Insights

Could Leadership Diligence Have Made A Difference At Theranos?

May 8, 2022

With the recent release of The Dropout on Hulu, the healthcare world gets a front row seat to a dramatization of Elizabeth Holmes’ rise and fall, building blood testing company Theranos. Theranos ultimately dissolved in 2018. According to Crunchbase, Theranos raised $1.4B over 10 years and as many financing rounds, with famous investors such as Oracle’s Larry Ellison, Walmart’s Walton family and Rupert Murdoch, among many others. The vision, drive and passion that Holmes brought to the company certainly compelled investors to feel confident in Theranos’ direction. As we’ve learned with her early 2022 wire fraud-related convictions, she lied to investors about the efficacy of Theranos’ device. 

An eerily similar situation happened with lesser known uBiome, a gut microbiome stool testing company raided by the FBI in 2019. Outside of healthcare, Apple+ recently released WeCrashed, diving deep into the creation and ultimate professional peril of Adam Neumann as CEO and co-founder of WeWork. While these startup stories are certainly the exception, it’s clear from these examples that assessing the behaviors of leaders and their teams is just as important as the diligence completed on the company and business model itself. 

Understanding Leadership Diligence

Basic leadership diligence typically includes understanding:

Guy Raz recently had Neumann’s former co-founder, Miguel McKelvey, on his podcast How I Built This where they discussed Neumann’s leadership style. Diplomatically, McKelvey stated that “building a billion dollar company is hard and takes a unique person,” but noted unsurprisingly that he would not start another business with Neumann. Part of the challenge of leadership diligence is understanding what those truly unique characteristics might be, as well as any that might get in the way of their success. 

Behavioral Dimensions of Leadership Diligence

Some assessments look at behavioral dimensions such as adjustment (which relates to composure, optimism, and stable moods), interpersonal sensitivity (which relates to being agreeable, considerate, and relationship-oriented), and assertiveness (which relates to confidence, expressed influence, and drive to take charge). Depending on where a leader lands within these dimensions, they can be both strengths and at certain times, can get in the way of success. McKelvey referred to those potential de-railers as “shadow” traits, and discussed quite accurately that there is “shadow in all of us.” His hindsight learning was that we should all be bringing those shadow areas forward and to bring awareness to them, not punish people for them. 

Revealing What Sits Below the Surface

There are many validated tools in the market to quantify these dimensions, and when coupled with interviews by an organizational psychologist or other trained professional, can generate insights for investors that will ultimately help them understand the appropriate tools and resources necessary to ensure success. Sample questions a psychologist might ask the leadership team include:

While there are many public accounts of Holmes’ tendencies and behaviors, her trial illuminated insights as key stakeholders took the witness stand. For example, former lab director Adam Rosendorff stated in his testimony that he left “very skeptical” of the tests they were administering and it “was a question of my integrity as a physician” to stay on. While it’s difficult to say whether team interviews and psychometric assessments could have told Holmes’ investors the full story that we now know, it is possible — with the right tools and approach — to tease out what sits “below the surface” in an organization. Robert Marshak’s book Covert Processes at Work is an excellent book outlining these approaches.

The Power of Executive Coaching

These tools should be used as additional data points to round out the diligence process and if leveraged correctly, can help investors provide the right support and leader development resources to ensure these CEOs, founders and teams are effective. Executive coaching is a critical tool that the likes of Holmes and Neumann would have benefitted from. At a 2021 event, Neumann reflected "at some point [it went to my head]. I think the moment you lose focus on really the core of your business and why this business was what it meant to be." This is a great example of the benefit of having an outside, unbiased sounding board like an executive coach to ensure that a CEO is focused on the right elements of the business in order to both drive growth and ensure team engagement and success. The results of leadership diligence assessments are the perfect tool to leverage at the beginning of an executive coaching relationship. 

According to the Institute of Coaching, 70% of coachees studied improved work performance, relationships, and communication. Additionally, their research shows that executive coaching realizes a 6x average return on investment. Founding teams’ willingness to go through the leadership diligence process is also a helpful data point — it’s likely that highly private executives such as Holmes would have refused such assessments — perhaps the only data point these investors would have needed. 

While it is easy to be convinced of a founders’ potential based on a compelling vision, charismatic and engaging conversations, excellent product-market fit, and a passion for the business, there is often important information below the surface that can help both investors and more importantly, the leaders themselves, with where there are opportunities for leadership growth. Investing in companies with both financial capital and leadership capital together will ensure that stories like Holmes’ continue to be the exception and not the rule.

Noumair, Debra A., et al. “X-Ray Vision at Work: Seeing Inside Organizational Life.” Research in Organizational Change and Development, 2017, pp. 203–248., doi:10.1108/s0897-301620170000025006.​​

Share
You may also like

Some of our clients

Aduro
Prealize
Remedy Partners
Trapelo by Intervention Insights
Healthloop
Antidote
Arcadia
AspenRx
Carecentrix
Clarify Health Solutions
Cohere Health
Connections Health Solutions
Contessa Health
Cortica
andros
Cricket Health
Crossix
eMindful
Genome Medical
Glooko
GNS Healthcare
Healthedge
Healthmyne
HealthPlanOne
iN2L
Independent Living Systems
Iodine Software
Kara Health
Kinsa
Lightship
MacroHealth
Manifest Medex
Maven Clinic
MDsave
MedAvail
MedVantx
Mequilibrium
Mt Sinai
NovuHealth
Nursegrid
Omada
One Digital
PierianDx
Propeller Health
Rethink Care
SCA
Shearwater Health
Solera
Syapse
Tia
TruHearing
Truveris
Verana Health
Vesta Healthcare
Vetsource
VisiQuate
Vitality
Zelis
Discovery Health Partners
Kalderos
Canvas Medical
Pocket Health
Onduo
Everyday Health
Groups
Post Acute Analytics
Uprise Health
CareXM
Spencer Health
TBH
MIC
Freespira
Owl Insights
Claritas Rx
Cleerly
Complion
Advocatia
Truepill
Sempre Health
Trellis Rx
Audacious Inquiry
Medable
Ontrak
LeanTaas
WPAS, Inc.
Brightline
NuvoAir
Belong Health
Carrum Health
Azara Healthcare
Phil
eVisit
Abarca
Calibrate
Helix
Valgenesis
AvaSure
Silversmith Capital Partners
BrainCheck
Vivalink
Elation Health
Oshi Health
ProJenX
Avalon
Cranemere
Solis Mammography
Main Street Health
Russell Street Ventures
Big Health
Healios
Almaden Genomics
Forge Health
Gather Health
Annexus Health
DotCom Therapy
Elucid
Wondr Health
Lyra
AMPS
Progeny Health
Nomi Health
Vita Health
Henry Schein One
Welcome Health
SeamlessMD
Workit Health
Soluta
Novum Health
Marquee Dental
Intermountain Ventures
BACA
WelbeHealth
Virta
Muse® by Interaxon Inc.
Uno Health
AutoCruitment
bswift
CertifyOS
Chicago Pacific Founders
DexCare
ENT Specialty Partners
Goldman Sachs
Harmony Recovery Group
Health Management Academy
ID Connect
MediaLab
MEDSIR
MyCare Medical
Nevada Behavioral Health
Ochsner Digital Health
On Belay
Oncology Care Partners
Patina Health
Press Ganey
Renalogic
Roivant/ Zest Dermatology
Spesana
Stella
Surgo Health
US Heart and Vascular
XP Health
Zenyth Partners
The Smilist
Laguna Health
Front Range Clinic
Edenbridge Health
Align ENT + Allergy
Apex Health Solutions
Veterinary Innovative Partners
SendaRide
Tailor Made Compounding
Allymar Health Solutions
Psych Hub
b.well
Home Care Delivered
Fortified Health Security
Fluent
Homebase Medical
Eon Health
NCQA
Hicuity Health
Synergy Health Partners
Inbound Health
Repose
Strive Health
Synapse Health
Accorded
Vytalize Health
Muir Wood
Mindoula
Women’s Care
​Sunstone Therapies
Payground
Ark Behavioral Health
Janus Health
Gratia Health
ParetoHealth
eBlu Solutions
Allergy & ENT Associates