns. He met with Holmes, who listened and forwarded the concerns to Chief Operating Officer Ramesh “Sunny” Balwani. In a follow-up meeting, according to Shultz, Balwani berated him, calling him arrogant and ignorant and adding that if his last name wasn’t “Shultz” he’d have already been fired.
The response underscored Theranos’ culture of stifling dissent through intimidation and fear. “There are only a few cases that I know of where some actually did raise concerns to the level of Elizabeth [Holmes] or Sunny [Balwani], and they were pretty much fired right on the spot,” said Shultz. “No one was motivated to speak up. Their culture of fear worked for them for a long time.”
Shultz quit after that April 2014 exchange with Balwani. A month earlier, he had lodged a confidential complaint with public health regulators in New York. Shultz then held his tongue, going to work at a Stanford lab. Months later, he received a LinkedIn message from Wall Street Journal reporter John Carreyrou asking about Theranos. “I ignored his email for about a month,” said Shultz. “And then I got really curious about what he knew, what angle he was taking, and so I went and I bought a burner phone with cash and I called him.”
“I knew Theranos was going to be hard to take down and so I wanted to see if he was going to be able to do it before I was going to put myself on the line,” recalled Shultz. “When I called him, I basically asked him what he knew. And he was very open with me, which was really surprising because no was open about Theranos at that time. I was surprised at how much he knew.”
Shultz agreed to be a confidential source in early 2015, helping Carreyrou ramp up his reporting on Theranos. Soon, Holmes deduced that Shultz had become a tipster. She informed George Shultz, who then called Tyler, who denied he’d spoken to the press. In a heated and awkward series of meetings inside the elder Shultz’s living room, Theranos’ lawyers tried to compel Tyler to sign a confidentiality agreement and sign an affidavit saying he hadn’t spoken to the press. Tyler consulted his grandfather’s lawyer, who then set him up with another legal team. Tyler’s attorney costs totaled more than $400,000, with his parents at one point warning that they might need to sell their home to pay the legal fees.
“Somehow in those moments, I would be more determined to keep going, but every morning when I woke up, I would not want to do it anymore,” Shultz told the Business School students. “I could only imagine how much worse it is for someone who does not have $400,000 to spend. It’s a pretty broken system, but ultimately the truth does count for something. It just takes a while.”
Shultz’s identity as a whistleblower was kept confidential until 2016, when he allowed it to be revealed in the Journal. Shultz has since saidthat “talking to the Wall Street Journal was way more effective than talking to [government regulators] or the company itself.”
Shultz is now CEO and co-founder of the startup Flux Biosceinces, which is developing point-of-care medical testing equipment on bleed samples—reminiscent of what Theranos was originally trying to do. He was named to Forbes list of 30 Under 30 in healthcare in 2016.
“As far as lessons learned from Theranos, I would say transparency is probably the biggest thing,” said Shultz. “If there’s a problem with the technology [at my new company], I would want any of my employees to tell me immediately without hesitation, and that was not the case at Theranos. The biggest thing is being aware of problems.”
Read the original piece on Columbia Business School’s Ideas and Insights blog.
Ivy Exec is proud to announce its partnership with Columbia Business School, to bring an insightful collection of thought leadership pieces for the modern-thinking strategist in finance, leadership and more to its platform.