Diagnostics

Theranos board: Incurious and exactly what startups don’t need

Did Theranos intentionally mislead its board members or did the non-scientific group keep themselves in the dark? Either way, lessons abound for startups looking to fill advisory positions.

Former Theranos' board directors; U.S. Navy Adm. Gary Roughead (left) and former U.S. Secretary of State George Shultz

U.S. Navy Adm. Gary Roughead (left) and former U.S. Secretary of State George Shultz

Scientific and advisory boards can be a major asset for startups looking to rapidly grow, gain funding, and steer clear of the many hazards on the road ahead. But that assumes the board members know what they’re doing and that they’re kept in the loop.

Theranos had a remarkably well-established board, with former U.S. generals, senators, and two ex-Secretaries of State. Yet as new court documents unsealed by the Wall Street Journal reveal, they weren’t equipped to understand the science and the Theranos management team didn’t try to educate them.

The documents are based on the depositions of two former board directors; retired U.S. Navy Admiral Gary Roughead and former U.S. Secretary of State George Shultz. Both advised Theranos (on paper at least) during the critical years when reports of its “breakthrough” blood test technology turned to allegations of fraud.

In the deposition, both Roughead and Shultz said they were under the impression that Edison could run all the tests — even as news reports alleged its capabilities were exaggerated.

In October 2015, the Wall Street Journal reported that Theranos wasn’t using its flagship Edison device to perform the bulk of its diagnostics. At the time, the company offered 240 tests, all run with just a few drops of blood. A senior employee reportedly stated that just 15 tests were actually run on Edison — the rest were performed using third-party instruments.

Shultz, who was then 94-years-old, said he “didn’t probe into” whether Edison was working as advertised despite the mounting evidence. “Since I didn’t know, I didn’t have anything to look into,” he testified.

Similarly, Roughead didn’t feel he was in a position to call the technology into question. “I don’t have the information that would tell me that it’s true or not true,” he said in a separate deposition.

Ironically, Roughead testified before a Senate committee earlier in his career to encourage the repeal of the military’s “don’t ask, don’t tell” policy. That may have been the case at Theranos: Roughead and Shultz didn’t ask about the company’s secrets and management didn’t tell.

Both left the Theranos board in 2015, soon after the technology issues came to the fore. Concerns over accuracy and reliability persisted, however, forcing the company to eventually void or correct close to one million tests.

Roughead and Shultz’ testimonies were part of a lawsuit brought about by 22 former employees or directors, represented by Partner Fund Management. The suit alleges that Theranos misled company directors about how the tests were being performed and hid the fact that it had purchased commercial lab equipment.

Theranos did not respond to a request for comment on Tuesday morning. In earlier correspondence with the Wall Street Journal about the depositions, a spokesperson underscored that none of the three former directors that were deposed stated that they had been misled.

On the other hand, management didn’t keep them informed. And they arguably stood to benefit from the vagueness of their work, as they tried to elaborately conceal the limitations of Edison and its tests.

Perhaps the San Francisco Business Times’ quote of Holmes from a 2013 Theranos profile still sums it up best: “The company’s culture is such that confidentiality is the essence of its existence.

Photo: Pascal Le Segretain and Chip Somodevilla, Getty Images