Running for Daylight

A young woman, a former student from Stanford University, just 19 years old at the time, founded a company that will become part of corporate-scandal lore alongside Enron, Madoff Investment Securities, Lehman Brothers, WeWork, Purdue Pharma, and Facebook. That company is Theranos. As if to prove the point, Inc. recently published this article — “Two Insights to Prevent Your Company from Unknowingly Becoming Another Theranos” — which says this, in part:

Elizabeth Holmes, the founder of Theranos … was recently convicted of four federal charges of wire fraud for exaggerating to investors what her blood testing company’s machines could do, how widely those machines were being used, and how much money the company could earn. She created a culture of fear and lying. And that’s a shame. Here’s how to prevent your company from unknowingly becoming another Theranos.

Those two insights?

  1. Thank your employees for giving you bad news.

  2. Teach your employees to experiment without fear of failure.

It’s profoundly sad that those two things need to be stated. It’s also completely self-defeating if they’re not already practiced in your business. It’s sad because companies in which employees are fearful of sharing bad news have created environments in which responsibility is assigned but authority is not granted. It’s self-defeating because if employees can’t experiment without fear of failure, the message being sent is this: “Try whatever you want — but don’t fail. And whatever you do, don’t learn.”

Unnecessary Roughness

Given the fact that Elizabeth Holmes was perfectly capable of getting herself in more than enough trouble all by herself (she’s looking at a potential 80 years in the can), piling on is completely uncalled for. But this is the proverbial teachable moment. And the lessons are as simple as they are self-evident:

  • Make transparency an inviolable element of your culture. People who know they’re being leveled with always exceed expectations.
  • Encourage experimentation. Nothing new was ever developed or created by people who were penalized for trying.
  • Make every failure a learning opportunity to be carried into the next experiment. Think of it as a combination of risk management and reward.

Every failure is an investment in the education of the person who made it. As long as you’re managing the risk and cost of every failure — and as long as you’re learning from and recording the history of each one — every step back will likely yield at least two steps forward. And as long as you’re being completely transparent — as long as you’re encouraging your people to be equally transparent — you’ll be creating a very bright future.

No transparency, no daylight.

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