Tuesday, August 28, 2018

The CEO as Psychopath: The case of Theranos

The SEC complaint[1]

On march 14, 2018, the Securities and Exchange Commission (SEC) that regulates the conduct of  business in the United States released a complaint against Theranos, a company with an apparently novel method of analyzing blood taken from a single finger prick, for signals of health status. In the year preceding the complaint Theranos was valued at $9 billion, based on its projection of revenues from two venture partners, Walgreens, the drug store chain, and Safeway, the supermarket chain. The complaint notes that these financial projections were based on false information that Theranos, and its CEO and Founder, Elizabeth Holmes, supplied to both its venture partners. As the complaint notes, Walgreen and Safeway executives believed, based on Holmes’ claims, that Theranos had a compact blood analyzer, called a minilab, which could perform, “90 percent of the tests that a large, traditional central lab could perform.” Based on this belief, both Walgreens and Safeway executives planned  to open wellness centers in their thousands of retail outlets where phlebotomists would prick customers’ fingers, and using a cartridge, place the tiny blood sample in the minilab, with results wirelessly communicated back to Theranos in minutes. Physicians and patients could get the results of their blood tests almost instantaneously. In the minds of the venture partners, this new technology would upend the lab-testing business, and allow patients and physicians to monitor blood, when necessary, with much more convenience and at far less cost. It could bring preventive and wellness medicine closer to reality by making the early detection of diseases cheaper and more convenient.  
The Deception

This vision was entirely a sham, and as the complaint makes clear, Theranos took many steps to secure this deception. For example, to prepare for the Walgreens’ launch Holmes and her COO (and romantic partner)  Sunny Balwani, bought other companies’ blood analyzers, and Theranos scientists tried to configure them so that they could read blood samples taken from finger pricks rather than from a venous draw. In other words, the company had no working “minilab.” Similarly, when Walgreens executives toured Theranos’ clinical labs they saw rows of the supposed minilabs on shelves as if these devices were being used to test patients’ blood. But in fact they were instruments under development being used for research purposes only. To further underline Theranos’ readiness to supply Walgreens’ wellness centers with minilabs, Holmes lied that the U.S. army was using its blood analyzers in military helicopters.

The program of deception was systematic. When a Walgreens consultant, Kevin Hunter, visited Theranos facilities to discuss a pilot of the wellness center project, he asked where the bathroom was. As John Carreyrou, the author of a detailed history of the Theranos story, Bad Blood: Secrets and Lies in a Silicon Valley Startup writes, “Elizabeth and Sunny visibly stiffened. Security was paramount, they said, and anyone who left the conference room would have to be escorted. Sunny accompanied Hunter to the bathroom, waited for him outside the bathroom door, and then walked him back to the conference room. It seemed to Hunter unnecessary and strangely paranoid.”

But Elizabeth and Sunny were not being paranoid. They worried legitimately that  Hunter would stumble upon lab areas that would reveal that the minilabs were for the most part a figment of Holmes’ imagination. In general, when prospective venture partners would visit, “There were multiple guards at the entrance and they had to sign nondisclosure agreements just to be allowed into the building. Once inside, guards escorted them everywhere, even to the bathroom. Parts of the building couldn’t be accessed without special key cards and were off-limits to them.”

With these deceptions secured, Walgreens awarded Theranos a $100 million innovation fee to help with the buildout and staffing of the wellness centers. These fictions also enabled Holmes to produce false financial statement for her investors, and because Theranos was a private company, it did not have to hire independent auditors to review its books. For example, Holmes prepared a slide deck which “listed six deals with five companies that would generate revenues of $120 million to $300 million over the next eighteen months. It listed another fifteen deals under negotiation. If those came to fruition, revenues could eventually reach $1.5 billion.” These supposed contracts, and the false projection of revenues associated with them, enabled Holmes to raise $200 million dollars of private equity. This was one basis for the company’s $9 billion valuation.

The technical flaw

The false financial projections were essential because the technical vision for the minilab, hyped as a kind of “iPod” that could sit on a patient’s desk at home, was at its base flawed. As the author of an article in Scientific American notes, “When you lance a fingertip, you get both blood and tissue fluid, and this means that the concentration of molecules may be different than if the blood sample comes from a vein.” You can test for glucose with a finger prick, which diabetics do at home, because it is a small molecule. But, “medically important molecules like proteins and lipids are not always found in uniform concentrations throughout the body. The composition of blood from finger pricks from the same person can vary, a problem that doesn’t happen in blood taken from a vein.” In other words, using blood from finger pricks is an unreliable method for testing blood and drawing inferences about a person’s health status.

n addition, the volume of blood from finger pricks was naturally small. This mattered because to perform many tests-- at one point Theranos promised it could do 800-- the blood had to be diluted, which again compromised the reliability of the tests. As Carreyrou writes, “Once you’d used your micro blood sample to perform an immunoassay, there usually wasn’t enough blood left for the completely different set of lab techniques a general chemistry or hematology assay require.” In the time that Holmes had allotted to developing a technology to address these challenges, these technical difficulties were by all accounts insuperable. Scientists had been pursuing this goal for decades. “The ability to perform so many tests on just a drop or two of blood was something of a Holy Grail in the field of microfluidics. Thousands of researchers around the world in universities and industry had been pursuing this goal for more than two decades.”

But Elizabeth Holmes, a young woman of undoubtedly keen intelligence, had dropped out of Stanford University when she was 19 and had only the most limited background in biochemistry and engineering.  Describing her technology to Ken Auletta, a New Yorker reporter, she said, that one process occurred when, “A chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel.” Auletta, no scientist, but a reporter who has written sharp profiles of many business leaders, describes her explanation as “comically vague.” How could it not be--since Holmes had absolutely no background in the science or the technology.  

Finally, Holmes, in many presentations, highlighted how finger pricks would address people’s fears of needles. Yet  one study suggests that only about 10% of people are sufficiently afraid of needles that they would forgo a blood test. In addition, another study of 315 male diabetics who prick their fingers to test for glucose levels in their blood, found that 30% had “prick anxiety” and 33% had general anxiety. In other words, for many, finger pricks are as frightening as needle draws.

The Why and the How

This peculiar case poses two elementary questions Why did Holmes do this and how did she do it?  Let me address the second question first. Consider the case of the “con” or schemes through which fraudsters cheat people out of money. One-time honored method is to entrap a  victim who is a friend of an earlier victim and/or belongs to the same ethnic group. This is called “affinity fraud.” Pyramid schemes are often built in this way. The founder recruits people to sell a product, for example a cosmetic, with the promise that if they recruit other sellers they can get a percent of the latter’s sales. The incentive becomes to recruit sellers, not to sell products.  You make more money the nearer you are to the top of the pyramid. The scheme collapses when the law of exponential grown limits the number of new recruits and the people at the bottom are stuck with thousands of dollars of unsold products. These schemes work best when people recruit friends, neighbors, fellow church goers, since trust is greatest within these social networks. 

Thus, for example, consider the case of Ezra Merkin an unwitting accomplice in Bernard Madoff’s Ponzi investment scheme. Merkin, a prominent Jew who served on the boards of many Jewish organizations, ran two investment funds which were invested in turn entirely with  Madoff. Many wealthy Jews and prestigious Jewish organizations invested with Merkin. Eli Wiesel’s foundation, committed to combating intolerance and injustice, invested with Merkin and lost $15.2 million in the Ponzi scheme. Madoff himself was chair of the business school at Yeshiva University, the most prestigious institution of higher learning associated with modern orthodox Judaism. Merkin and Madoff gained credence because potential Jewish investors felt secure upon seeing that their co-religionists were satisfied with the returns they garnered from the money invested with both. 

Holmes’ too relied on affinity fraud to raise money for her venture and to give it the patina of respectability. In its earliest phases she raised money from friends and family and was fortunate enough to be the childhood friend of the daughter of Tim Draper, a partner in Draper, Fisher, Jurveston. Strikingly, major VC firms were not interested in investing. As one journalist writes, “You couldn’t find Michael Moritz, John Doerr, or Peter Thiel on the Theranos board… When I’ve asked V.C.s why they didn’t pour millions of dollars into a company that appeared to be changing the world, I was told that it wasn’t for lack of trying on Holmes’s part. She met with most top venture firms. But when the V.C.s asked how the technology worked, I was told, Holmes replied that it was too secret to share, even to investors. When they asked if it had been peer-reviewed, she insisted once again it was too secret to share—even to other scientists.”

One unusual feature of the Affinity Fraud that drove Holmes’ early successes was the way in which the board of directors was composed. In 2011 Holmes met George Schultz the former United States Secretary of State. Over the next three years Schultz helped to introduce almost all the outside directors on the "all-star board,” which included William Perry (former Secretary of Defense), Henry Kissinger(former Secretary of State), Sam Nunn (former U.S. Senator), Bill Frist (former U.S. Senator and heart-transplant surgeon), Gary Roughead (Admiral, USN, retired), James Mattis (General, USMC), Richard Kovacevich (former Wells Fargo Chairman and CEO) and Riley Bechtel (chairman of the board and former CEO at Bechtel Group).

Many of these people were connected by their shared membership in the Hoover Institute, a think tank associated with Stanford University. After meeting and befriending Schultz, Holmes “methodically cultivated each one of them and offered them board seats in exchange for grants of stock.” In other words, using Schultz as her reference point she was able to recruit members of his collegial network who would presume that Schultz’s presence meant that Holmes and the company were both legitimate. What is most striking is that these board members were not experts in the areas central to the Theranos’ undertaking,  biochemistry, medicine, and engineering. Yet other individual investors such as Rupert Murdoch, who put $125 million into the company, felt secure in their decision because the board members were storied players in politics and the military, and had all made high stakes decisions in their careers.

The Con Artists and her “marks.”

Perhaps one exception to this rule was Channing Robertson, Holmes’ chemical engineering professor when she was at Stanford. When she first approached him with the idea of dropping out of college and starting a health care company, he remonstrated with her, arguing that she should stay in school. As he reports, she answered that, “I don’t want to make an incremental change in some technology in my life. I want to create a whole new technology, and one that is aimed at helping humanity at all levels regardless of geography or ethnicity or age or gender.” As he reports, this convinced him. “I realized that I could have just as well been looking into the eyes of a Steve Jobs or a Bill Gates.” In retrospect, this looks like a howler of a misjudgment but strikingly, Robertson persisted in his estimation of her as a business genius. After the Wall Street Journal published several exposés of the company, he discounted their import suggesting that, “Holmes was a once in a generation genius.” He compared her to Newton, Einstein, Mozart and Leonardo Da Vinci.

When a man of great repute and great accomplishment persists in this kind of misjudgment we  must entertain the possibility that irrationality governed his relationship to Holmes. It is reasonable to suppose that he was under her spell.  She was  a young, intense, attractive woman with deep blue eyes and undoubtedly keen intelligence.  After the Wall street exposed the company’s fraudulent basis,  he joined the board confident that under Holmes leadership the company, refocused on technology development alone, could make great progress!

Indeed, many of the board members were quite old. Schultz and Kissinger were in their nineties, William Perry in his eighties and  Sam Nunn in his seventies. These are men of great accomplishment whose success surely depended on their ability to read characters. Yet in this case they failed to understand the pathological liar they faced. Kissinger, describing Holmes said, “I can’t compare her to anyone else because I haven’t seen anyone with her special attributes. She has iron will, strong determination. But nothing dramatic. There is no performance associated with her. I have seen no sign that financial gain is of any interest to her. She’s like a monk. She isn’t flashy. She wouldn’t walk into a room and take it over. But she would once the subject gets to her field.” But in fact, she was all about performance. She deliberately lowered the pitch of her voice to make it sound more masculine-- it arrests one’s attention when you first hear it -- and tried to look at people without blinking. Both of these gestures are aimed at projecting a certain forcefulness and an image of command.

One possibility is that these men’s ages- and they are all men- made them vulnerable to the fantasy that they were the intimate partner with a young, attractive, ambitious and intelligent woman. One indication is the fantasy that both Schultz and Kissinger entertained that they could in fact find her mate, even though she was secretly living with her partner, Sonny Balwani, who was also the company COO. Finding her a mate in this way of thinking is an indirect and sublimated way of participating in her love live. George Schultz told a reporter, “My wife and I feel that one of our jobs is to bring her out.” The reporter goes on to note, “They invite her to the theatre, and this year threw her a thirtieth-birthday party at their home, which was attended by her parents, her brother, Balwani, Robertson, and several members of the board and their spouses.” That Holmes hid her romantic partnership with Balwani suggests that she understood the gains she accrued from the board’s conception that she was a romantic innocent, so focused on her dream that she could not find a mate. 

The con artist, the mark and seduction

One measure of her seductive power is the story of her turning around the board’s decision to remove her as CEO. In 2008, Theranos’ head of marketing and the general counsel approached a board member, Tom Brodeen, to report that the company’s financial projections were not consistent with the state of the blood analyzers’ technical development. In other words, they felt that the projections were far too rosy. Brodeen spoke with Don Lucas, the board chair, and an independent venture capitalist who was in his eighties. Lucas convened a board meeting to discuss the evidence. The board decided to remove Holmes as CEO since, based on the faulty financial projections, she had proven to be too young and inexperienced to hold the position. Carreyrou goes on to write; "But then something extraordinary happened. Over the course of the next two hours, Elizabeth convinced them to change their minds. She told them she recognized there were issues with her management and promised to change. She would be more transparent and responsive going forward. It wouldn’t happen again.”

While we must speculate, is useful to try to imagine how she changed the board’s mind, who after all, were presented with evidence of at least gross errors, or in the extreme, malfeasance. It is, after all,  highly unusual for officers of a company to go around the CEO and report to the board. They would do so only under the most extreme of circumstances. 

Consider the following possibility. She had in her leadership role presented herself as a steely woman with considerable ambition and grit. This is one reason she lowered her voice. As I imagine it, in taking up the role of the contrite leader, she appeared vulnerable and open to influence. This added a layer of complexity to her. Her womanly qualities became apparent in the particular sense that she projected a desire to be held and protected. This attracted the board members,  if not sexually, then as concerned and affectionate fathers. In addition, this kind of psychological moment, can stimulate in the oldest of men- several were in their eighties and nineties—a kind of reverie associated with their earlier experiences of tenderness with women. I grant you that this speculative but we need such a speculation to account for what, after all, an experienced reporter calls an “extraordinary” event.  It is also interesting in this regard that when she spoke in public about the importance of Theranos’ work, she emphasized repeatedly her own fright of needles. It is hard to imagine a male CEO doing this. He would risk appearing infantile. But she understood that as a woman, part of her appeal would be her vulnerability, in this case (if it is not another lie) to needles.

I think this explanation of grit and vulnerability wrapped up in the body of a single young woman, accounts in part for the evident pull she exercised over certain men. Safeway, as we have seen, was a Theranos venture partner and planned, as did Walgreens, to open wellness centers in its stores. Carreyrou describes its CEO Steven Burd as being, “over the moon about the partnership,” a decidedly romantic term for describing a business relationship. But Carreyrou does not appear to be exaggerating. As he writes, “He saw Elizabeth as a precocious genius and treated her with rare deference. Normally loath to leave his office unless it was absolutely necessary, he made an exception for her, regularly driving across the bay to Palo Alto. On one occasion, he arrived bearing a huge white orchid.” His executive assistant, “was surprised by how much latitude he gave the young woman. He usually held his deputies and the company’s business partners to firm deadlines, but he allowed Elizabeth to miss one after the other. Some of Burd’s colleagues knew he had two sons. They began to wonder if he saw in Elizabeth the daughter he’d never had. Whatever it was, he was in her thrall.” I think the term “thrall” is right and that his fantasized relationship to her was less of being her father and more of being her lover. After all, love is a most likely culprit in explaining a how hard-nosed businessman who  has met with great success, can make such poor business judgements. In this regard Holmes followed the well-worn path established by all con artists:  find your “mark’s” psychological vulnerability, whether it is loneliness, fear, greed, or sexual attraction and exploit it.

The advertising professional as mark

This relationship between the con artist and the mark provides an account of the role that Patrick O’Neil, a consultant with Chait/Day, the advertising firm, played in the unfolding Theranos Story. In 2012 Holmes hired Chiat/Day because of the role it played in shaping and propelling forward the Apple computer brand. O’Neill worked with Elizabeth on the Theranos logo, building the company’s website, and designing a new font for its marketing materials. Patrick, a gay man was entranced by Holmes, “He was taken with Elizabeth the moment he met her, impressed by her drive to “put a dent in the universe.” Over time some of his colleagues grew suspicions of Holmes. For example, “they could not understand the basis for the  company’s  sales projections, why the company was so secretive about its technology, and the claims that Elizabeth wanted to include on the website, for example, that Theranos could run over 800 tests on a drop of blood. But O’Neill dismissed these concerns, ascribing them  to the standard practices of Silicon Valley startups.”

His resistance was based in part on his own ambition. He admired greatly Lee Clow, also of  Chait/Day, who had created the “think different” campaign for Apple, a minute-long video spot, that is a masterpiece of inspirational advertising. He also co-created Apple’s famous 1984 Macintosh commercial which depicted IBM as the Orwellian “big brother” and Apple/Macintosh as the liberator. O’Neill thought that Theranos had the potential to become “his own legacy moment,” the correlate of the work Clow had done for Apple. After all, Holmes like Jobs had dropped out of school, dressed in a black turtleneck as Jobs had, was singularly driven as Jobs had been, and was building a world changing technology.

O’Neill had over fifteen years created adds for Visa and Ikea, but this prior work, “didn’t inspire him in the way Elizabeth had when she’d first come to  the agency and described the Theranos mission of giving people access to pain-free low-cost health-care. As he told a colleague, ‘I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.’” Theranos was a chance at his biggest winning shot, so much so that he left the agency and joined Theranos as its chief creative officer in 2014. In other words, Elizabeth and Theranos addressed the vulnerability he felt as a creative ad man who had yet to make his mark, to rise above the quotidian ads that sold customers things they did not need, and to do something imbued with meaning. The desire for meaning is as strong in some people, as is the desire for money, power and sex.

Cultural Memes

Holmes also profited from the wider cultural meme associated with the theme of female entrepreneurs in Silicon Valley.  Her backstory – a young genius who drops out of Stanford to follow her dream -- mimicked the well-known stories of Steve Jobs and Bill Gates. Holmes quite consciously played the part. She dressed like Steve Jobs, wearing black slacks and a turtleneck in her public appearances. In informal conversation she referred to Jobs as “Steve” as if she knew him personally. The code name for the Theranos mini-lab was ‘4S,’ a reference to the iPhone 4S.   She had a quote on her desk cut out from a press article, “You start to realize you are looking in the eyes of another Bill Gates or Steve Jobs.” When Jobs died she flew an Apple flag at half-mast on the grounds of the Theranos building on Hillvale avenue. In October of 2015 she appeared on the cover of Inc. magazine in her “signature turtleneck next to the headline, “’The next Steve Jobs.’”

I have no doubt that the fact that Holmes was a woman stimulated much excitement and may have seduced some savvy observers into ignoring the signs that Theranos was fraudulent. One Forbes reporter, Nicole Fisher, who does much to promote women in the fields of STEM ( Science-Technology-Engineering-and Math) suggests that Theranos succeeded for a while, not simply because like all startups it exaggerated its prospects to investors, but because observers like herself were “obsessed” with the issue of women in STEM. As she writes “I do not come to this conclusion lightly. I mentor women, I write about health, tech, and innovation by women, I connect women, I facilitate VC funding for female entrepreneurs, and at present 100% of my employees in my health-related company are women with graduate degrees in the sciences. And we in the STEM movement collectively failed to call Theranos for what it was. We failed at due diligence.”
As she goes on to note, “It was refreshing to see a woman – a young woman – taking the business, health and technology arenas by storm. To see her on the cover of magazines as the youngest self-made billionaire. A college dropout who by 30 was on the verge of breaking every glass ceiling in business and science we wanted to see broken. Thus, she is the perfect example of what blinding desire can bring you: Blindness”

It is interesting to deconstruct the term “blinding desire.” A desire is blinding when its intensity cripples normal perception and thinking. Why should Fisher’s desire be so intense? One possibility is that for a STEM advocate, and a person who promoted women in business, there remained a yawning gap between what she wished for and what she had experienced, that despite her community’s best efforts over a long period time they had yet to create the conditions for a woman Steve Jobs. Wanting the woman Steve Jobs so badly she and her colleagues overlooked the signs that Holmes was a fraud. In this sense Fisher and her colleagues were ready made marks for Holmes’ con. She fulfilled an intense desire for a female entrepreneur as a Silicon Valley icon.

 It is interesting that after Carreyrou’s Wall Street Journal exposés, the prelude to his later book, Holmes sought refuge in the “feminist meme.” As Carreyrou writes, “In a windowless war room set up on the second floor…Holmes and her communications consultants discussed strategies for how to hit back against my reporting. One approach she favored was to portray me as a misogynist. To generate further sympathy, she suggested that she reveal publicly that she had been sexually assaulted as a student at Stanford. Her advisors counseled against going that route, but she didn’t abandon it entirely. In an interview with Bloomberg business, she suggested she was the victim of sexism.Until what happened in the last four weeks, I didn’t understand what it means to be a woman in this space,’ she told the magazine. ‘Every article starting with ‘a young woman” Right? Someone came up to me the other day and they were like, ‘I have never read an article about Mark Zuckerberg that starts with ‘a young man.’”

Holmes’ Motivation

But what motivated Holmes? I have referred to her as a con artist. But if she were strictly a con artist she certainly chose the clumsiest, overly complicated, and error prone con with which to get money and fame. To bet on a new technology that had been pursued by many biochemists and engineers for decades, to persist in the face of insuperable barriers embedded in the reality of blood samples pricked  from fingers, to enter into contracts with due dates she could not possibly meet, and to do all this while inviting maximum exposure- is this a way to cheat people out of their money and get their unearned respect? Decidedly not! Contrast her with the con artist and likely psychopath Bernie Madoff. He had the simplest of cons -a Ponzi scheme- and while seeking positions that gave him sufficient credibility, he nonetheless tried to lie low. While no Ponzi scheme can succeed in the long run, he had the immediate pleasure of being a dominant force among his intimates and acquaintances, and he had the prospect of perhaps dying before he was caught.

It is tempting to say that Holmes was delusional, but I don’t  think that is quite right. Her elaborate strategies of deception show that she was quite realistic about what she had not achieved. She was not delusional in the everyday sense that she failed to understand her situation in the moment. Her pursuit  of the Walgreens and Safeway contracts was quite rational in the tactical sense. She could not get money from serious venture capitalists since she refused to reveal how her technology actually worked. But if she could project serious  revenues in the near term from her ventures with Walgreens and Safeway, her company’s  valuation based on these projections could attract more private equity from rich individuals like Rupert Murdoch who, as we have seen, had already invested $125 million. Moreover, she was adept in negotiating these contracts, intimating that should these executives not sign on, she could go to their competitors.

But in the end, this was purely a tactical intelligence since she could not possibly fulfill the terms of these contracts. A self-appointed private investigator went into Walgreens store to see how the service  worked in a store that was part of the early rollout in Arizona. As he reports, the phlebotomist inserted a needle into his vein not his finger. The blood was transferred to a vacutainer not Theranos’ publicized “micro-container.” The phlebotomist could not do all six tests despite Theranos’ claims that it could hundreds of tests with one single finger prick. The results were not available for the doctor to see for about five days rather than as promised, wirelessly communicated in minutes. The private investigator concludes that, “At this point in its operation Theranos operates as a regular laboratory.” The investigator wondered how this operation could be financially viable since Theranos/Walgreens was charging 50% below Medicare pricing.

In other words, Theranos could not possibly scale up to be a regular laboratory. Consider Quest Diagnosis, “which runs about thirty full-service laboratories around the country; it performs six hundred million tests of all kinds annually—Theranos’ aim is to hit one million blood tests in 2015—and owns four thousand vehicles for picking up samples. The samples are delivered to an assembly line of machines, some larger than an S.U.V., that process vials of blood as they move along on conveyor belts. Instruments on the machines then identify the amount and the characteristics of chemicals present in a blood sample, using a technique called mass spectrometry.” What this suggests is, that just as in a Ponzi scheme, there was no viable end game. Theranos had to fail and like a Ponzi scheme, its failure was baked in from the start.

The Overvalued Idea and Psychopathy

So what motivated Holmes? Let me draw attention to two issues, the psychodynamics of the “overvalued idea,” and the dimensions of psychopathy. She told several journalists that when she was seven she developed detailed engineering drawings of a time machine, a measure of her imaginative strengths and her precocity. In 2003, When in Stanford she did an internship in Singapore, the year that Asia was exposed to the SARS epidemic. As Carreyrou writes, “When she got back home to Houston, she sat down at her computer for five straight days, sleeping one or two hours night and eating from trays of food her mother bought her. Drawing from new technologies she had learned about during her internship and in (Channing) Robertson’s classes, she wrote a patent application for an arm patch that would simultaneously diagnose medical conditions and treat them.”

This basic idea which Robertson later characterized as inventive, formed the basis for the first iteration of Theranos, called, “Real Time Cures.” She recruited a PhD student, Shaunak Roy who thought the idea far-fetched, but was swept up in Robertson’s enthusiasm and the excitement of joining a start-up. Yet later, “As the money flowed in it became apparent to Shaunak that a little patch that could do all the things Elizabeth wanted it to do bordered on science fiction. It might be theoretically possible, liked manned flights to Mars were theoretically possible, but the devil was in the details.” In other words, she was recreating her seven-year old “time machine.” This pattern continued. With no real training in engineering, chemistry and biology she could not possibly grasp what challenges her scientists faced in trying to create a blood analyzer that fulfilled her vision/fantasy of their capabilities. For example, she insisted that her minilab perform four classes of blood tests, but this required a recalibration of pipettes every two or three months which meant the whole device would be out of commission for five. That is why, when explaining Theranos’ blood analyzer to the reporter Ken Auletta, she was, as he noted, “comically vague.”


What kind of disorderly thinking does this overvaluation of a fiction or fantasy represent? I am drawn here to the psychodynamic idea of “splitting” as a method of thinking.  Consider conspiracy theories. They have the satisfying consequence of allowing its proponents to believe  that all the bad things we encounter in our lives --wars, financial crises, crime-- are due to the machinations of a cabal of singularly evil people. It is not just that reality itself is messy. Rather it is beneficent, were it not for the cabal. So, the split is, “we are the source of goodness, the cabal is the source of all badness.” One can see how the idea of a conspiracy can become overvalued since its primary purpose is to prevent the believer from confronting reality’s inherent messiness and the anxieties it stimulates.

This kind of thinking has its origins in infancy and childhood. Children are drawn to tales of bad witches and good witches (fairies)  – think of  the movie, The Wizard of Oz - as a way of avoiding the harsher reality that sometimes their parents, who are the source of beneficence, can also cause them pain, frustration and disappointment. As we mature emotionally and intellectually we come to accept the messiness of both interpersonal and impersonal reality. But it is easy to regress in our thinking under condition of stress and difficulty.  

One hypothesis is that Holmes overvalued her fictional ideas as a way of splitting ideation from the messy reality it was supposed to represent or model. It was as if the messy world of liquids, microchannels, molecules, a world that the good scientist must  partner with if she is to harness it, could be denied. If this hypothesis is true, it means she imported a primitively emotional way of processing the world into her cognitive functioning. In other words, her thinking in the end, however imaginative, was also primitive, or grossly immature. It also means that to sustain her psychological equilibrium she had to think in this way. One way of thinking about this is to say that her creative process was fatally distorted by her emotional primitivity. Seen in this context her hero worship of Steve Jobs, appears juvenile, like a teenager hanging a poster of a rock star above her bed.

It is interesting in this regard that as Carreyrou reports, she had an eating disorder when she was a teenager. One feature of  these disorders is that the body in its ugliness becomes the enemy, and the will becomes the agent of all corrective action. The will is good, and the body is bad. It is speculative but perhaps not far-fetched to imagine that she transformed this mechanism of thought from her pre-occupation with her body into her thinking, where her ideas are good and overvalued, and material reality is bad. This explanation has the merit of explaining why she apparently had little interest in the science and engineering of her ideas. That was quotidian and even ugly work!

Psychopathy and terror

But I think this is half of the story of her motivation. One can be prey to the seduction of the overvalued idea but remain passive in relationship to it. One can be an armchair conspiracy theorist and take no steps to combat the evil cabal. What drove Holmes to embed her fantasy in an organization with grandiose ambitions?  I am drawn here to ideas associated with psychopathy. Of course, one feature psychopathy is grandiosity, the person’s belief in her superior qualities and her immunity from failure. Should the psychopath  be thwarted, the fault lies in inferior others who foolishly stood in her  way or conspired against her. Holmes’ conviction, reinforced by those she conned, that she was the second Steve Jobs, was one signal of her grandiose self. 

But another and singular feature of psychopathy that is relevant here, one that helps us understand Holmes’ drive, is the great pleasure psychopaths take in dominating people to the exclusion of all other considerations that might influence others, for example their own self-interest, or the wider features of the setting in which they operate. [2] Moreover, psychopaths  seek domination with relative ease because they are much less fearful than others, or respond to internal signals of fear with much less reactivity.

Working at Theranos meant living in a setting of terror and ruthlessness if and when you questioned the viability of the enterprise or the veracity of its claims. When an early CFO, Henry Mosely questioned some of the financial statements, worrying that the company was fooling investors, “Elizabeth’s expression suddenly changed. Her cheerful demeanor of just moments ago vanished and gave way to a mask of hostility. It was like a switch had been flipped. She leveled a cold stare at her chief financial officer. ‘Henry, you’re not a team player,” she said in an icy tone. “I think you should leave right now.’ There was no mistaking what had just happened. Elizabeth wasn’t merely asking him to get out of her office. She was telling him to leave the company—immediately. Mosley had just been fired.”

She used her partner and her second in command Sunny Balwani as her enforcer, a role he took up with gusto since he appeared to be a natural bully. “He chastised any employee who questioned the accuracy of the company’s blood tests ‘telling staffers ‘this must stop.’” “He ensured that scientists and engineers at Theranos did not talk to one another about their work.” He was boastful and patronizing toward employees, instilled a culture of fear, and took the lead role in firing employees who thought independently. The scientists were afraid of him. He hired dozens of Indian employees who were working in the U.S. on H-1B visas. If they were fired or lost their jobs they were at risk of being deported. Balwani could easily dominate them. As Carreyrou writes, “It was comparable to indentured bondage.” After lab inspectors from CMS, the Center for Medicare and Medicaid Services,  reported that the blood testing lab posed, “immediate jeopardy to patient health and safety,” Holmes seeking to avoid blame,  both broke up with Balwani and fired him. This is one measure of her instrumental relationship to a supposedly intimate friend.  As the saying goes, “There is no honor among thieves.”

Finally, in dealing with disaffected employees or those who quit, Theranos also used its outside counsel David Boises to threaten anyone with legal action, with its attendant costs and stress, who disclosed any of Theranos’ dilemmas or difficulties in making good on its stated claims. 


Holmes’ psychopathy is evident in her ruthlessness. Ian Gibbons, the chief scientist of Theranos,-was distraught over the gap between Theranos’ promise and the challenges he faced in bending the science to his will. He heard Holmes lie to employees about Theranos’ progress and he knew that Holmes and Balwani had faked the test results of their devices. When later he was going to be deposed in a law suit between Theranos and a physician over a patent dispute, he feared that his job depended on his testimony. “If he told the truth about the problem-racked state of the Theranos technology he'd be fired, and at age 67 unlikely to find another job. So, if he told the truth he'd harm himself, the people he worked with, and the company. If he lied, patients using Theranos technology would be exposed to mis-diagnosis danger and even death.” He committed suicide by taking a massive overdose of acetaminophen washed down by wine.

Holmes’ response was close to inhuman. “Gibbons’ wife, Rochelle, was overwhelmed with grief but she found the strength to call Elizabeth’s office and left a message with her assistant informing her about Ian’s passing. Elizabeth didn’t call back. Instead, later that day, Rochelle received an email from a Theranos lawyer requesting that she immediately return Ian’s company laptop and cell phone and any other confidential information he might have retained. Inside Theranos, Ian’s death was handled with the same cold, business-like approach. Most employees weren’t even informed of it. Elizabeth notified only a small group of company veterans in a brief email that made a vague mention of holding a memorial service for him. She never followed up and no service was held.”

Domination and no end-game

One puzzle in considering Holmes’ decision making is her apparent failure to consider that she had no end game. Once she launched on the trajectory of promising results years ahead of what the science and engineering could deliver she could not possibly fulfill the contracts that were at the basis of the company’ s high valuation. This puzzle is solved when we consider that the ultimate source of Holmes’ drive was not to succeed per se. Instead, her drive was to dominate others.

This helps explain one report of her actions which on the surface appear most puzzling. After the Wall Street Journal  exposés, the FDA’s (Food and Drug Administration) banning of her devices, a civil and criminal investigation into her conduct, and two class-action suits, she spoke at the American Association for Clinical Chemistry in Philadelphia.  As one journalist reports, “Before she stepped out onstage, the conference organizers played the song “Sympathy for the Devil” for the ballroom, packed with more than 2,500 doctors and scientists. Holmes was wearing a blue button-up shirt and black blazer (she has recently abandoned the black turtleneck), and she spoke for an hour while rapidly flicking through her presentation. The audience was hoping that Holmes would answer questions about her Edison technology and explain whether or not she knew it was a sham. But instead Holmes showed off a new blood-testing technology that a lot of people in the room insisted was not new or groundbreaking. Later that day she was featured on Sanjay Gupta’s CNN show and a few weeks later appeared in San Francisco at a splashy dinner celebrating women in technology. ‘Elizabeth Holmes won’t stop, Phyllis Gardner, the Stanford professor, told me. ‘She’s holding on to her story like a barnacle on the side of a ship.’”

Ah shamelessness! The journalist suggests that her behavior reflects her ability to compartmentalize her experience. But I propose an alternative explanation. As a person with psychopathic tendencies she saw her appearances at the conference, on TV and at the dinner, as more occasions to try to dominate others by the force of personality. Like a psychopath she is not thinking longer term, psychopaths are not good planners, but rather was responding to the opportunities presented in the moment where once again through her charm, intelligence  and persuasiveness she could wind up on top. That she had in fact failed is of no account. Inferior others cause the failures. To the psychopath there are always other people and other occasions. This also explains why, after the SEC investigation and the Wall Street Journal exposés, Holmes was meeting with investors, hoping to raise money for an entirely new start-up idea!”

This story is a reminder of our vulnerability to con artists who prey on our desires for fame, love, meaning and money. But Holmes as we have seen was not a rational con artist who uses her skills to gyp people out of their money and then disappears. This is the classic “sting.” She combined con artistry with psychopathy and her grandiosity was directed toward being a public genius. She had talent and imagination, but there was a primitivity in her makeup which made her thinking immature and juvenile. When she failed, her penchant for domination kept her going. While not delusional, she lived in a world of make believe where, “wishing makes it so.”

 CEOs and Psychopaths

There is an internet meme that suggests that 20% of CEO’s are psychopaths. The reports about this fact come from a single cited study done by a forensic psychologist in Australia. The text of the report on this particular website refers not to CEOs, but to “corporate professionals” in supply chain management positions, rendering suspicious the statement that these were in fact CEOs. I cannot find traces of this particular study anywhere. On the surface such a study seems implausible. Imagine finding a random sample of CEOs and asking them to submit to a survey designed to diagnose murderers!  

I did find one serious study of this issue co-authored with Robert Hare who designed the original psychopathy check list. It consisted of 203 “corporate professionals” in a management development program, 10% of whom were CEOs or division presidents. The senior author had access to this convenience sample and to their corporate records because of his long-standing consulting relationship with the company. The study correlates a modified checklist for detecting psychopathy with how these professionals are rated along several dimensions, such as charisma/presentation skills, strategic thinking and communication, and most importantly, performance. 80% of the participants scored between zero to three on the psychopathy check list compared to an average score for male prisoners of twenty-two. This corporate sample scored lower than a community (non-offender) sample. Most importantly, the more a program participant had psychopathic traits, the lower was their performance rating, or their ability to produce results.

I take this as good enough evidence that psychopaths in corporations are weeded out. They may be charismatic and persuasive but they don’t deliver the goods. This result accords squarely with the fact that psychopaths are impulsive and don’t plan well. Holmes of course was a founder and owner, so she was self-appointed. But because her plans were grossly unrealistic and she took no care to plan for contingencies and failures, focused as she was on domination, her failure was callosal.


[1] I wish to thank my dearest friend and colleague, Gary Lande who spent many hours with me discussing this case and gave me invaluable pointers toward understanding what happened.
[2] Look at the interview of a Canadian psychopathic killer, already imprisoned for his crimes, berating an interviewer about being accused on TV for being a liar when he was wiling for some time to talk about his other crimes. He is the aggressor in the interview, trying to dominate the interviewer (https://www.youtube.com/watch?v=hLTAjW5Twlk)