The Theranos lesson: A CEO with a 50% Glassdoor rating should be a big red flag for investors

9 months ago by Jeremy Bloom in News
Theranos founder Elizabeth Holmes - photo CC by Fortune Conferences on Flickr

Say goodbye to Elizabeth Holmes, the secretive CEO who promised investors that her  cult-like biotech company, Theranos, would revolutionize blood testing. She's been charged by the SEC with "massive fraud", and will have to give up control of the company she founded and rode to Silicon Valley stardom. It was all vaporware. The only question now is, why did anyone else go along for the ride?

One of the reasons Thinknum track's Glassdoor ratings for CEOs is: They're an excellent bellweather for problem companies. Take a look at Holmes ratings:

She had a bit of an uptick starting in December: From an abysmal 50% to a slightly-less-abysmal 55%. These are anonymous employee ratings, at a company that was otherwise described as engendering an almost cult-like loyalty.

Oddly enough, there was an uptick in the overall business outlook (as judged by employees) in December. More on that in a moment:

Here's what the SEC alleges:

  • Holmes engaged in an “elaborate, years-long fraud in which [she] exaggerated or made false statements about the company’s technology, business, and financial performance.”
  • Made false claims about her products saving lives on the battlefield in Afghanistan
  • Claimed Theranos would generate $100 million from a partnership with the Department of Defense (which was never in the cards)

And here's what Holmes will have to do:

  • Return 18.9 million shares of Theranos the SEC determined were tainted by fraud
  • Relinquish control of the company by converting her super-majority Theranos Class B Common shares to Class A Common shares.
  • Pay a $500k penalty
  • Not serve as an officer or director of any public company for 10 years
  • But she doesn't have to admit wrongdoing

Separately, the SEC will be litigating a flotilla of charges against Theranos' former president Ramesh “Sunny” Balwani. 

Also seperately, the Department of Justice is investigating Holmes, so she may yet go to jail or recieve bigger fines.

Holmes was riding high for years, based on good looks and star power. She managed to raise $700 million hawking a supposed proprietary blood testing unit that only required a single drop of blood to work, rather than the many CCs of competitive testers. Then, two years ago, a Wall Street Journal investigation revealed that her company was actually testing with machines made by her competitors.

You may well ask, how could a biotech company fleece investors to that extent? Wouldn't the scientists working for the company have leaked something? Wouldn't there have been warning signs? 

There were. Let's let her employees tell the sordid tale, through the anonymous lense of Glassdoor. Interspersed amont the 5-star ratings and gushing talk about "Best job ever", there are a lot of gems like these:

"I was so excited to work for a company with vision and an idea that could truly disrupt healthcare. I wanted to be around Elizabeth. I believed in all of it from the bottom of my heart. Frankly, I still think there is some truth to some of it, but I'd be hard pressed to tell you what. I should have noticed the red flags from the beginning. The place is quieter than a library. No one talks or collaborates except within the confines of their group of one or two people. There are firewalls up everywhere making it nearly impossible to do your job..."

"Very secretive culture where collaboration is not encouraged. Departments or groups are seated separately from each other intentionally and you never know what another group actually does.... "

"The culture promotes an environment that pretty much doesn't encourage you to seek out knowledge. You ask people about the project they're working on, and rather than having company-wide transparency, people will beat around the bush and be shady about it... "

"The recent WSJ allegation is 100% true. I worked on the device before. The device is completely a junk. The poor design is even worse than my grad school project. It had and will never worked. Everyone I know has quitted the company."

"Just reading through the Glassdoor reviews will give you an idea what it's like working there. You will see it's very polarized. There are a lot of negative reviews with experiences I can relate to, and then there are the super positive ones. I'm pretty sure some of the employees are told to write fake positive reviews to outweigh all the negative experiences people have had at the company. The positive ones are all on the same variation of pros (we're changing the world) and cons (if you can't handle the fast pace of a world changing environment, this is not for you)...."

"All the five star reviews are written by HR. Read the one star reviews if you want to know what it's like to work here."

On the plus side, Holmes did offer her employees free lunch. Also free dinner, and free breakfast.

Note to investors: There is still no such thing as a free lunch.

Let's give the final word to Jina Choi, director of the SEC’s San Francisco Regional Office:

The Theranos story is an important lesson for Silicon Valley. Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.

Jeremy Bloom

When Jeremy Bloom isn't writing about energy, the environment, or the amazing strangeness of modern life, you can find him drinking really good single malt whisky...

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