Trophy Board Members

I am not reading Bad Blood, the book about Theranos, but many of my friends and colleagues are.

One of the many “tells” that Theranos was not a good company was the board chock full of trophy board members.

A “trophy” board member is someone with a big name who, in theory, brings credibility and connections to your company. They are often out of the world of politics, or a Fortune 500 CEO job, or Wall Street.

I dislike trophy board members and advise our portfolio companies to avoid them. But they don’t always take our advice.

One good example is Lending Club, a very good company run by a very good entrepreneur, who got thrown under the bus, in my view, by his trophy board.

USV is an investor in that entrepreneur’s new company which says all you need to know about where we come out on that one.

Trophy board members are more concerned about their reputations than your company and will often react badly in times of crisis and challenge, which is exactly when you need your board members at your side more than ever.

Trophy board members often miss board meetings, show up unprepared, and frequently don’t take the time and effort to truly understand your business.

I am a huge fan of independent directors to complement the founders and investors on a board. The quality of the board is highest when there are more independents on it than investors and founders. Try to get that ratio right on your board as soon as practical.

But don’t put “names” on your board. Put operators, ideally very seasoned operators, who have done everything you want to do, ideally multiple times, and can help you spot the issues before they become problems and spot the opportunities with enough time to go after them.

These ideal board members are often not big names and they usually don’t have big egos. They are solid, steady, and worth their weight in gold. They come in male and female varieties and across the racial and ethnic spectrum too. It is true that it takes a bit more work to build a diverse board of operationally focused board members but it is worth it.

But whatever you do, stay away from trophy board members. They rarely help and often hurt.

#entrepreneurship#life lessons#management

Comments (Archived):

  1. William Mougayar

    Well said. But it’s important to understand Why does an entrepreneur choose a trophy board member in the first place. That in itself is the start of the bad seed.

    1. allon bloch

      huge pressure to do so on young entrepreneurs

      1. jason wright

        internal or external pressure?

      2. JamesHRH

        Need to have the internal fortitude to do what is right. Very rare.

    2. jason wright

      ask an anthropologist.

    3. awaldstein

      i have never seen more trophy collecting honestly than amongst ICOs with advisors.

      1. jason wright

        that is so true, and it’s the same faces popping up again and again and again. how many hours are there in a day? it’s ridiculous.

      2. William Mougayar

        that goes without saying. it has been going on for a while and one of the many things not right with ICOs.

      3. kenberger

        Indeed, with ico’s, it goes a Step Beyond that, sometimes it’s the only thing the company has. Which is one big reason for the current stalling or bear market.

    4. Vendita Auto

      “That in itself is the start of the bad seed.” rather harsh.It is often down to confidence that grows with success

  2. Matt Zagaja

    Once helped run a non-profit that had several trophy board members. Learned that lesson the hard way. Also it’s a very common practice in politics to host fundraisers with a named host committee that might not necessarily show up. After a while folks who regularly participate in the space begin to figure out who is actually doing the work of inviting and organizing folks for a candidate and who is simply lending their name. The folks lending their name might think they’re doing you a favor, but in the end they’re just diluting their own brand.

    1. JLM

      .On all non-profit boards, 20% of the board does 80% of the work.There is nothing wrong with a prominent community member “lending their name” to a charity enterprise as long as everyone knows that is the case.JLMwww.themusingsofthebigredca…

      1. Pointsandfigures

        True dat

    2. awaldstein

      there are exceptions thankfully.doing a project with some conservation orgs with very well known individuals involved and surprisingly please at the level of support cross the groups.thankfully we have corner cases now and again.

  3. BoardProspects

    Great post. Entrepreneurs often think that a trophy board member will get them noticed and lead to significant growth. While that can happen, more often than not the downsides of a trophy board member outweigh the benefits. If an entrepreneur/business is seeking a board member or advisory board member, please consider and our community of more than 19,000 prospective board members and advisory board members. Here is a quick video that explains how it works:

    1. Pointsandfigures

      Meh, this doesn’t really work for me.

      1. LE

        Actually a clever ‘scheme’. There is a charge of $199 for the premium membership. All driven by a smattering of testimonials.Kind of like “Marquis Who’s Who” meets Linkedin.

  4. Guy Lepage

    Great advice. Thank you.

  5. jason wright

    Theranos – Hans Christian Andersen’s The Emperor’s New Clothes.

  6. sigmaalgebra

    For every business except maybe Fortune 100, I agree: Practical incompetence can be an ugly thing.@JLM has written a lot on Boards — I’ve read, kept, abstracted, and indexed all I’ve found that he wrote. My guess is that I want my startup to be a private company, LLC, so won’t really have to have a BoD. E.g., get advice from people who can’t fire me!IIRC for a Fortune 100 or so company, the intention of having a trophy Board member was just to assure everyone, especially mom and pop stockholders, that there would be not dirty stuff in progress on the Board. That is, the trophy member could not be bought, was not tempted by dirty stuff, and wanted to protect their image, brand, good name, wanted to perform a public service, etc. For practical competence, supposedly the company, Fortune 100, was awash in that anyway and very much didn’t need that from the trophy member.But for Theranos, I never tried to find out anything about it but couldn’t avoid noticing that she was so darned PRETTY!!!! Us men are supposed to trust pretty women, right? Well, whatever, now we’ve all learned our lesson — pretty doesn’t mean trustworthy! And if she is screaming, nasty, hysterical, several decades from being pretty — Fauxahontas, Hillary, Pelosi, Waters, etc. — I’m supposed to trust them more? Not a chance!

    1. Kent Karlsen

      Let our wealth manager be blond, short and less attractive.

    2. SFG

      She is attractive. But in a manly-womanly way. She surgically played her image card well. Until she didn’t :)Could never get over the voice, though.

      1. LE

        The voice actually is an artifact that many women with man qualities (and conversely many men with female qualities) share characteristics on the fringe but are still men or women (meaning not gay or lesbian). “Man like” “Woman like”.I have actually noticed a correlation between women who have risen to a high level in business and that they are often lacking in more (for lack of a better way to put it) ditsy feminine characteristics. Now while you could say that is why they have risen (because they are taken more seriously) I don’t think that accounts for all of it. And sure it’s always a mix. But the pattern is definitely out there.

      2. sigmaalgebra

        All I ever got from her was some one of her no doubt carefully posed publicity photographs!I never heard her voice or read anything she wrote! Never paid any attention to anything she thought!Done well with makeup, hair style, weight, clothes, lighting, expression, camera angle, and some practice, a large fraction of women can look surprisingly good!But wealthy men need to be aware that a lot of women who might want to be trophy wives might share with their girlfriends stacks of business cards of expensive, aggressive divorce lawyers who can get their clients the house, the boat, the better car, the bank account, alimony, the kids, the Golden, child support, the IRA, …, and force him to sell his business and give her half after he pays her lawyer fees!!!! Ah, “true love” 21st Century American style!!!Or, can’t tell much from just a picture.To evaluate her for anything beyond taking her to a local fire station fish fry, there is something of a secret scorecard. But like a lot of measures, once they are known they can be gamed — that’s why the scorecard is secret!If she’s really young, keep in mind Darwin’s reproductive advantage. Otherwise keep in mind, “the hidden agenda”.Do keep in mind the scene from the Rodney Dangerfield “Back to School” at…

  7. Kent Karlsen

    Great article. It’s very helpful for entrepreneurs to find investment principles for expectations and common shared values. Fred is doing a good job at this. Many other VCs not so much. I believe first time entrepreneurs just guess what the VC manager want to hear, and go for it to close a deal. When you get older, you often change behavior, and go for shared values with VC and team members, or you simply don’t start the company (yet)

  8. Twain Twain

    SMART money = people with technical and business domain expertise and networks to help you as a founder to meet as many milestones as possible.Stupid money = people who’ve never built a startup from the ground up before or done any tech operations. You spend so much time having to educate and manage them that it simply becomes inefficient and a capital burn.

  9. JLM

    .The Theranos Board of Directors was like the Trophy Board Hall of Fame. Here are some of them:Henry Kissinger, former Sec of State and all-around wisemanGeorge Shultz, former Sec of StateJames Mattis, later US Secretary of Defense <<< yes, that Mad Dog MattisBill Perry, former Sec of DefenseSenator Sam NunnSenator Bill FristRiley Bechtel, former Bechtel Group CEODavid Boies, a founder and the chairman of Boies Schiller & FlexnerWilliam Foege, former director CDCRichard Kovacevich, former Wells Fargo CEO and chairmanFabrizio Bonanni, former executive vice president of AmgenAdmiral Gary RougheadOf the bunch of them, two had domain expertise. Bill Frist was a currently licensed MD and Bill Foege is a retired physician. [In fairness, in later years Theranos formed something they called their Medical Advisory Board which had enormous expertise, but by then the fraud was in full swing.]None of them qualifies for the SEC’s designation as a “financial expert.” The SEC requires public companies to have someone on the board who is a CPA, finance MBA or some other demonstration of financial chops.The average age of the board during this time period was 80!WTF did they talk about at their board meetings?Elizabeth Holmes was an attractive, blonde 19-year-old Stanford student when she adorned herself in a faux Steve Jobs outfit of black turtlenecks and started Theranos on the proposition that she could undertake the same blood tests requiring a few vials of blood with a pinprick of blood.From the start, it was a head fake. She now faces criminal prosecution on the heels of having perpetrated an immense fraud including raising almost a billion dollars of venture funding.When the feces hit the fan, the VCs all expressed surprise to learn that Elizabeth Holmes and Sunny Balwani (late 40s) were engaged in an ongoing love affair. Balwani, software guy, ran the company on a day-to-day basis and was often described as “Elizabeth’s enforcer.”I agree more with Fred than he agrees with himself, but you have to ask yourself how smart were the VCs who poured $700MM into this Stormy Elizabeth startup without doing the due diligence to understand the technology?One other interesting point – not a single VC held a board seat during the time period 2015-2017 — how is that possible?There is another interesting point – what got Theranos in trouble was the demand by the FDA that their black box device be approved by the FDA. In raising money, Theranos had insisted that their device did not require FDA approval. Big point.This is an example in which a smidgen of regulation outed some evil doers. Unfortunately, it was after Theranos had already raised $700MM. But, it was the FDA who upturned their apple cart. George Shultz’s grandson, company employee, then ratted Theranos out to his father who refused to believe he’d been had.Theranos is a colossal failure of common sense.JLMwww.themusingsofthebigredca…

    1. Jake Baker

      An overwhelming majority of the fundraising came late stage from ultra wealthy individuals who conducted effectively no diligence (Rupert Murdoch, Walton heirs, Betsy Devos, Carlos Slim, Stavros Niarchos, etc). It’s a bit misleading to use the $700mm as a stat to tar VCs. No subject matter expect VCs invested, and the primary VC money (Draper and Lucas) invested very early before the fraud really existed as such. In some sense, the core Silicon Valley VC system actually worked mostly as intended and the Theranos fraud sort of serves as a demonstration of how using the affinity scam referencing Silicon Valley archetypes managed to fool so many non experts.

      1. JLM

        .Fair comment.I did not intend to segregate high net worth individuals – who often have a formal VC and due diligence operation of their own – from more traditional venture capitalists in the Silicon Valley mold.I used the term “VC” to tar all of them.Investors, such as the Palmieri Family Trust, an Australian company are world class sophisticated though they are not traditional SV VCs. There were a ton of smart people involved in this company.JLMwww.themusingsofthebigredca…

    2. Jake Baker

      And on the lack of VCs on the board, Holmes controlled 99% of the voting power and actively managed who was on the board. Why would she have wanted VCs on it? There’s a palpable sense of VC critique in the comment which seems valid in some areas but not really supported here.

      1. JLM

        .It has become abundantly clear why Holmes did not want to give up any control of any type whatsoever, but that does not explain why the first VC money in did not insist on board representation.No question there was a lot of deal heat about this med-tech company just like there was a lot of heat about “green” renewable energy startups. Big firms, like Kleiner, jumped out on these type of deals until they completely abandoned them.If you look at their crunchase base info, Draper did a typical seed deal in 2004 before Murdoch is supposed to have invested. Are we to imagine that Draper, et al, didn’t insist on board seat(s)?I am not intending to cast VC involvement in an unfavorable light, but rather marveling at how they could have missed the bogus tech given that the biotech and medtech investors are well acclaimed for exhaustive due diligence.Several people who passed on the deal have noted that they didn’t have the time or inclination to conduct their usual in-depth due diligence. Others noted that she was not wildly cooperative.JLMwww.themusingsofthebigredca…

        1. Jake Baker

          Carreyrou gets into this.You’re correct that Draper was the seed money (first $1mm) and then Don Lucas followed shortly thereafter.Both Draper and Lucas (the two primary VCs as such that invested) seem to have basically been taken in by Holmes as a surrogate daughter/granddaughter figure, which caused there to be effectively no supervision.Lucas was in fact chair of the board for a long time, but repeatedly enabled Holmes to engage in a wide range of pretty egregious behavior, so the benefit of this seems limited.That said, at one point relatively early on (2008?), the board was considering firing her and she managed to talk her way out of the situation.Lucas also succumbed to Alzheimer’s on the latter end of this time period, so who knows what his judgment was like during the period.For better or worse, Draper is also still pretty actively defending Holmes, so for whatever reason, he seems to have been blinded to the entire outcome.

          1. JLM

            .There were some incredibly telling signs – she precipitously fired the only CFO the company ever had over his demand to see the machine work as he was preparing financial projections.The Board never inquired into this.There was a lot of “blonde” going on here.I have the book, but haven’t read it yet.JLMwww.themusingsofthebigredca…

          2. Jake Baker

            Yes. The expanded story as told in the book is almost unimaginably insane, and the telling signs seem to just go on and on and on.I listened to the audiobook which was great except that some sections are so unbelievable, and it’s not as easy to go back and re-listen to them as it would be with the physical book.Worth the read.

          3. LE

            been taken in by Holmes as a surrogate daughter/granddaughter figureThe pattern here is what will I call ‘the lender’.Back in the day when applying for bank loans for my small business we would typically do the dog and pony show for the guy who came out to visit the company. He was always a dolt and it was easy to fool him. Type of guy who drove a Dodge or Plymouth (sorry Dodge owners) and was impressed with whatever car that I drove that he couldn’t get on his shit banking salary. Like wow this guy must be smart look at what he is driving at his age!So I remember saying and doing all the things that I could to totally (for lack of a better way to put it) ‘con’ him into thinking we should get the loans. (We did btw.). But then he would say to me “ok I will send all of this to the ‘lender'”.The ‘lender’ was the guy who never saw the dog and pony show (I surmised). He sat in some cubicle (or maybe back then an actual office) and just made decisions sans ‘pretty blonde influence’. Just the facts no color. Just numbers. Probably was a smoker. Wore a bad suit.So the fact is that Draper (and nothing wrong because VC’s do this all the time) made a decision based on things that he thought of Elizabeth because she was a friend of his daughter. And he obviously respected her and thought she was brilliant. Perhaps simply because of the contrast between his daughters aptitude and Elizabeth. Meaning if he had a daughter that was super special academically he may very well not have even been that impressed with Holmes to the point where he even would consider giving her money. (Like Draper’s daughter was probably no ‘Twain’ if you get my drift.).And maybe she repeated some pattern that he has seen in people that have done well in the past that he has been associated with. This was joked about in ‘Like a Zuckerberg’ which is a broadway play that will be coming out. (At the same time as ‘Joe Paterno’s wife’).For better or worse, Draper is also still pretty actively defending HolmesWhat would Roy Cohn do? I guess strategically no value in throwing in the towel at this point. He is already tainted. Might as well play it out. He won’t get more tainted by sticking with her. And in an odd way it could work to his benefit more than his detriment. Besides to not defend means he maybe is saying “I missed the signs”. So he sticks with ‘change you can believe in’. This is behavior often repeated by people who push health cures. If some cure doesn’t work it’s the person taking the cure who didn’t do something right. Not that the cure doesn’t work.

          4. sigmaalgebra

            So, that’s how she got her early VC money …. I didn’t know that any VCs had funded her and wondered how she could have met their criteria and, as I explained, suspected that she just got rich, old men, in this case Draper, to be nice to her because she was a pretty, young woman.JLM’s point that the bio-medical VCs commonly do good work at due diligence: They have to because (A) really can tell a lot from the science and (B) typically there is some good science there to tell. And the bio-medical VCs commonly have the qualifications to do such diligence. This is a HUGE difference with information technology VCs. Well, Draper is really just an information technology VC and invested in her because she was a pretty, young woman, knew Draper’s daughter, etc. without looking at the bio-medical science.So, net, my guess was correct: She got her funding from being a pretty, young woman going to rich, powerful old men who wanted to be protective, supportive, trusting, etc. While I hadn’t known that she got VC funding, my explanation still holds — as a pretty, young woman, she manipulated a rich, powerful old man.

    3. LE

      It’s what I have called ‘the assumption of legitimacy’ and it’s a totally human behavior.People will typically assume someone else has done the checking.Elizabeth Holmes was an attractive, blonde 19-year-old Stanford student when she adorned herself in a faux Steve Jobs outfit of black turtlenecksThis falls squarely on the press. They eat that type of thing up and give it life. She actually wasn’t that attractive though. I mean for sure she was ‘attractive style’ but if you dig down honestly she wasn’t a natural beauty.

      1. SFG

        The faux man voice did notch down her feminine “natural beauty” a few rungs, that’s for sure!

        1. jason wright

          I wonder if she would ever agree to a psychological profiling assessment? It might be quite revealing.

          1. Donna Brewington White

            I think of the tremendous pressure involved. Even without the fraud element, the pressures were enormous — but to add to this, maintaining this high level deception over many years. You wonder why it would not drive someone insane, unless already insane. I haven’t read the book.

          2. jason wright

            either that or she comes from a world where the behaviour isn’t considered to be deception – they play by different rules? there’s certainly socio economic detachment here that comes from living in a network of privilege and easy access to resources. perhaps we are insane for allowing this kind of imbalance to continue to exist in our modern nation state democracies.

          3. PhilipSugar

            That is a really good point. That an LE’s that you start crossing the line, and at first it’s a bit gray, then it becomes a distant past.

          4. Girish Mehta

            Its a gripping read, worth the time.

          5. Donna Brewington White

            Thank you.Started last night on Audible. ;)But if not, your recommendation would have tipped the scale.

          6. JLM

            .Maybe when she is in prison?JLMwww.themusingsofthebigredca…

    4. BillMcNeely

      I read the book. I think most SV /Tech Types don’t seem to know that most of these people had a connection to the family since Elizabeth was a young girl. They just didn’t wonder into the investment in a vacuum. Her father held some high level government positions and knew most of these people personally and professionally. Often as neighbors in DC and I think Boston. These folks on her board are not stupid people. She was friends with one of the Draper kids growing up.She is also an heir to the Fleischmann legacy and social capital ( but not the squandered fortune) I think money came in through that link early on.She gets an A+ for leveraging her network and F+ for destroying their reputation.

      1. JLM

        .Great insight. Thanks.JLMwww.themusingsofthebigredca…

    5. Kasi Viswanathan Agilandam

      Put those big names to mask the stupid (non existing) tech .A simple plot of a 70 (0)MM movie.

  10. JamesHRH

    How do VCs justify a board seat, under you terms? They are not operators as Charlie O recently tweeted……Name hunting is a finance BS tactic…..anyone who has ever seems a Logo Slide in a deck knows that most Wall St / Sand Hill finance people are label based. After all, they are – now – not former business builders, they are financial transactors….or, hopefully, junior investors.

    1. PhilipSugar

      The Golden Rule. Those who have the gold make the rules. A bit tongue in cheek.But here is the thing, this is a very pro entrepreneur post. Because what he is saying is that if you end up with weak Trophy directors and times get tough. You are f’ed.

      1. JamesHRH

        Just poking a little fun.

  11. Sierra Choi

    Well from 2011-2014, Theranos was contracted by the Pentagon and brought in a revenue of $300,000. So, if she was contracting with the Department of Defense, then it makes sense that most of her board are military personnel, including the current DoD Director John Mattis.I would be very interested to see what exactly Theranos was doing with the Pentagon, once those files become unclassified.However, it looks like instead of going with the fingerprick blood test, the military decided to go with an implantable device. (See Profusa’s biosensor implant device: https://www.digitaltrends.c… )Personally, as a consumer, I would prefer the fingerprick than a biosensor implant. I also think that many startups in Silicon Valley aren’t particularly concerned with governance issues; there are hardly any board members or even consultants helping a startup get all the regulatory approvals or legal hurdles out of the way before they launch their product or service…so I would say Theranos’s board of trophy directors seems to be the norm as far as unicorns go.

  12. Mac

    In a way, you ended by defining the success of AVC: a diverse group of operationally focused commenters.

  13. Brendan Riordan

    Fred, Here’s the part of your post that I find the most interesting: “Trophy board members are more concerned about their reputations than your company and will often react badly in times of crisis and challenge, which is exactly when you need your board members at your side more than ever.” I don’t think concern about their reputation is the problem. In fact I think it is just the opposite. I’ve read Bad Blood…and as a med tech entrepreneur I found myself thinking that there are 3 people in that book who would be excellent board members: Lieutenant Colonel David Shoemaker, Tyler Shultz, and John Carreyrou… I think they would be excellent board members largely because you- and everyone else- know right from the start that they are likely to be more concerned about their reputations than about any company. If you want to imbue a brand new start-up company with the “right” qualities, what better way to do that than to recruit people whose reputations are more important to them than your company? You just need to chose people who have built reputations for scrupulous honesty, academic and scientific rigor, transparency, public trust, and in the medical space for placing a commitment to helping patients before the commitment to other stakeholders. I think you need to define “trophy” differently. I do not know how Atul Gawande will perform as CEO of the J.P. Morgan-Berkshire Hathaway-Amazon venture…but I’m pretty sure I know why he was asked to lead the effort.

    1. Girish Mehta

      Excellent point. Like you say, its not whether they are concerned about reputation. You can benefit from them being concerned about maintaining the right reputation.There is a version of this that applies more broadly to relationships outside the board member context.

    2. LE

      I can’t say that I agree. Making decisions involves taking risks. Someone who is ‘to’ upstanding and wants no risk (or to take no chances) will often not get anywhere in business. If you have been around business as long as I have you fully understand this and you think (at least I do) that you further have a keen sense of the types of chances that are worth taking (and what the downside is for those chances). A person such as a writer (John Carreyrou of the WSJ) almost certainly doesn’t have that skill. He hasn’t actually operated a business himself (I will guess) and taken any chances and he doesn’t even think like this in the first place. Not his mindset. No amount of study of others failures will tell you this. Also he probably has no idea at all of the amount of times business people take chances and it works out and everything is fine. He only sees and studies the carnage.

      1. Girish Mehta

        I don’t think the original commenter said that though (“wants no risk”).Consider this differently. Being concerned/unconcerned about reputation – is that one of the attributes that defines a trophy member ? That, I thought, was the question raised by the comment. Note where the comment says – “I think you need to define “trophy” differently”.You want seasoned operators ? Check. It doesn’t preclude getting on board somebody with the right reputation who would not want it tarnished. They would be an asset.Below is from when Buffett stepped into the Salomon scandal (he was an investor, not board member).”Lose a shred of reputation for the firm and I will be ruthless”.Once he is in, the firm’s reputation is his reputation.

        1. JLM

          .This is one of the all time great stories of Warren Buffett ever untold – his tenure as Chairman of Salomon. His reputation saved their bacon when the Fed put them out of business for cheating in the bond market.…Most people reading this blog will never have heard of it.Buffett’s reputation saved the company. Period.JLMwww.themusingsofthebigredca…

          1. Girish Mehta

            Exactly. His reputation, and, importantly, the external knowledge that he would care very highly about it , was a massive asset. And he did take on risk.

          2. JLM

            .One other thing is that he knew everybody involved and had for years. He could get the Sec of Treas on the phone. That is a huge advantage.JLMwww.themusingsofthebigredca…

      2. Brendan Riordan

        I think I hear what you are saying…G.M is correct about the point I was trying to make but you may still be correct about Mr. Carreyrou or the others I mentioned. For my part I have not observed that integrity and risk aversion necessarily accompany one another…although they inevitably will go hand in hand in some cases. I doubt that Ms. Holmes set out to defraud anyone. It does appear that she may be someone for whom the ends justified the means. That might be acceptable for some endeavors. I accept that vaporware is not automatically fraud, but there’s not much room for it in medical device development. In a different scenario Ms. Holmes might have achieved great financial success for herself and for her investors- a lot of things are possible when you have $900M to work with. But whatever happened leading up to it…when her company took blood samples from patients knowing full well that the technology did not function as described and did not carry the required regulatory approvals, she and others (including IMHO company senior leadership, staff, members of her board as well as her pharmacy customer and by extension their Board) perpetrated several different types of fraud. The only way I see to avoid that kind of thing is to make sure that their are enough people in senior leadership and on the board who care about their integrity more than they care about the company.

        1. LE

          I doubt that Ms. Holmes set out to defraud anyone.Generally things escalate because the new crime doesn’t seem to be a stretch from the older crime. So you start out doing one thing and then your brain accepts that as ok. Then it doesn’t feel it is so bad to then do something just ‘a little worse’. And it repeats. So for sure no fraud typically starts out full bore. You get there by simply comparing the new bold activity to the last thing you did. You become desensitized.Probably happens this way with sexual assault and all the stories you hear. Baby steps and you build up resistance.Plus she probably didn’t even realize how gullible people would be until she actually experienced how gullible people actually are. How would she?

          1. Salt Shaker

            Same as Madoff. Doubt he started out defrauding investors there, either. It starts small and the pressure to succeed and meet expectations (yours and/or those of others) starts to snowball and you slowly move into illicit behavior. Before you know it, there’s no turning back, or at least there’s a feeling that “you’re beyond the point of no return.” You know it’s a house of cards and only a matter of time before it all comes tumbling down. I read where Madoff was relieved when he was finally outed. $900M deep is pretty deep. Of course, some can be clearly delusional and in perpetual denial, like an OJ for example.

          2. LE

            Yes but he could also have been betting that he would die before being discovered. Or that some other event would happen that would allow him to segue out of the situation. (Not likely but he could have thought this).Also one thing that has never been really discussed with Madoff is how he would push people off from giving him money. This has always been portrayed as a way to simply make investing with him more attractive. ‘People want what they can’t have’. But it is also likely that he didn’t want the money from people that he knew would potentially get hurt. That is also possible. Haven’t seen that discussed but part of my theory.

          3. Salt Shaker

            A couple of my family members got burned by Madoff. He created an atmosphere where it was a privilege to have him manage your money. An older cousin of mine played golf w/ him somewhat regularly. My cousin in turn got other family members to invest, again, you needed an “in,” Bernie wasn’t just taking anyone’s money. Amazingly, when my cousin passed away Bernie attended his funeral. By then Bernie was in too deep, lost all sense of ethics and morality behind a veneer of legitimacy.

      3. PhilipSugar

        I think the only part you have wrong is that Trophy board members will take a ton of risks and not see either the risks or the downside.They don’t have to.Are any of those board members in trouble right now? Or reputations actually hurt??

    3. Donna Brewington White

      I appreciate the common sense wisdom in this comment, Brendan.I am thinking about how your comments about recruiting board members can be applicable to other types of hiring as well. (My domain.)Also, the board members (and I would add “team members”) for whom “placing a commitment to helping patients” is paramount.A lot of food for thought, here. (Along with the resulting comments.)

  14. PhilipSugar

    I have learned this. Anybody that tells you “they have a golden rolodex” isn’t going to do shit for you. Seriously I’d take somebody like LE on my board a smart street fighter over ten people that are Trophy’s.You know what the problem with having Trophy’s on your board? You aren’t one.It is like when you were in high school. Hey, I never cared I wasn’t in the “cool” group. I took AP classes, went to Villanova, won the Philadelphia Science Award, was an active Boy Scout, and was great at Tuba (best on East Coast).Hey, I had no problem talking with the “cool kids” But I was never in their club. I told LE a girl Karen that was in our group wanted to be in with them. She started bad mouthing us and me. She got invited to a party!!! She didn’t realize the theme was to humiliate her.Hey I love talking to Trophy’s. I just know I’m not one.

    1. JLM

      .It is odd how we allow ourselves to be classified and how we give others power over us. Sometimes, it works out well.When I arrived at VMI, they shaved my head and gave me ill-fitting, scratchy fatigues in a lovely olive drab color. I had grown up on Army posts, so I had a little advantage.You never saw a sorrier looking bunch of Rats than me and my classmates in August 1969 in the smoking hot Shenandoah Valley of Virginia.Each class at VMI is called Brother Rats – you will undoubtedly recall the movie of the same name about VMI starring Ronald Reagan and Eddie Albert, but I digress.Though the Corps of Cadets is organized by companies (by height, all the really tall guys are in Foxtrot, my company), you bond by class. This is different than other military schools which bond by company.We all suffered together. In that suffering, we bonded like survivors.Back in the 1960s, they had still not outlawed a very rough brand of hazing, but we all made it through it. Along the way, the class was whittled down by those who could not hack it.The bonds that were formed are totally without cliques as we had no recognizable differentiators before we chose sides. Today, as I contemplate my 45th reunion, I am looking forward to seeing that same group of young boys who were reduced to nothingness and then rebuilt by that clever school, founded in 1832, into men.It was classless and democratic and any advancement within the Corps of Cadets was merit based and earned. Now, from my vantage point of almost a half a century, I understand why they did what they did and how they did it. VMI knew what it was doing every step of the way. We were just wet clay waiting to be formed and fired in their hot furnace.VMI was a very hard place to be, not everyone could hack it. It is a very good place to be from. In some ways, it spared us from the things you describe.JLMwww.themusingsofthebigredca…

    2. LE

      I’d take somebody like LE on my boardThanks for the compliment. One thing is that this dovetails with the entire issue of ‘reputation’ vs. doing what you think is right in a situation and not running a popularity contest.People who are most concerned with reputation (or what people think of them) are not free to simply do what is in the best interest in a particular situation and most importantly take the necessary risks the way I see it.To illustrate let’s take the example of the freedom that a career criminal has in how they would handle a problem they have vs. an upright citizen. For the purpose of the example I will use a member of the mafia.If you piss off a member of the mafia they might have no issue with picking up a rock and throwing it through your front window. Or beating you to a pulp. They have probably already been arrested and if not they know someone who has and has done time. So the downside of doing that doesn’t scare them. And they have a seat of the pants feel most importantly for the risk as well.On the other hand an upright citizen will not generally behave that way. They have to much to lose and to much uncertainty. As a result they are constrained in what they can do or the chance that they can take.Best scene from Casino ‘by the time you are healed I will get out of prison and will come and beat you again. You know why? Because I’m stupid.’ (or something like that see the great clip below).

    3. awaldstein

      Tuba 😉


    Great post

  16. someone

    Bad Blood made me more sympathetic to Theranos, at least in its early days. Many accounts paint Elizabeth as having perpetrated fraud from the beginning. However, as in many if not most tech companies, early on there was a lot of uncertainty and who knows, they might have found the breakthrough. Enough people got excited about the promise early on – investors, partners, and employees alike – that it ran along of its own momentum. Of course at some point it became clear that no breakthrough was coming, and they should have shut things down, but I’d say there are plenty of near-Theranoses out there.

  17. Salt Shaker

    Have you ever seen a trophy that didn’t collect a lot of dust?

  18. Pascal_Levensohn

    I agree strongly with this post. Trophy boards pose obvious red flags and are symptomatic of deeper dysfunction in the organization.

    1. jason wright

      i’d like to get to the bottom of this phenomenon. is it dysfunction in the organisation, or is it dysfunction in the founder(s)?

      1. Pascal_Levensohn

        Leadership defines the culture of any organization; leaders who choose to surround themselves with directors who are in some measure generally over committed, disengaged, or not domain experts in the space, etc. will clearly be less likely to make strong positive contributions to the company. Hence these are unlikely choices as able stewards who will exercise the fiduciary duty of oversight. This also suggests a way of approaching the business that is neither collaborative or consultative, and that is likely to reflect the overall way business is conducted in the organization.

  19. Steve Orell

    Something is missing from this discussion. Are the VCs culpable? Wouldn’t they be in the best position of anyone to see what was going on under the hood?

  20. Jason Hirschhorn

    Agree wholeheartedly. I’ve been cast on boards given my background. To help. But ability for board member to help also requires a CEO’s willingness. And some just don’t want anyone helping or diving in. It’s a bad trait, hurts the company and misunderstands the reason to cast a board with people who have done all the things the CEO or Founder wants to do. I’ve been in good situations on a board and ones where the sell of why they wanted me goes out the door after new CEO comes in.

  21. Erin

    I was taken in by her, but one red flag I should’ve paid attention to was the fact that I study personality types, and I’m usually pretty good at ballparking, but I couldn’t figure out which type she was. Still can’t. If I ever invest in someone’s business, I’ll never do it without first understanding where they come from motivation-wise, and what unconscious patterns are at play behind the presentation.

    1. sigmaalgebra

      > where they come from motivation-wise,Okay, I’ll guess:Anxiety DiseaseFirst cut, she is an anxiety disease case. It is somewhat fair to guess that she is a feminine anxiety disease case since there are somewhat credible claims that, even across continents and cultures, anxiety disease is four times more common in females than males.Anxiety is fundamental: IIRC, “The fundamental problem in life is getting security in the face the anxiety from our realization that alone we are vulnerable to the hostile forces of nature and society.”, E. Fromm, The Art of Loving. But anxiety disease is stronger that just this fundamental situation.Being a Pretty GirlFor more, early on in life she strongly noticed that she was a pretty girl. This meant that she could act girlish and elicit support from adults, especially men.ManipulationIn particular, for eliciting support, she learned that she could manipulate old men, e.g., have them believe that she was diligent, ethical, deserving, etc.Getting SecurityIn reaction to her anxiety disease, she wanted security. But also early on she learned, or heard from others, say, some older women, that just being a pretty girl or woman and eliciting support was of limited utility for getting security. In particular she heard that security really came from money and power.ResentfulShe became resentful: She felt that commonly in the view of society as a female she was supposed to be at a second, lower level in security, dependent on men, mostly a husband, for money and power.Meeting PeopleBut she also learned that one of the keys to money and power is an ability to meet people with money and/or power and to impress them; in particular, she saw that she could use her beauty and femininity to meet old men with money and/or power, to act feminine, and, thus, to elicit support from them and get on the way to money and power for herself.Beating MenSo, in addition to wanting security against her anxieties, with her resentment for her plight as a female, she wanted to show that she could beat the men at their own game. Since she heard that at times men would cheat and/or be unethical, she was willing to do those.StartedSo, in college at Stanford, she decided that, for her goals of security from money and power and to beat men at their own game, she would do a startup. She picked bio-medical instead of information technology. The problem she picked was better routine clinical blood testing.BuildingSo, she saw that she could build her startup on two pillars, (A) famous old men on her BoD and (B) rich old men as her investors. So, she started with one of these two and used success there to make progress on the other one. Then she continued, adding famous BoD members and rich investors, and as she added one of these two she used that progress to add one of the other. Doing this, she did her best, pretty, deserving, ethical young woman act manipulation to elicit support from old men.FailingShe couldn’t deliver the promised product. The FDA, etc. stopped her. She got into legal trouble.DichotomyHuman life has a dichotomy between rationalism and emotionalism. To her, the emotionalism was real and compelling, and the rationalism was not.Darwin’s RevengeSince her goals conflicted with motherhood, Darwin’s revenge will be, at least has been so far, to pluck her genes from the gene pool and, thus, make such females less common in the future.Emotionalism/RationalismHer emphasis on emotionalism is good for nurturing infants and, thus, has reproductive advantage. Her de-emphasis on rationalism, as we have now seen with overwhelming clarity, is, in the practical world of money and power dominated by men, debilitating and renders her incompetent and dependent. The dependency, then, also has reproductive advantage.Q&AQ 1. Many startups founded by men fail, also. So what is different?A 1. In this field, social science, solid science is tough to do. Both my wife and brother got Ph.D. degrees trying. So, we have to guess. Good guesses can become theories with hypotheses for testing with real data.But to continue the stream of guesses, for men, sometimes they also set aside rationalism, e.g., in their case via wild risk taking which, of course, is also a case of emotionalism but with different causes.E.g., my guess is that commonly the females see their emotionalism as “real and compelling” and not wildly risky.How humans make decisions is not easy to understand, e.g., so far apparently no one knows how to write equivalent software. Then, knowing so little, we have to guess, and, with all the obvious differences between males and females, guessing that some of their decision making is different seems reasonable enough — the radical guess would be that the decision making was just the same.Or to add details, a pretty, manipulative college coed could elicit supportive emotions from rich and/or powerful old men, but no way could a Gates, Page, Brin, Jobs, Zuck, Bezos, or Musk hope to do that! Not a chance! Not even if they put on a skirt!!!!

  22. Kasi Viswanathan Agilandam

    Add more fuel and not payloads.

  23. george

    There are so many ways to evaluate the value of a board member, it’s an intensive discussion. However, I do believe value is added through adding insights, and those insights are often found in groups that maintain broader dimension, and where members hold each other accountable. I’m not a big believer in symbolic members…

  24. Peter Abraham

    Agree. I see exactly the same phenomenon on non profit boards.