Avoiding Bad Blood: Five Steps to Prevent Noble Cause Corruption

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Imagine this:  A Stanford sophomore envisions a medical device that can run hundreds of blood tests on just a pinprick of blood.  The device would be small enough to keep in your home and simple enough for you to test yourself on a regular basis, with your results sent wirelessly to your doctor.  She drops out of school to pursue her dream.  Her vision captures the imagination of Silicon Valley titans, and she receives the funding she needs to start a company.  Famous people like Henry Kissinger, George Shultz, and James Mattis join her board.  Walgreens and Safeway make billion-dollar investments in her company and revamp their stores to deploy the devices.  More funding pours in, including $100 million from Rupert Murdoch.  The company gets valued at $9 billion, making the founder one of the richest people in Silicon Valley.

 

Only one problem, the blood testing device never works properly.  Even worse, it often gives false results, causing people to treat diseases they did not have or believe they were healthy when they had conditions that needed immediate intervention.  Eventually an investigative reporter uncovers the deception, the company folds and Holmes is charged with securities fraud.

 

John Carreyrou recounts the hard-to-believe story of Theranos and its founder, Elizabeth Holmes, in his carefully researched book, Bad Blood.  So how did a Stanford dropout convince some of the world’s most prominent political and business leaders to invest billions of dollars in a process that was never more than vaporware?

 

Holmes had charisma and a compelling story.  She talked about an uncle who died of cancer, who could have lived much longer if his cancer had been detected earlier.  She talked about her own fear of needles.  She also had a compelling vision for how her device could revolutionize medicine when people could test their blood themselves on a regular basis.  Dangerous diseases could be diagnosed and treated before they ever began showing symptoms.  The data gained from all these tests could lead to more rapid cures for cancer and Ebola and other life-threatening maladies.

 

Investors and buyers so wanted to believe that this could be true that they did not notice that Holmes never talked about how her machines actually performed.  They fell for the fake tests and data that Theranos provided and they excluded anyone who questioned them.

How could the founder of this company continue to secure investments and provide blood tests when she knew her products didn’t work? How could she build a company valued at over $9 billion, and land on the covers of scores of magazines, with a product that could endanger the lives of those who tried to use it?

 

In an interview about Theranos, Carreyrou talks about “noble cause corruption.”  Holmes believed so strongly in the benefits of her device, and she spoke of its wondrous abilities so often, they she was willing to fake evidence to make others share her vision.  Investors and board members thought that someone trying to bring such good to the world must be taking all the necessary precautions to make sure the device worked correctly.  They all basked in the praise that came with creating a company could improve people’s lives, and so they did not want to question the details.

 

I’ve seen the same thing happen in the sector I have worked in for 30 years, microfinance.  I have seen idealistic young people with compelling visions for ending poverty end up as millionaires while academic studies could find little or no benefit for the people in poverty who borrowed from them.  I have seen organizations with a commitment to serve the poor putting clients in jail who could not repay their loans.

 

At the same time, I have seen microfinance organizations grow to serve millions of people while remaining true to their values.  I have seen some that converted to banks and spawned numerous other businesses all focused on maximizing the benefits their clients received.

 

Since reading Bad Blood I have spent some time thinking about what leads one organization into noble cause corruption, while another doing the same work remains true to its vision and values.  This led to the following list of steps that I think every non-profit and social business should take to prevent noble cause corruption.

 

  1. Develop a way to measure the social benefits you seek to achieve and report on this regularly – Theranos focused on investments and sales rather than the accuracy of their blood tests. Many microfinance organizations focused on bad debt and profits rather than whether their clients were moving out of poverty.  Picking a good outcome measure can be difficult, but it will keep the organization focused on the right results.
  2. Invite neutral experts to assess your evidence – Theranos found ways to deceive regulators and avoid outside scrutiny. Many microfinance organizations believed that impact evaluations were not needed as long as clients kept coming back for loans. A thorough review from outsiders can point out whether operations meet standards and results match the vision.
  3. Create a committee within the organization that reviews performance according to the mission and values of the business – Theranos siloed information so only the top two people (who were also sleeping together) got a whole picture. Many microfinance operations work in similar ways (though hopefully without the sleeping together). Giving a committee of staff and board members the ability to review the whole organization and compare it to its stated values helps keep everyone aligned.
  4. Develop a culture based on integrity and transparency – Theranos fired any employee who asked too many questions. Many microfinance field workers never get the chance to interact with top management.  Companies that want to create social benefit should create systems for people on the front lines to bring their questions and complaints directly to those who develop strategy and policies.
  5. Put industry experts on the board – Theranos had an illustrious board, but none of the board members had any experience bringing medical devices to market. Microfinance organizations often have bankers and other business people on their board, but no one who knows much about the lives of people living in poverty.  Without experts to ask touch questions, a CEO can easily bamboozle the board.

 

No organization with a noble cause sets out to become corrupt.  The rot sets in gradually – an inflated report here, some fudged numbers there.  Put enough of these together and they become standard operating practice.  The leaders begin to focus on looking good, rather than doing good, and the staff becomes cynical.

 

If you lead a business or a nonprofit focused on a noble cause, I encourage you to implement the five steps listed above to stop bad practices before they corrupt the organization.  And if you have ideas of others steps that help prevent noble cause corruption, please write them in the comments below.

1 Comment

  1. Jeffrey Ashe says:

    What a great title – “Nobel Cause Corruption,” Your five points are right on target. I want to focus on point four Develop a Culture on Integrity and Transparency. In my evaluations of microfinance institutions I have always found that the staff know what is going on, where the rot is, and what is nonsensical or just plain wrong. In those few instances where those on the top are interested in learning they can change based on the observations of their field staff. Like you I have been involved in their field for a very long time. Let’s focus on the exceptions and build from there. Another observation from conversations with two Mexican women who are living in Bloomington, Indiana about their Tandas – informal savings circles that I held this afternoon. What struck me in asking questions of these two undocumented women was that the Tandas they described creatively dealt with every issue we practitioners have grappled with a humbling level of creativity and innovation all with no interest charged and with on outside help.

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