Nov 18, 2022 - Economy

Elizabeth Holmes and SBF exemplify dangers of insufficient oversight

Photo Illustration of Elizabeth Holmes and Sam Bankman-Fried with eyes and rectangles behind them

Photo Illustration: Natalie Peeples/Axios. Photos: Taylor Hill and Bloomberg/Getty Images

Friday's sentencing of Elizabeth Holmes serves as a reminder of the danger of showing blind faith in promising business leaders with inadequate oversight.

Why it matters: The demise of Holmes — the disgraced leader of once-heralded blood-testing startup Theranos — and this month's implosion of FTX illustrate the real-world consequences of giving even the most captivating leaders too much leeway to do their own thing.

Driving the news: Holmes, who was convicted in January of three counts of wire fraud and one count of conspiracy to commit wire fraud, was sentenced on Friday to 11 years and three months in prison.

Threat level: Absolute power has been a recurring formula for a rapid rise — and a rapid fall — in the business world.

  • Holmes famously arranged for a Theranos board with little scientific expertise, making it easy for the company to mislead investors and customers on the progress of its rapid-testing technology.
  • Sam Bankman-Fried appears to have had little oversight at FTX as he led his crypto exchange into a series of disastrous and potentially fraudulent maneuvers that've led to its collapse.

In all, big-name investors lost more than $600 million in missing the red flags at Holmes' Theranos. And investors ordered to “support and observe” Bankman-Fried are set to lose close to $2 billion in FTX.

The bottom line: "No one always makes the good judgment," Charles Elson, founding director of the University of Delaware's Weinberg Center for Corporate Governance, tells Axios. "That’s why you need a good board, a good adviser or a good spouse to say, 'Hey, what are you doing?'"

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