The dangers of putting positive spin on bad news: 4 lessons from Theranos' successes and mistakes

The hardest part of any leader's job is to share bad news with employees, whether it's about layoffs, errors or poor company performance. Unfortunately for Elizabeth Holmes, founder and CEO of Palo Alto, Calif.-based Theranos, she has gotten a lot of practice with this task in recent months.

Last week CMS revoked the certification for Theranos' lab in Newark, Calif., and banned Ms. Holmes from owning or operating a medical laboratory for at least two years. The blood testing startup faces eight consumer lawsuits seeking class action status and is under investigation by the Securities and Exchange Commission and the U.S. attorney's office in San Francisco.

As Ms. Holmes and the company work through these challenges, here are four tips leaders can glean from Theranos' steps and missteps.

1. Do not delay information to employees. Leaders must share information with staff as soon as possible. It's important to stay ahead of the news cycle to maintain trust and loyalty. If there's one thing worse than the bad news itself, it's allowing employees to be caught off guard when they hear negative information from an outside source.

According to a Wall Street Journal report published Sunday, "a person familiar with the matter" said employees were not privy to the company's decision to void two years of its test results until it was reported by WSJ, and that information was shared with regulators a month before the WSJ report came out. Theranos didn't comment for WSJ on the internal meetings.  

2. Present the facts truthfully and fully. Leaders must be as transparent as possible when bad news hits. Glossing over bad news to put a good face on something can also be a blow to employee trust. According to Sunday's WSJ report, a Theranos employee allegedly said Ms. Holmes discussed the company's development of 304 blood tests at a company meeting last month, but failed to mention that most of those blood tests were still in research stages. While most staff knew this, the employee claimed the omission weakened trust in leadership among his or her colleagues, according to the report.

However, Ms. Holmes' recent remarks indicate she may have learned from past missteps. The company is currently collecting clinical data on its technology to present at a national chemistry meeting on Aug. 1, and when an employee asked what Ms. Holmes would do if the data didn't fit Theranos' narrative, "Ms. Holmes responded, according to the attendee [an employee], that one had to tell the story the data told," The Wall Street Journal reported.

3. Be courageous in presenting bad news. Employees often give leaders the benefit of the doubt if they handle company challenges with as much grace as possible — by taking responsibility, apologizing and/or explaining why. Ms. Holmes has taken steps to publicly take responsibility for company operations. In an April interview with Maria Shriver from the "TODAY Show," Ms. Holmes said, "I feel devastated that we did not catch and fix these issues faster."  

4. Focus on the future. Rather than attempt to put a positive spin on bad news, leaders should focus on the steps they plan to take to remedy the issue. This will give employees the positive momentum they need to stay engaged at work while ensuring they have full knowledge of what went wrong. Theranos has continued full steam ahead through its troubles and adjusted course to help address some past issues. For example, the company voided past test results "out of an abundance of caution," and it has taken steps to add new medical experts and staff, including a new scientific and medical advisory board.


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