What can NGOs learn from the trial of Elizabeth Holmes?

The recent downfall of Elizabeth Holmes can teach NGOs some valuable lessons about humility, corporate governance and accountability, argues Alexandra Dufresne, lecturer in law and advisor to many organisations.

Elizabeth Holmes, the founder of Theranos, was recently convicted on multiple counts of fraudExternal link, for which she could face up to 20 yearsExternal link in prison. The fraud at Theranos, a company that was once valued at $9 billionExternal link (CHF8.3 billion), was breathtaking in its audacity, raising questions about how so many investors, businesspeople and government leaders could have failed to recognise that the company’s key product did not work.

Holmes’s trial has served as a cautionary taleExternal link for Silicon Valley and has spurred extensive discussion about the “lessons learned” for startupsExternal link, biotech companiesExternal link and the corporate world more broadly. But what lessons does the Theranos case hold for non-governmental organisations (NGOs)? This question is relevant for Switzerland, which has a vibrant NGO sphere. 

In my view, NGOs can draw five lessons from the Theranos debacle:

Beware of mythologising the founder

Mainstream media in the United States appeared captivated by Holmes’s persona. Many media portraitsExternal link were puff pieces focusing on key aspects of the myth she sought to create – from her black turtlenecks External link(in homage to Steve Jobs) to her learning MandarinExternal link as a child. The fact that she dropped out of Stanford at age 19 and conformed to a certain standard of beauty only added to the allure. In rushing to tell an engaging story about Holmes’s persona, however, the media failed to ask hard questionsExternal link about the substance of her work, until her fraud was eventually uncovered by Wall Street Journal investigative reporter John Carreyrou.External link

Many nonprofits, like the highly esteemed Partners in HealthExternal link, are started by charismatic and passionate leaders who are like tech entrepreneurs in that they are eager to “disrupt” the status quo and willing to take large risks to pursue their vision. Many leaders and their nonprofits have compelling “origin stories” that can quickly lead a mythology, especially when retold by prominent journalists,External link such as former New York Times journalist Nicholas Kristof.

One risk, however, is that these origin stories are not always true, as evidenced by the devastating case of Somaly MamExternal link, a Cambodian advocate for survivors of sex trafficking whose charity was promoted by celebrities around the world until reports emerged that her story and the stories of some of the girls she “rescued,” were fabricated. External link 

A more common risk is that these stories are true, but potentially misleading, in that they can distract or discourage people from asking tough questions External linkabout the quality of the organisation’s work. Even when the founder truly is an exceptional person, hero worship can undermine efforts to invest in the culture, structure and sustainability of the organisation. It can lead to the familiar problem of “founder syndrome,”External link  which can blind the founder to their limitations, and prevent the NGO from hiring or listening to people with expertise that the founder lacks.

Use ‘fake it till you make it’ strategies carefully

Elizabeth Holmes famously embraced a “fake it till you make it” strategy External linkcommon in Silicon Valley and in conversations about female empowerment. Holmes, who dropped out of college aged 19, refused to listen to experts with vastly more scientific knowledge than herself. While I generally encourage students to adopt a “fake it till you make it mentality,” this philosophy must also be tempered with humility.

NGOs, especially some in the Global North, sometimes lack sufficient humility when engaging in social problems in communities in the Global South, a trend that communities in the Global South often find bewildering and infuriating. One example was that of the Red Cross, which raised half a billion dollars for work in Haiti, but as of 2015, succeeded in building only six homesExternal link. One of the many reasons cited for this failure was the fact that very few international staff sent to work in Haiti could speak French or Haitian Creole.External link Another example is the scandal surrounding the Central Asia Institute, founded by Three Cups of Tea author Greg Mortenson, who was later discovered to have fabricated information, exaggerated successesExternal link, and engaged in serious financial wrongdoingExternal link – errors related, at least in part, to his lack of expertise External linkand knowledge about the region. 

Do not oversell

In the hypercompetitive funding market of Silicon Valley, Elizabeth Holmes faced continuous pressure to raise money. She succeeded in doing this by radically overpromising and overselling. She spun a story about a “disruptive technology” that would completely change the market for blood testing and transform health care. 

Competition among nonprofits and NGOs for funding is also extremely fierce, especially during Covid-19. NGOs feel pressure from donors to develop innovative and “disruptive” solutions and to bring about concrete measurable results, often in the course of just one or two years. But what if social change does not happen linearly, or does not happen on that time scale? When the gap between promises and results is too big, NGOs are often tempted to cut corners in their reporting – report data selectively, overestimating the impact of their work and downplaying setbacks. Self-reported data of success is rarely questioned or audited, resulting in some very ambitious accounting. For example, the Red Cross reported that it provided homes to more than 130,000 Haitians. In reality, the 130,000-figure referred to the number of people “trained in proper construction techniques”.External link Overselling leads to “inflation” in the “NGO results” market, putting even more pressure on other NGOs to keep pace.  

Encourage hard questions

It has become fashionable in nonprofit trainings to encourage leadership and staff to prepare an “elevator pitch” – a 30 second description of the vision for the NGO. The purpose is to train leaders to become comfortable with “fundraising” and “friend-raising” – the advocacy any nonprofit leader must take on to build resources and support for the organisation’s mission. 

In my experience, many founders excel at the 30-second version of their pitch. But when one scratches beneath the surface, what is often lacking is a strategic and detailed plan for how the NGO is actually going to achieve the mission. Vision is important, but at a certain point in a NGOs development, it is essential to focus on the how. At this stage, the best NGOs have staff, board members, and funders who are willing to ask the really hard questions and press for answers.

Elizabeth Holmes refused to give straight answers to tough questions and bullying and firing people who persisted in raising them. Her go-to excuse was that the information was a “trade secretExternal link.” By analogy, NGO leaders sometimes brush off hard questions about strategy or implementation by claiming “lack of time” and cultivating a culture of great urgency. Because many NGO leaders work long hours for relatively little pay, sometimes in very tough conditions, there can be a lot of social pressure on board members to not be too critical. Staff and board members who raise tough questions are sometimes seen as insufficiently dedicated to the cause. There can also be tremendous pressure on staff on the ground – who often have the clearest information about how the work is progressing – to minimise the reporting of “failures” and to not criticise management.  

Make sure your board is diverse

The Theranos board, composed of 11 men and Elizabeth has been heavily criticizedExternal link for its lack of diversityExternal link. All of the men, except for Theranos CEO and President Sunny Balwani, who was in an undisclosed romantic relationship External linkwith Holmes, were white. Many of them were quite senior. The board members, which included former Secretary of State Henry Kissinger, former Secretary of Defense Bill Perry, former Secretary of State George Shultz, former Senators Sam Nunn and Bill Frist, former Mill Marine Corps General James Mattis and former Navy Admiral Gary Roughead, appear to have been chosen mostly for their stature and government connections, not their scientific knowledgeExternal link, though one board member was a former epidemiologist. 

A diverse board is often more likely to ask tough questions and engage in necessary, if difficult, discussions. A diverse board is also more likely to rely less on interpersonal trust and more on formality and formal accountability norms, including good governance norms, such as external auditing, strong anti-conflict of interest protections, a code of conduct, and a strong whistleblower policy. Finally, a board in which members have diverse backgrounds, areas of expertise and experiences is more likely to raise the right questions and spot potential issues that the NGO might otherwise not recognise.

There is now a long-overdue movement to ensure that NGO boards are racially and ethnically diverse and that they also include people with “lived experience” or from the communities served by the nonprofit. However, it is essential that boards be not just diverse, but also inclusive, meaning that de facto power is shared and that dissenting views are listened to. Many NGOs approach this goal out of reasons of equity or basic fairness. However, diversity and inclusion are necessary not just because they are right as an ethical matter but because they are essential to NGOs’ effectiveness.    

It might be tempting for NGO leaders to dismiss the case of Elizabeth Holmes as just a cautionary tale about corporate greed. However, despite the lack of a profit motive, I have witnessed many of the dynamics described at Theranos in the NGO world, though at a much smaller scale. 

Taking care not to fall into a Theranos trap can require a lot of energy, which can feel burdensome when NGOs already labor under acute resource limitations. However, as seen by some scandals in the corporate and nonprofit worlds, investment in affirmative prevention measures is much less costly than cleanup and damage control after a scandal has taken place. More importantly, prioritising integrity is essential for NGOs to fulfill their missions.

The views expressed in this article are solely those of the author, and do not necessarily reflect the views of SWI swissinfo.ch.