CLEVELAND BUSINESS Stifl ing debate at board meetings can destroy value at your portfolio company By CHRISTOPHER J. HEWITT Carreyrou’s investigative reporting, direction of a corporation’s board of philosophy that affords individual and JAYNE E. JUVAN Theranos, once a darling of Silicon directors. The board is responsible for directors the ability to express honest Valley, has come under enormous overseeing the corporation’s strategy viewpoints and debate matters. Other n order to achieve high-performing criticism that its proprietary technology and ensuring compliance with an board members and shareholders results, portfolio companies of ven- did not work as claimed. Recently, array of often overwhelming laws and should not pressure directors to refrain I ture capital and private equity fi rms Holmes and former president and regulations. Given that boards have from asking questions or challenging need well-functioning boards that af- chief operating offi cer Sunny Balwani enormous responsibilities, they should decisions. Diversity of thought can ford room for individuality, debate and have been charged with fraud, though develop strong processes in an effort help to minimize the number of blind discussion. Theranos, the now largely Hewitt Juvan both vehemently deny the allegations to ensure they are well-functioning spots the board has and may lead to discredited Silicon Valley startup that weaved. He also asked about repeated against them. and behave in a manner that enhances better decisions that help to bring initially gained a lot of buzz for its rev- delays in the rollout of the company’s It is possible that the Theranos story the value of the enterprise. about more favorable outcomes. olutionary blood-testing technology, products, which were being touted as would have had a much happier ending Boards should take care to ensure serves as a cautionary tale about how ready for commercialization, but never had Tevanian’s questions been taken BOARD COMPOSITION that politicking does not occur behind a dysfunctional board destroys value. received any answers. Tevanian then seriously. Presumably, Tevanian raised SHOULD ENSURE DIVERSITY the scenes and that the real work of The company recently announced that objected to a corporate governance these issues before Theranos began OF THOUGHT. the board occurs in actual board it is closing its doors, and investors move that would increase Holmes’s rolling out its technology nationwide. Many boards are appropriately meetings, not in “meetings outside of have lost signifi cant capital. voting stake in the company because If Holmes and the board had engaged characterized as “clubby.” When meetings.” Corporations are stronger According to the account in “Bad he didn’t believe it was in line with with Tevanian and addressed his recruiting board members, it is easy when directors are empowered to Blood: Secrets and Lies in a Silicon corporate governance best practices. concerns, perhaps they could have put to gravitate toward individuals who debate issues, and directors should be Valley Startup” by John Carreyrou, Carreyrou reports that another a more reasonable timetable in place to are friendly, who will go with the able to perform their duties without not long after Avie Tevanian, an Theranos board member expressed perfect the technology before actually fl ow and who will take the path of fear of retaliation. executive who previously worked Holmes’s dissatisfaction with deploying it for patient use. least resistance. Opening up a closed closely with Steve Jobs at NEXT and Tevanian’s questioning and asked him The following are a few lessons club and recruiting accomplished Christopher J. Hewitt and Jayne E. Apple, joined the board of Theranos, if he wanted to resign. After additional from the Theranos situation for boards individuals who do not have deep- Juvan are partners and co-leaders he started to have concerns about the confrontations, Tevanian decided of venture capital or private equity- seated relationships with others will of the M&A practice at Tucker Ellis. company. Founder Elizabeth Holmes to step down, in part because the backed companies: help to avoid a culture of groupthink. Contact him at 216-696-2691 or allegedly would present optimistic documents provided by the company [email protected]. revenue projections based upon deals had “irreconcilable discrepancies.” He THE IMPORTANCE OF HAVING INDIVIDUAL DIRECTORS Contact her at 216-696-5677 or with pharmaceutical companies in the believed the issues could be fi xed, but A WELL-FUNCTIONING BOARD SHOULD HAVE THE ABILITY [email protected]. pipeline, but the revenue would never action needed to be taken. CANNOT BE OVERSTATED. TO EXPRESS CONTRARY materialize. Tevanian asked questions About a decade later, the events at Most corporate laws require the VIEWPOINTS WITHOUT FEAR about the deals and requested copies Theranos have vindicated Tevanian’s business and affairs of a corporation OF RETALIATION. of contracts, but Holmes dodged and concerns. In part because of to be managed by or under the The board should adopt a shared