Overview of Companies
Elizabeth Holmes founded Theranos in 2003, with the company’s headquarters located at Palo Alto, California, in the United States ( Hartmans, 2018) . The company, however, ended its operations in 2018 after it was liquated following evidence of fraud and other business malpractices. Holmes held the position of the company’s CEO from its inception in 2003 to its liquidation in 2018 ( Griffith, 2017) . The managerial team also included Channing Robertson a Stanford-based chemical engineering professor, who played the role of a technical advisor as well as the first board member of the company in the early years; and Sunny Balwani, the company’s President. Apart from the company’s board, which included George Shultz, William Perry, Sam Nunn, Bill Frist, Gary Roughhead, Henry Kissinger, James Mattis, Riley Bechtel and Richard Kovacevich, the company was also managed through its medical advisory board, which comprised of former board members or presidents f the American Association for Clinical Chemistry.
The company’s business model was founded on the idea of running blood tests using technology that only needed a small amount of blood and a finger prick. Holmes developed the technology since the tests would be capable of detecting such conditions as high cholesterol and cancer. By creating the company, Holmes sought to develop blood analysis machines with the ability to miniaturize and automate over 1,000 blood tests in a way that would require only little blood volumes to carry out the checks ( Griffith, 2017) . The machines, therefore, would help in overcoming the inefficiencies with the traditional blood testing approaches, which are slow and often require substantial blood volumes to conduct various tests.
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Zenefits, on the other hand, is a U.S. based company founded by Parker Conrad in 2013 ( Suddath, C. and Newcomer, 2016) . Jay Fulcher is the company’s chief operating officer, and it is located in San Francisco, California in the United States. The company provides cloud-based software in the form of service to businesses to help them in the management of their human resources, mainly focusing on improving companies with health insurance coverage. The company aimed at streamlining the managerial needs of small businesses in a bid to save them time that is often spent on paperwork as well as staffing costs by creating an online software that would automate the managerial tasks, including payroll and health insurance.
Ethical or Legal Issues
Theranos maintained high levels of secrecy regarding their operations; at some point, the company’s CEO took some of the employees to court on suspicion that they were misusing the company’s trade secrets. However, questions involving the company’s technology started emerging and eventually contributing to the collapse of the company. The issues appeared after the company's chief scientist, Ian Gibbons, determined that the technology that the company had developed had inaccuracies indicating that it was not ready for public consumption. External scientists also expressed their concerns, but Holmes insisted on providing their services although her technology was faulty. As a result, the FDA, which is responsible for overseeing laboratories, started investigating the company and detected significant inaccuracies in the tests that Theranos was conducted on patients.
Further, the investigations revealed that Holmes covered the inaccuracies and shortcomings of her technology by using traditional approaches in conducting most of the blood tests rather than the company’s blood analysis machines as the company claimed. The element indicated that the company lacked transparency and was dishonest about their operations to both the public and its stakeholders, especially the investors, who were not supposed to know whether the technology worked or not as per their agreement with the company. Moreover, concerns emerged regarding the tests conducted using the company’s machines, which were found to be inaccurate. As a result, the company was forced to close down its testing centers and laboratories.
On the other hand, Zenith demonstrated several unethical issues, including lack of transparency regarding its business operations, use of unlicensed brokers, selling insurance to regions beyond their designated areas, providing false information to their stakeholders, and such unacceptable activities as taking alcoholic drinks and engaging in sexual activity within the office environment. The U.S. laws require insurance brokers to pass a state licensing exam before advising people on issues of insurance or legally selling insurance policies ( Suddath, C. and Newcomer, 2016). The training requirements and reviews are different for each state. In the state where the Zenefits operates, California, the law requires insurance brokers to spend a minimum of 52 hours on a training course offered online.
However, the company’s founder, Conrad established a Google Chrome browser extension, ‘the Macro,' which allowed individuals are working for the company to avoid the 52-hour rule by making it seem like they were working on the training when in reality they were not. Moreover, the company was also using individuals who were yet to pass their tests as brokers, indicating that unlicensed brokers were allowed to perform insurance-related tasks in the company, including advising clients and selling policies. Selling insurance without a license is both unethical and illegal in the region.
Another legal issue facing the company pertains to the brokerage exam; the U.S. law outlines that since each state has a different review, an individual licensed in a given country is not allowed to sell insurance in any other nation apart from the state he or she is authorized to operate. However, Zenefits violated the law by selling its product throughout the country; the company demonstrated great managerial chaos, which hindered proper tracking of the persons who acquired reciprocal licenses or passed their state exams. Further, the company encouraged alcoholic drinks and people getting drunk within the firm’s premises, which is unethical. In one instance, Conrad got into a fight after getting excessively drunk within the firm’s premises. Other unethical issues that the management company that manages the office space of Zenefits highlighted include finding used condoms in the stairwells as well as cups of beer. Such activities demonstrate a lack of respect for the office spaces, which is highly unethical ( Suddath, C. and Newcomer, 2016). Finally, the company exaggerated several facts, including that they were the number one supplier to Anthem among companies with 50 employees or fewer, which was both untrue and unethical.
Stakeholders
The significant stakeholders at Theranos included the company's employees, managers and executives, investors such as Tim Draper, the founder of Draper Fisher Jurvetson, and Larry Ellison, founder of Oracle, among others, creditors, the government, and partners, including Cleveland Clinic, Walgreens, Safeway, and Capital Blue Cross. After the company’s unethical practices were exposed and their operations stopped, with the company's CEO and chief operations officer and president being indicted for alleged massive fraud, the company decided for the CEO to step down. Moreover, the company decided to shut its operations entirely, and announced the decision by sending an email to all the shareholders. However, before shutting down its operations, the company sought to spend several months to repay its creditors using its remaining resources.
The decisions of the company mainly affected the stakeholders, especially the creditors, investors, partners, and employees. The decision to shut down operations primarily affects employees, who were left jobless, therefore being forced to find alternative sources of income. Moreover, since the company had not adequately preferred for closure, employees were disadvantaged in that the company did not have a plan to compensate them as required at the time ( Hartmans, 2018) . On the other hand, investors and company owners suffered from the loss of business. Investors also risked losing their money if the company lacked sufficient resources to compensate the creditors, employees, and return their investment. The decision also affected the company’s partners, who extensively suffered from the loss of business as well as placement as well as an investment as the company was liquidated.
On the other hand, the critical ethical and legal issue that affected Zenefits is the use of unlicensed brokers. The board meeting held after the issue emerged focused on Macro and licensing problems. Conrad, the creator of Macro, was required to leave and he, therefore, resigned from the company. Sacks, the company’s chief operating officer became the company's CEO, and he worked through the crisis to clean up the company. Sacks took such measures as banning alcohol at the workplace and replacing it with coffee, changing the company’s motto to ‘Operate with Integrity’ from the previous motto, ‘Ready. Fire. Aim’. The company also laid off 250 workers, including the company’s enterprise team. The sales vice president and any other executive or manager that helped in the dissemination of Macro were also laid off.
The stakeholders associated with the company include employees, the company’s executives, and the investors. The decisions mainly affected the stakeholders since the executives had to find new approaches to restore the company’s reputation, which was already damaged due to its unethical practices. On the other hand, the decision to lay off workers affected employees who lost their jobs and had to search for new employment. However, the decision was detrimental to the company’s founder, Conrad, who spent most of his time at home after his resignation. He noted that he regretted his decision and he considered working on another start-up.
Generate Alternatives
Based on the above analysis, most ethical concerns surrounding start-ups at the Silicon Valley emanate from conflicts of interest. Most venture investors are highly ambitious, and they expect quick results and hyper-growth ( Griffith, 2017) . Moreover, the world exerts excessive pressure on entrepreneurs by assuming them to change the world through creative disruptive and innovative technologies. These factors influence entrepreneurs to overlook their moral compass as well as the outlined rules and laws. Further, since most of these companies are privately-held, it is easy for the companies to self-reported unaudited financials, or fail to report altogether. On the other hand, the media promotes attractive opportunities for the start-ups to achieve their objectives unethically, for instance through exaggerating a firm’s factual data. Both Theranos and Zenefits provided non-factual data, which largely contributed to their resulting crisis; Theranos, for example, informed the public that they were using their blood analysis machines yet they heavily relied on the traditional approaches to carry out the tests and cover up on the inaccuracies of their technology.
The three significant alternatives that the companies can consider to ensure that they behave and operate ethically include transparency, recusal, and establishing organizational codes. Transparency involves providing that a firm's operations are publicly recognized, including their new partnerships and modes of operations. Transparency builds trusts and eliminates aspects of suspicion that may contribute to a company's downfall ( Brusseau, 2014) . Theranos acts as an ideal example of why companies should embrace transparency in their operations. The extreme secrecy demonstrated in the company contributed to the suspicions that led to the need for the government to investigate the company and eventually to drive to the company's collapse.
Recusal, on the other hand, involves avoiding engaging in actions or decisions that have been contaminated by appearances of conflicts of interest. An example of this approach can be illustrated through Zenefits, whereby the founder of the company developed Macro to help brokers in cheating in tests so that the company could achieve higher growth by making more insurance sales ( Suddath, C. and Newcomer, 2016) . If Conrad had recused himself from the activity, the ethical concerns could have been easy to resolve; however, in this context, it appeared that the founder’s motivation was only to grow the company rather than provide solutions to as many businesses as possible as it was the company’s idea. Finally, developing organizational codes helps in establishing standards about how employees should act when conducting a company's operations ( Brusseau, 2014) . The key benefit of the codes is that they set the standards for acceptable behavior, therefore limiting incidences of unethical behavior.
Based on the above analysis, the best alternative for ensuring ethical behavior in organizations in Silicon Valley is transparency. The key strength of this approach is that it eliminates aspects of suspicion that can put a company on extreme scrutiny that can lead to its collapse. Transparency also builds trust between a firm and its key stakeholders ( Brusseau, 2014) . However, a significant weakness of the alternative is that firms face a high risk of increased competition if other players access their business secrets; yet, patenting a firm's products and operations can play a crucial role in avoiding such circumstances.
References
Suddath, C. and Newcomer, E. (2016, May 9). Zenefits was the perfect startup. Then it self-disrupted. Bloomberg. Retrieved from https://www.bloomberg.com/features/2016-zenefits/
Griffith, E. (2017, December 16). The other tech bubble. Wired. Retrieved from https://www.wired.com/story/the-other-tech-bubble/
Griffith, E. (2017, December 28). The ugly unethical underside of Silicon Valley. Fortune. Retrieved from http://fortune.com/silicon-valley-startups-fraud-venture-capital/
Hartmans, A. (2018, September 5). The rise and fall of Elizabeth Holmes, who started Theranos when she was 19 and became the world's youngest female billionaire before it all came crashing down. Business Insider Retrieved from https://www.businessinsider.com/theranos-founder-ceo-elizabeth-holmes-life-story-bio-2018-4
Brusseau, J. (2014). The business ethics workshop version 1.0 . Washington, DC: Flat World Knowledge, Inc.
