Theranos makes us more cynical about business

Now that A jury has found former Theranos chief operating officer Ramesh “Sunny” Balwani guilty of defrauding investors and patients., commentators will raise familiar questions about the indiscriminate and excesses of Silicon Valley’s start-up culture. But the Theranos episode has done more than tarnish the technology industry. This has reinforced widespread cynicism about companies everywhere aiming to pursue a higher purpose.

Early in its history, Theranos stated that its mission was to “facilitate early detection and prevention of disease and empower people everywhere to live their best lives.” It sounded good, but when Holmes was reassuring his investors with Sunny that “you can build a business that does well by doing well,” employees of Theranos discover serious flaws in the company’s blood testing equipment. Were were Eventually the board members, investors and board members realized that they had become victims of massive deception.

Theranos is hardly the only company that has thrown a cloak of high-minded rhetoric over bad behavior. Another health care company, Turing Pharmaceuticals, stressed that it is “dedicated to helping patients, who often have no effective treatment options, by developing and commercializing innovative treatments.” And yet The company’s CEO, Martin Shkreli, Raised the price of a life-saving drug from $13.50 to $750 per pill and was later imprisoned for securities fraud.

And look at Purdue Pharma. It has declared that “compassion for patients and excellence in science drive the discovery of new drugs.” This is on the part of a company that fueled the deadly opioid crisis through irresponsible marketing of highly addictive painkillers like OxyContin.

These companies and others are the worst in a range of industries,
A particularly ardent practitioner of so-called virtue notation – asserting a belief that a company knows will play well with stakeholders, but is not actually supported by its actions.

research by James D. Westfali And sun hyun park has shown that virtue signals can be surprisingly effective in companies. This is because no one has enough incentive to hold companies accountable for it.

The researchers found that executives employed a mix of ingratitude, reciprocity, and retaliation to keep employees and external stakeholders from questioning actions that seemed contrary to their words. Using intuition and reciprocity, they practice flattery and offer favors to build goodwill. Using negative reciprocity and retaliation, they punish and exclude those who seek to expose them.

These tactics, when placed in the hands of sophisticated executives, can fool both employees and external stakeholders, including board members, securities analysts, management consultants and even journalists.

All of these strategies were at play in Theranos, Turing, Purdue and others to some extent. But the gap between words and actions eventually became so deep that the truth inevitably came out.

Some companies, in the name of corporate purpose, have managed to make their way onto ESG (Environmental, Social and Government) lists with the aim of encouraging ethical investment, as well as engaging in highly unethical behavior. For example, game company Activision Blizzard earned a spot on the coveted list despite being allegedly rife with workplace sexual harassment that its executives reportedly knew about and failed to stop.

As a business professor who studies purpose-driven organizations, I’ve seen people roll their eyes at my insistence that a company should articulate a mission that serves both a business and a social goal. Do you do They see such statements as a waste of time paying only lip service to concepts that sound good. Such skeptics would point to companies like Theranos and other industries to take their stand.

And yet, my research shows that objective public relations can and should be much more than practice. Properly deployed, it can truly energize an organization and deliver to shareholders, employees, customers, the planet and society as a whole.

Take another company, Livongo. At the time of its founding, seven years ago, its mission was to “empower people with chronic conditions to lead better and healthier lives”. It was not just words. The CEO, Glenn Tullman, used that statement to successfully guide his company to an expansion, an IPO, and eventually a takeover by any other company – all without losing its original purpose.

For Tullman and many of his employees, the purpose was partly driven by personal experience. Tullman’s own son has type 1 diabetes, and most of his staff had a family member either suffering from a chronic health condition or were dealing with one themselves. Many of them already knew what it was like to continuously monitor diabetes with a glucose bar. His empathy for Livongo’s clients led to holistic methods of treating the disease, including regular in-home data collection, free medical supplies, personalized advice and interventions.

During its rapid growth, Livongo remained committed to giving its members more control over their own health and less reason to visit expensive clinics and hospitals. In achieving these goals, the company sometimes incurs more costs than some investors think. But living up to his objective, Livongo managed to prove the skeptics wrong.

Sunny also said that Theranos sought to empower people to lead healthier lives. But that statement turned out to be an excuse to hide deceit and greed. Other CEOs shouldn’t start down the same path by abusing the concept of purpose, even if their intention is far less deadly.

When companies claim beliefs that do not withstand scrutiny, they betray a cynicism that the public can understand, perpetuating a cycle of mistrust. But my research has shown that when companies follow a stated objective that is both profit-minded and socially conscious, they have a significant advantage over those that do not.

Let companies like Theranos, Turing and Purdue stand as a lesson to those whose purpose is primarily an empty PR effort. The public deserves better. Customers, employees and investors deserve better. It is up to Corporate America and its leaders to back up their noble words with lasting and concrete actions.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.