INTRODUCTION
Case Study - The Silicon Valley Start-Up, Theranos
Founded by a 19-year-old Standford drop-out in 2003, the story of Theranos, a Med-Tech Start-up in Silicon Valley is one to consider. The company touted a breakthrough in health technology through the use of small automated devices. In 2014, the company became a unicorn, valued at about $10 billion. However, in the end, it was discovered that the technology was not what the founder Elizabeth Holmes claimed and she was charged with fraud in 2018.1
One of the major issues considered is the unusual roster of names for the healthcare startup, with board members who have more experience in politics and government than in healthcare.
CORPORATE GOVERNANCE, SUSTAINABILITY AND THE ROLE OF THE BOARD
The concept of corporate governance is one that ensures a company follows an established system of rules, practices, and processes. The end goal is achieving the company's set objectives. When a Company implements good governance principles, it wins in credibility, provides safety for investors' money, and generally satisies the interest of stakeholders.
The primary responsibility for ensuring good corporate governance in companies lies with the Board. Thus, the composition of a company's Board should be one that can guide a company to become effective and also sustainable. The Board of Theranos was largely criticised for its composition, and lack in diversity of thought, backgrounds, skills, experiences and expertise2 needed to drive the Company and perform its oversight function effectively. The Board was composed mainly of politicians and military heads.
Drivers of Sustainability – The Necessity of Company Culture
An effective board is pivotal in steering a company towards its goals by providing strategic direction, oversight, and support to its management team.3 However, creating a robust company culture is fundamental to achieving true board effectiveness.4 A culture of trust and open communication is essential for fostering an environment where informed decision-making and effective challenge of management can occur. Corporate culture underpins how boards operate and interact. It shapes the behaviors, values, and practices within an organization, directly inluencing the board's ability to function effectively. A strong culture promotes transparency, accountability, and collaborative problem-solving, which are critical for navigating complex business challenges and making strategic decisions.5
While there are legal guiding principles on the modalities of running a board and achieving effectiveness, experts have recognized the limits of these procedural rules. According to a review on board dynamics, "simply tightening procedural rules for boards while neglecting the importance of strong, high-functioning work groups undermines effective governance."6 This perspective emphasizes that merely adhering to procedural guidelines without fostering a culture of trust and open communication is insuficient.
The case of Theranos offers a vivid illustration of a dysfunctional board, the company's governance structure granted the founder Elizabeth Holmes, extraordinary control, with "99.7% of the voting rights, and the authority to consolidate decision-making power. This centralised authority stiled dissent and critical inquiry within the board,7 ultimately contributing to the company's collapse.8" In contrast, companies like Salesforce and Microsoft demonstrate the transformative power of fostering a collaborative and transparent board culture. Adam Spearing from Salesforce underscores the impact of culture on business transformation, stating that "building towards the future requires working together in an environment of 9 mutual trust and transparency." Similarly, Satya Nadella of Microsoft emphasizes empathy and open communication as essential for fostering a culture where "innovation comes from understanding unmet, unarticulated needs."10
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Footnotes
1. Elizabeth Holmes sentenced to more than 11 years for defrauding Theranos investors of hundreds of millions (2022) Northern District of California | Elizabeth Holmes Sentenced to More Than 11 Years For Defrauding Theranos Investors Of Hundreds Of Millions | United States Department of Justice. Available at: https://www.justice.gov/usao-ndca/pr/elizabeth-holmes-sentenced-more-11-years-defrauding-theranos-investors-hundreds (Accessed: 21 June 2024).
2. Business Roundtable, (2016) Principles of corporate governance, The Harvard Law School Forum on Corporate Governance. Available at: https://corpgov.law. harvard.edu/2016/09/08/principles-of-corporate-governance/ (Accessed: 21 June 2024).
3. Tricker B, Corporate Governance: Principles, Policies, and Practices (4th edn, OUP 2019) 145-150. See also Principle 1 of the Nigerian Code of Corporate Governance (NCCG) 2018.
4. Medland, D. (2015) Corporate 'culture' is not about art, Forbes. Available at: https://www.forbes.com/sites/dinamedland/2015/03/22/corporate-culture-isnot-about-art-no/ (Accessed: 01 July 2024)
5. Smith, P. (2021) Salesforce Values and Culture Driven Innovation, Technology Magazine. Available at: https://technologymagazine.com/company-reports/ salesforce-values-and-culture-driven-innovation (Accessed: 25 June 2024).
6. What makes Great Boards Great (2014) Harvard Business Review. Available at: https://hbr.org/2002/09/what-makes-great-boards-great (Accessed: 25 June 2024).
7. Tevanian, a board member of Theranos noted that Holmes was very good at delecting where important questions about the technology or the progress of the company were asked. ABC News. Available at: https://abcnews.go.com/Business/theranos-ceo-elizabeth-holmes-600-times-broadcast-deposition/story?id=60576630 (Accessed: 25 June 2024).
8. Derwinski, K. (2022) 3 things we can learn about transparency from Theranos, Stewart Leadership Insights Blog. Available at: https://blog.stewartleadership.com/3-things-we-can-learn-about-transparency-from-theranos (Accessed: 25 June 2024).
9. Smith, P. (2021) Salesforce Values and Culture Driven Innovation, Technology Magazine. Available at: https://technologymagazine.com/company-reports/salesforce-valuesand-culture-driven-innovation (Accessed: 25 June 2024).
10. Microsoft's next act (2018) McKinsey & Company. Available at: https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/microsofts-next-act (Accessed: 25 June 2024).
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