Elementary Ms Holmes
On a 2001 conference call, Highfields Capital analyst Richard Grubman made this comment to Enron CEO Jeffrey Skilling: “You know, you are the only financial institution that can’t produce a balance sheet or cash flow statement with their earnings.”
“Thank you very much, we appreciate that . . . asshole,” was Skilling’s reply. We have come to learn from the displays of corporate scandal audacity (Steinhoff, Volkswagen, Bernie Madoff) that aggressiveness and hard-to-find numbers — or those that don’t add up — are indicators of deception. It’s hard to catch a CEO in an all-out lie, so when it happens and calculated fabrications and thievery are laid bare, it is deserving of some carefully considered rapture.
The US Securities & Exchange Commission (SEC) this week charged Elizabeth Holmes with widespread fraud following an investigation of more than two years prompted by revelations in The Wall Street Journal. Holmes is (or was) the CEO of Theranos, a Silicon Valley biotech company with a peak valuation of Us$9bn that raised at least $700m from investors. Once the world’s youngest self-made woman billionaire, she was viewed as a disrupter du jour, the tech world’s answer to the US’S high-cost healthcare system. A Stanford University dropout, Holmes founded her company at age 19, and her idea was this: technology that from a single finger pinprick could test and analyse blood samples for conditions including cancer and diabetes. In theory, it was more accessible, quicker, and cheaper than traditional blood testing. She was democratising health care. She was also a wild exaggerator, peddling a fantasy. Along with former Theranos president Ramesh “Sunny” Balwani, Holmes told investors that Theranos had made $100m in revenues in 2014 and that it was on track to make $1bn in 2015, information that had no basis. The start-up generated little more than $100,000 in revenue that year.
Theranos fudged data and lied about contracts with the US military that did not exist. Worse, its minilab technology could only actually carry out a small number of tests, and the company knew it, so it used outside labs to assess blood samples.
e:
Pants on fire
Holmes, who settled with the SEC without admitting or denying the allegations, will pay a $500,000 penalty and is barred from serving as an officer or director of any public company for a decade; she also relinquished her super-voting control.
Almost always dressed in a Steve Jobs-esque black turtleneck, Holmes was regularly and not coincidentally compared to the Apple founder.
She used the garment as a visual expression connecting her to a globally recognised visionary, all the while overreaching, cutting corners and ignoring good governance.
The SEC summed it up like this: “Innovators who seek to revolutionise and disrupt an industry must tell investors the truth about what their technology can do today — not just what they hope it might do some day.” Holmes assembled a brand-name board that at one time included two former secretaries of state: George Shultz and Henry Kissinger. Rupert Murdoch was an investor, and US pharmacy chain Walgreens even signed a partnership with Theranos.
I wonder if she’s a cautionary tale of just how mesmerised investors have become by the “brilliant dropout” narrative — the club, after all, includes Bill Gates, Mark Zuckerberg and Larry Ellison.