A New Look Inside Theranos’ Dysfunctional Corporate Culture
wired.com
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The book The Chickenshit Club does a good job highlighting this (fairly recent) problem with US justice. https://www.nytimes.com/2017/07/05/books/review/the-chickens... "America’s Top Prosecutors Used to Go After Top Executives. What Changed?"
> Meanwhile, the U.S. attorney’s office in San Francisco is conducting a criminal investigation that could result in indictments of both Holmes and Balwani.
I'm not saying criminal charges aren't forthcoming, but it would not fit the pattern of DOJ/SEC coordination in the past.
More generally, corporations have coopted or subverted most other institutions in the society, including the DOJ and the legislature. (Hooray for unlimited anonymous campaign finance.)
One of the central arguments laid out in that book is that ultimately it is a “gentleman’s code” in the legal world that leads to fewer prosecutions of corporations and individuals executives. The author of that book obtained DOJ memos and conducted interviews with several career prosecutors.
The general takeaway is that US federal prosecutors are inclined to “see the humanity” in corporate executives, and ascribe potential criminal behavior to negligence instead. After all, high powered lawyers and C-suite executives went to the same handful of elite schools, and are likely to run in similar social circles. This is complicated by the fact that the US Department of Justice has two tracks: career civil servants, and political appointees who are often part of a revolving door from whiteshoe criminal defense law firms to government. The political appointees oversee and have ultimate discretion on what cases to pursue and against whom.
The incentives for prosecutors to take cases to trial, as opposed to settling, are also not there. Federal prosecutors cherish their “win rates”, and extracting a settlement from a corporation counts as a win, which in turn helps career advancement. Take a case to court, and if 1/12 of the jurors are unpersuaded, you’ve lost.
In all fairness to George W. Bush’s presidency, his DOJ was given political cover and the necessary resources to prosecute Enron, Worldcom, Tyco, and Arthur Andersen. Both corporation and individual executives were held accountable with financial penalties and heavy jail sentences.
The Obama presidency on the other hand, featured former criminal defense and corporate law firm lawyers leading the DOJ. Many had no previous experience of working as prosecutors, and it showed painfully in several botched prosecutions.
The problem of “chickenshit” prosecution in this country has long predated Citizens United, and several conservative presidents have done a better job than their liberal counterparts of holding corporations accountable, and vice versa.
Corporate money may well add fuel to the fire, but it was by no means the catalyst that got us to where we are today w.r.t. unpunished corporate wrongdoing.
The book is really worth a read, and goes into far greater detail.
Available money at the top (for legal defense, lobbying, etc.) depends on the level of income inequality, which in turn depends on income/estate tax rates, minimum wage, allowable structures for corporate boards, allowable terms of contracts, legality of monopolistic business practices, etc.
Political will from the top of the DOJ depends somewhat on the president’s personality. The era of Teddy Roosevelt or FDR or Lyndon Johnson is long past; the Democrats to hold office have been the type to favor moderation and compromise, and the Republicans since Nixon have been firmly pro-corporate, often bordering on fascist, embroiled in their own criminal conspiracies for which they have largely avoided any direct consequence. But it also depends on whether the president feels beholden to donors or can take an aggressive message directly to the public. With unlimited anonymous campaign money, who can afford to piss off CEOs or Saudi princes?
I’m not quite sure what you mean by “odds of winning...depends heavily on the folks judging the cases.” It’s been my experience in jury selection, both as a potential juror and as a party to litigation, that the lawyers on both sides are going to move to strike any jurors who are “extreme” in any characteristic. Very rich or very poor, very young or very old, etc. It can certainly be the case that appellate court judges have a strong pro or anti corporate bias, but ultimately appellate courts overturn on the basis of constitutional or procedural issues. They can’t overturn the original findings of a jury just because they disgaree.
Re: the influence of money, both in terms of lawyers and campaign contributions: if the federal government actually decides to throw its full weight behind a case, there is a limit to how much a corporation can spend on legal defense. And, even if the defense is represented by the best lawyers, a compelling criminal case can overcome that. Keep in mind that Enron, Tyco, Worldcom, and Andersen were represented by the white shoe-iest of criminal defense firms. At several points, each prosecution encountered significant difficulties, but the government prevailed in the end.
On political money, there is also a limit to its influence. As someone who worked for the Obama campaign in 2012, I was acutely aware that we were being outspent by hundreds of millions of dollars on the other side. A huge majority of Obama’s 2008 Wall Street backers defected to Romney after the passage of Dodd-Frank. However, various political scientists have found that if both sides are adequately funded in a race, the marginal effectiveness of an additional dollar dramatically decreases. Running an ad 500 times a week vs your opponent being able to do it 1500 times makes no measurable impact. It’s true that in local races, money can have a huge distortionary impact. However, for the kinds of races that affect who gets appointed to lead the DOJ, namely the presidential race, I think this is somewhat overblown.
All this is to say that while I suspect that we would both strongly support significant restrictions on the influence of money in our campaign system, it would be wrong to say that our campaign finance system and the ascendancy of conservative judges eliminates the ability to prosecute white collar crime. With sufficient public anger, and dedicated and courageous prosecutors, there can be successful cases brought against wrongdoers that add some measure of equity to the system.
I’ll toast to that.
The pro-arbitration view is a conservative opinion: that contracts should be as unregulated as possible.
Already there is pressure to remove arbitration from white-collar employment contracts (Uber notably gave into pressure from womens engineering advocacy groups, lead by Susan Fowler).
Lower-wage workers, however, will likely see an expansion of arbitration clauses, as will general consumer contracts. If I understand correctly, all cell phone carriers now require legal rights be waived in place of arbitration in order to get service.
I think the solution is a much bigger whistle blower program where people are encouraged and financially rewarded for stepping forward and preventing systemic corruption and fraud in our companies. This also helps to give direct evidence of who ordered what and then prosecution becomes a lot easier.
You're absolutely, completely, 100% correct! This crap is abominable. It destroys lives and whole communites for no reason at all other than that they're the wrong color.
This case, though? It might be a little different and maybe not an example of the pattern you're looking at. To be clear, the SEC doesn't bring criminal charges. It's quite literally not an option for them. They shouldn't be derided for doing what they're capable of - levying fines.
Others may be charged in the future, I assume.
Is your complaint that she didn't go to jail?
[1]: http://www.mondaq.com/unitedstates/x/180532/Directors+Office...
[0]http://www.businessinsider.com/theranos-employees-made-space...
I sincerely hope that all the high level cadre at Theranos will find it hard to get new employment. That sort of thing has absolutely no place in any organization.
I agree that Theranos is a terrible company and that in a just world and with perfect evidence the execs should be punished heavily but in this world I'd be most impressed if they were just fined into the poorhouse.
There is some hope though, the last paragraph reads:
"Meanwhile, the U.S. attorney’s office in San Francisco is conducting a criminal investigation that could result in indictments of both Holmes and Balwani."
But I would not hold my breath.
Now, if they had committed a real crime, such as copyright violation then that would be a different matter. But mere fraud and potentially impacting the health of consumers? Let's not make a fuss.
>Under what crimes would you like them charged?
Fraud, obviously.
>What proof do you have to support the charges?
They took investor money and made deals with partners like Walgreens based on a product that didn't work as claimed. Either it was an outright deception and they knew they were hawking bullshit, or they sincerely believed they could eventually deliver what they were promising, but in any case they lied to those investors and partners.
But of course they will never go to jail as any of us would for this massive and blatant fraud, jail is for the little people.
I don't doubt for a moment that it was fraud but proving that is another matter entirely.
That may be an issue for civil fraud complaints by investors, but it has no bearing on any action by the government for criminal fraud, and this subthread was about crimes for which they should be imprisoned, not torts for which they should pay damages.
you probably missed (it was just on radio) how Holmes & Co showcased their tech by conspicuously loading samples into the machine and then leading the audience away while rushing the samples to Siemens hardware and presenting the results from it like it was produced by their own machine. Basically investors got a slew of hands of a birthday magician for 400M (though for that kind of money i think even Houdini would rise from the dead to do the show in your backyard)
Though 'fake it until you make it' gets thrown around all the time here.
Medicare and securities fraud. If employees there knew of the deception and followed orders to further it, that could be illegal. Furthermore, for employees who sold shares on the secondary market while aware of the deception, that, too, could be illegal.
At the very least, this merits close investigation.
That we agree on. But proving fraud will be very hard, and the investors themselves have a lot of egg on their face in terms of lack of due diligence. In fact, they claimed at some point that they did do their due diligence and Theranos came up all roses.
FOMO is a powerful hypnotic. I've seen it in action a couple of times and it is very interesting how otherwise rational people suddenly let go of all their reserve.
Still, the investors that sued (who got back ~half of their investment) only have themselves to blame.
The part that I think they should go to jail for is the health aspect. That's something you don't mess around with on any level.
They apparently (based on statements from employees involved) falsified FDA filings under direct pressure from executive management, so, good old 18 USC § 1001 [0], the catch-all crime of lying to any federal agency about anything within it's scope of concern that usually gets trotted out as a reason never to speak to federal law enforcement without the advice of counsel would seem among the more probably potential charges.
That's kind of funny. Many (most?) organizations are exactly like that: willing to break the law in order to get ahead. There would be no Uber and no AirBnb otherwise; there wouldn't even be a Microsoft, either. And those are the most visible and prominent firms.
I worked at a big consulting firm in the 90s, the corporate culture there and then was total indifference to laws, regulations, morals or even common sense. The only thing that mattered was billable hours.
Granted, those companies don't deal with people's health, and it's normal to feel outraged and compassionate towards patients who were put in harm's way by the deceiving tactics and outright lies of Theranos' officials.
But let's not forget this happens everywhere -- laws are meaningless if they're not aggressively enforced: if people simply followed the law there would be no need for law enforcement.
This sentence of yours called to mind a counter-example:
Two companies traditionally in the "business consulting" trade, Atos and Capita, were tasked by the British Department of Work and Pensions with investigating the "fitness for work" of millions of British welfare recipients. Driven by expectations and probably bonuses for producing the desired outcome, they erred overwhelmingly on the side of "fit." A few of their "fit for work" examinees were undergoing intensive care in a hospital, at least one died on the day following the assessment. Apparently the assessment crew didn't even have a single licensed physician on board.
So here we had two typical "bean counter" outfits acting in a way that tragically worsened quality of life for many infirm and/or poor people.
How did I miss that so far? That explains a lot, thank you for that factoid.
> In early August 2007, Ed accompanied Elizabeth to Nashville. Sunny picked them up from the office in his Porsche and drove them to the airport. It was the first time Ed met him in person. The extent of their age gap suddenly became apparent. Sunny looked to be in his early forties, nearly twenty years older than Elizabeth. There was also a cold, businesslike dynamic to their relationship. When they parted at the airport, Sunny didn’t say “Goodbye” or “Have a nice trip.” Instead, he barked, “Now go make some money!”
Or maybe, perhaps the damning evidence against Theranos was so voluminous that the Holmes+Balwani relationship was small potatoes in comparison and not worth the newsprint.
edit: The WSJ recently published an excerpt of the book's chapter devoted to Balwani. Here's the Twitter link (WSJ paywall seems to let in twitter.com referral domain): https://twitter.com/JohnCarreyrou/status/997522528301174784
I wonder why it wasn't common knowledge before.
If this guy is so far off the mark... then you'll just prove him wrong eventually and what better "f you" is there than that?
If you have to go and have all hands chant like that... I gotta think that guy struck a very real nerve... and he may be right.
Someone pointed it out the other day here, and I thought well that's just silly. Then went and listen to some videos and it is kind of freaky. It's like she deliberately changes her voice, but it sounds worse and obviously fake.
https://www.youtube.com/watch?v=YecjzEScXqU&t=105
Here she forgets to fake it for a while:
https://www.youtube.com/watch?v=rGfaJZAdfNE&t=403
I'd think someone should have mentioned it to her. But given the culture in the company I can see what was going on. She could have showed up with a lampshade on her head and nobody would have said anything either. After a while there is nothing to say to someone who does stuff like this:
> Still visibly angry, Holmes told the gathered employees that she was building a religion. If there were any among them who didn’t believe, they should leave. Balwani put it more bluntly: Anyone not prepared to show complete devotion and unmitigated loyalty to the company should “get the fuck out.”
And for a while, wasn't it a successful tactic?
It has a lot of intuitive validity. "Command voice" is definitely a skill that can be taught, and is used by people from military officers to animal trainers and teachers. Given the extent to which the HN audience is amenable to "self-hacking", how many people here would do this if they were convinced it would earn them an extra 5%?
Single new studies with folksy findings tend to be one-offs that can't be reproduced.
It still helps with everyday conversation when my wife is on a different floor of the house, or across the yard, etc etc.
Every once in a while it helps sort out an otherwise mishmash of a professional discussion... when used judiciously of course.
Often people say that higher-pitched, female voices are easier to hear over machinery noises, that’s why car satnavs and voice warnings in cockpits tend to be female. Which would seem to be the opposite of a low-pitched voice being more commanding. What do you reckon?
Almost on topic, some residents of my former high-rise barracks liked playing their bass tracks blaring out the windows, which got my roommate and I thinking, if they have the bass, we can take the treble... and we got our competition bagpipe CDs out and cranked them up. We made our point. (And the barracks mangers shut us both up... )
edit: for example, the second chapter focuses on the "Gluebot", a robot originally designed for glue-dispensing that became the core of Theranos's "Edison" machine. The author goes into decent detail about how this robot differed from Elizabeth Holmes's original vision of a wildly unrealistic microfluidic processor. And how Holmes/Theranos hired a new separate engineering team (which came up with the Gluebot idea) to pit against Theranos's own engineering department after the then lead engineer refused Holmes's request to run his team on a 24/7 schedule.
> ED WAS WORKING late one evening when Elizabeth came by his workspace. She was frustrated with the pace of their progress and wanted to run the engineering department twenty-four hours a day, seven days a week, to accelerate development. Ed thought that was a terrible idea. His team was working long hours as it was...
> Ed pushed back against Elizabeth’s proposal. Even if he instituted shifts, a round-the-clock schedule would make his engineers burn out, he told her. “I don’t care. We can change people in and out,” she responded. “The company is all that matters.”
Carreyrou, John. Bad Blood: Secrets and Lies in a Silicon Valley Startup (p. 28). Knopf Doubleday Publishing Group. Kindle Edition.
Yeah, that's a great person to work for right there.
As some one who has a lot of bloods done (down to 4/5 a month now) you occasionally have to repeat as the vein doesn't work etc and there is always some blood leakage.
So definitely in the machine.
"At her signal, a technician pricked a volunteer’s finger, then applied a transparent plastic implement shaped like a miniature rocket to the blood oozing from it."
Its really interesting, that SV VC seem to have forgotten that very basic question: why have the existing players not come up with something like that? Very often the answer is, they have and they tried and they figured out a long time ago, that it probably doesnt work well enough in the real world.
The car industry has essentially always been very competitive, with a number of innovative companies. Consider the rise of hybrid cars with Honda and Toyota leading the way. GM famously did a lot of the pioneering of modern EVs.
Also, the point grandparent was making is that you see a similar pattern of deception from Tesla. Sure, maybe sometimes it works out. But not always.
Another interesting question is whether deception is actually bad for human advancement in the long run. In fact, maybe the answer is no. I bet a lot of innovations came about because of founders essentially lying to investors to get a check and then ultimately finding a way.
Siemens doesn't have to be a bunch of idiots to not pursue devices that test on smaller amounts of blood; they might simply not have an incentive to do so. If their business model is to sell devices to labs for $$$$, reducing the amount of blood is probably not a big selling point. It only becomes so if you're trying to bypass the lab and go more directly to the customer (as in Theranos with Walgreens). But why would Siemens do that, when it's a less profitable product that directly competes with the other?
For all we know, Siemens already has a smaller, cheaper device that uses only a drop of blood, yet no reason to sell it until they get some competition.
The biggest risk from a medical standpoint of using a machine like Theranos wanted was using capillary blood. You really would need a lot of data to interpret the results like we have for venous blood.
Do you have a source for this? As far as I remember past discussions on HN about Theranos, testing on small samples is notoriously difficult. As an experimental physicist, this seems plausible to me: Say 5% error margin on your result is required. This leaves a lot more leeway for dimensional errors (of the sampling chamber) compared to a few µl. Not to speak of introducing external impurities (or those induced by the sampling as mentioned by the article). I am pretty sure Siemens has lots of incentive to err on the safe side.
If we really like to disrupt this industry, it would be nicer to be able to make these tests in-vivo, in my opinion.
In case you're not a native English speaker: "for all we know" means something like "hypothetically". icebraining's point is that Siemens' behavior is not inconsistent with Siemens having a secret device that can reliably test on small samples, even if they don't sell it. icebraining did not mean to imply that Siemens actually has such a device.
Not proud of it, but I admit that a younger, less grownup version of me once played a similar “what can we get the non-technical senior exec to believe/repeat” game. I guess when you encounter an obvious phony who is likely making 10-100x what you are, you can rationalize these kinds of immature activities to yourself :)
I'd wager most people will just write you off as full of crap. Your test is setting yourself up to fail their test. :)
Emphasis added.
And now, for spine-tingling thrills... (shines a flashlight under his face)
Synthetic Biology Startups!
(campers all scream)
Be brave. Be like Tyler Schultz.
https://www.wsj.com/articles/theranos-whistleblower-shook-th...
Balwani’s outlandish behavior aside, a lot of this stuff doesn’t seem all that bad, if this weren’t a medical product. Raising money for a product you’re not sure will work out, tinkering with what a competitor has done and seeing what you can borrow, launching without a credible fallback and just hoping for the best.
I think I’ve done all of these things, but for software that doesn’t put peoples lives on the line.
the technical mishaps with pipettors and nanocapsules aside, theranos has a culture of 1. secrecy, 2. exec impunity, and 3. incompetence.
i'm sorry to say that theranos is probably not the only biotech company out there which falsifies results. i was never under any pressure to falsify any kind of results in my positions, but the incentives are very clear.
It sounds like they were up against huge obstacles and nowhere near capable of overcoming them. Makes me wonder how anyone thought they could.
Also did the other industry players pretty much know... they had to be full of it?
> When questions or issues came up that had to be taken back to Theranos, he would pipe up with what became a refrain: “I’ll talk to Elizabeth about it.” Larree Renda, the executive who had started out at Safeway as a teenage bagger in 1974 and climbed the corporate ranks to become one of Burd’s top deputies, and other executives involved in the project were surprised by how much latitude he gave the young woman. He usually held his deputies and the company’s business partners to firm deadlines, but he allowed Elizabeth to miss one after the other. Some of Burd’s colleagues knew he had two sons. They began to wonder if he saw in Elizabeth the daughter he’d never had. Whatever it was, he was in her thrall.
Jesus! That's horrible!
She also survived a coup attempt by her board, simply by convincing them to give her another chance. Then she fired the executives that moved against her.
That seems to be at the heart of the issue for me. It is not only the structuring of (financial) on a macro (economy) and micro (Theranos) level that puts profits over the health of patients. It is also the lack of both any liability for the people "just following orders" and the lack of any legal and moral education as part of the engineer training at uni
The boarded included:
* former Secretary of State George Shultz
* William Perry (former Secretary of Defense)
* Henry Kissinger (former Secretary of State)
* Sam Nunn (former U.S. Senator)
* Bill Frist (former U.S. Senator and heart-transplant surgeon)
* Gary Roughead (Admiral, USN, retired)
* James Mattis (General, USMC)
* Richard Kovacevich (former Wells Fargo Chairman and CEO)
* Riley Bechtel (chairman of the board and former CEO at Bechtel Group)
https://twitter.com/JeremyKonyndyk/status/998998156661706753
I totally agree though. That picture was entirely unnecessary in just undercut some of the credibility of the article.