Warren Buffett’s Critique of Theranos

Warren Buffett highlighted a crucial issue at Theranos that reflected a broader problem within the company’s culture.

Board Composition Concerns

During Berkshire Hathaway’s annual shareholder meeting in 2016, Buffett drew attention to Elizabeth Holmes’ blood-testing startup, Theranos. He pointed out that Theranos had assembled a high-profile board of directors, featuring prominent figures such as former presidential-cabinet members, senators, and a retired four-star general. Buffett contrasted this approach with Berkshire’s preference for directors who are deeply invested in the company’s success, rather than seeking prestige or financial gain from their board roles.

Prioritizing Expertise over Prestige

Buffett emphasized the importance of board members who possess business acumen, prioritize shareholder interests, and demonstrate genuine commitment to the company. He stressed the need for directors who understand the business thoroughly and make informed decisions aligned with shareholders’ best interests.

Charlie Munger’s Perspective

Charlie Munger, Buffett’s business partner, echoed this sentiment, illustrating the principle with a personal anecdote. He emphasized the importance of hiring individuals based on merit and expertise rather than superficial factors like religion or prestige.

Theranos’ Downfall

Theranos, once valued at $9 billion, faced a dramatic downfall following revelations about the unreliability of its blood-testing technology. The company’s collapse stemmed from reports of inaccurate test results and subsequent legal actions, including fraud charges against Elizabeth Holmes.

Holmes’ Priorities

Buffett’s remarks suggest a belief that Holmes prioritized associating Theranos with high-profile individuals for brand credibility rather than seeking advice from experienced professionals in the medical and business fields. This aligns with allegations that Holmes prioritized appearances and investor relations over the functionality of Theranos’ technology.

Theranos did not provide immediate comment on Buffett’s observations.