Post-mortem on Theranos—where were the controls?

The post-mortems on Theranos and its founder, chairman, and CEO, Elizabeth Holmes, continue. As reported in Compliance Week, the company raised more than $700 million from investors in what was termed by the Securities and Exchange Commission as a “massive, years-long fraud.”

But was it a massive fraud perpetrated by a select few; a scheme concoted by a visionary who could not let go of her vision when she could not translate it into reality; a complete, total, and utter failure in corporate governance by both senior management and the board of directors; or a Greek tragedy denoting a fall from grace by an irresistible visionary who came too close to the gods? Yes, yes, yes, and yes.

It is the lack of business reality that presaged the fall of Theranos. All great stories have a foundation myth. For Theranos and Holmes it was that Holmes was afraid of needles and wanted to come up with a simple, quick, and painless way to provide blood for testing followed by an analysis of those samples carried out with greater efficiency than has ever been accomplished before. With this promise, Theranos was set to truly revolutionize blood testing, moving it literally into grocery stores for ease and cost.

As you might expect, The Man From FCPA sees the fall from the compliance perspective. Compliance is largely about controls: compliance controls and financial controls, all wrapped up under the broader umbrella of internal controls. These basics of any best practices compliance program are not sexy, exciting, or even attention-grabbing. Yet, they are the backbone of good compliance and the indicia of a well-run business. This is one very large area where Theranos completely, totally, and utterly failed, and this failure has ruined the company, the good name of Elizabeth Holmes, the company’s investors, and those persons who had their analytical tests “voided” by the company after it admitted its testing was fraudulent.

Obviously if a story is too good to be true, it probably is not true. But when a story like this one comes along, a good look at the internal controls will show how well run the company is during its due diligence.