“With three former cabinet secretaries, two former senators, and retired military brass, it’s a board like no other.”
So begins Fortune Editor-at-Large Roger Parloff’s 2014 piece on the board of directors at Theranos, the blood-testing company that was the subject of a deeply reported story in The Wall Street Journal this morning questioning the reliability of its drug tests. Theranos disputes the story, calling it “factually and scientifically erroneous and grounded in baseless assertions by inexperienced and disgruntled former employees and industry incumbents.”
Without taking a position one way or the other, I think it’s worth noting that this “board like no other” was assembled for its regulatory and governmental connections, not for its understanding of the company or its technology. That raises significant governance issues at a moment like this one, issues that may bedevil the company in the days and months to come.
Let’s take a look at Theranos’ 12-person board (which is an 11-man team if you don’t include CEO and Chairwoman Elizabeth Holmes—interesting given her stated commitment to women in STEM). We have 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 (who, it should be noted, is a surgeon), former Navy Admiral Gary Roughead, former Marine Corps General James Mattis, and former CEOs Dick Kovacevich of Wells Fargo and Riley Bechtel of Bechtel. There is also one former epidemiologist—William Foege, and, in addition to Holmes, one current executive, Sunny Balwani, who is Theranos’ president and CEO.
It’s quite an impressive group, isn’t it? But here’s what it’s not: an appropriate board of directors for a company that is valued at $9 billion. There are no sitting chief executives at other companies—a basic tenet of board best practices. There is but one still-licensed medical expert, Bill Frist (Foege, age 79, is retired). And while it’s probably useful to have a retired government official or two to teach and offer good leadership skills, when there are six with no medical or technology experience—with an average age, get this, of 80—one wonders just how plugged in they are to Theranos’ day-to-day activities. Nor is there anyone with formal accounting or auditing expertise or legal expertise, which may now become an issue, based on the questions raised in the Journal’s article. Says a spokesperson for Theranos: “Theranos’ Board of Directors includes not only Ms. Holmes and Mr. Balwani but also, among others, an epidemiologist and the former director of the U.S. Center for Disease Control and Prevention (CDC), a nationally recognized physician, a renowned engineer, and experienced leaders in business and public policy. Theranos also benefits from the insights of a medical advisory board and several health care leaders who advise on issues such as infectious disease.”
Governance is about what happens when things go wrong as much as keeping things going right. Watch carefully in the coming days to find out whether this board shows leadership in a very difficult moment for Theranos.
