ANALYSIS · Leadership

The Theranos board of directors lesson: pick people who can test you

Read as a board-design failure, the federal record against Theranos gives founders a practical test for every director: relevant expertise, information that does not come only from the CEO, and the standing to say no.

Rendal Post Analysis Desk · Published November 12, 2026

When founders recruit directors, it is tempting to fill the seats with names that reassure investors and impress the press. Our reading of the federal enforcement record against Theranos points the other way. The claims at the center of the case were concrete and could in principle be checked: which machines ran patient tests, how accurate those tests were, and how much revenue was actually coming in. In our view, a board assembled for prestige is not built to check claims like those. A board assembled for challenge is. For a founder-led company, that suggests a three-part test for every seat. Does the director know the domain? Can the director see information that does not pass through the CEO? Does the director have the standing to say no?

What the record shows

According to the U.S. Attorney's Office for the Northern District of California, a grand jury indicted Elizabeth Holmes and Ramesh Balwani on June 14, 2018, over two schemes to promote Theranos, the Palo Alto blood-testing company.

On the patient side, the government alleged that the two knew the company could not consistently deliver accurate results for certain tests, among them potassium, sodium, calcium and HIV. They nonetheless paid for advertising that steered people toward Theranos tests sold at Walgreens stores in California and Arizona.

The investor allegations matter most for a board. Prosecutors said investors were told that patient samples ran on analyzers Theranos had built itself, when the company was in fact buying commercial machines from third parties to do that work. The same case summary says investors were told Theranos would book more than $100 million in revenue and break even in 2014, then bring in roughly $1 billion in 2015, while the defendants knew revenue in those years would be negligible or modest.

On January 3, 2022, a jury convicted Holmes of one count of conspiracy to defraud investors and three counts of investor fraud involving wire transfers above $140 million. The same jury acquitted her of the patient-related conspiracy count and three counts of fraud against individual patients; another patient-related count had been dismissed during trial. She was sentenced to 135 months in federal prison, and Balwani, who was tried separately, received 155 months.

The prosecutors' summary does not say what Theranos directors were told, what they asked or what they approved, and we will not fill that gap with guesswork. What it does provide is a list of specific factual claims. In our reading, each of them is the kind of statement a director with the right background and the right access could have asked to see evidence for.

Where a board gets its facts

Under Delaware's corporation statute, a company's business and affairs are managed by its board or under the board's direction. The same section protects a director who relies in good faith on corporate records and on information from officers, employees or board committees. It also covers reliance on other persons, on matters the director reasonably believes are within that person's professional or expert competence, provided the person was selected with reasonable care.

That protection makes sense. In our reading, it also shows the central weakness of a founder-led board. If every report comes from the founder or from people who answer to the founder, a director can rely on those reports in good faith and still not know what is actually happening. A director who receives only the CEO's deck knows what the CEO has chosen to share.

The statute already offers a remedy. A board may designate committees of one or more directors and delegate board authority to them. In our reading, that lets even a small company set up an audit or quality committee that could meet the controller, the outside auditor or the head of the lab directly.

Time is the other constraint. Large-company boards held 7.5 meetings a year on average in Spencer Stuart's S&P 500 data, and the firm warns that meetings "long on reviews and short on discussion are insufficient." If the largest public companies face that limit, a founder-led board that sees one quarterly presentation has, in our view, even less room to find out what the presenter left out.

Expertise that knows the question

Domain expertise shapes which questions a director thinks to ask. In our reading, someone who has run a clinical laboratory would ask which instruments processed a patient's potassium result and what validation data supported it. By the government's account, Theranos was in fact using commercially available analyzers from third parties for patient testing. Someone who has built a sales organization would ask to see the contracts behind a forecast of roughly $1 billion in revenue. Neither question requires suspicion. Both require knowing what normal looks like.

Large public companies have formalized this idea. Spencer Stuart reports that 80% of S&P 500 boards included a skills matrix for their directors in their latest proxy statement. The firm cautions that a matrix is "only as valuable as the information it includes" and should reflect directors' "current, most relevant expertise."

The distinction we would draw for founders is between stature and relevance. Stature tells outsiders that serious people are willing to be associated with the company. Relevance lets a director judge whether the company's central claims hold up. In our view, when a business's value rests on a technical or financial claim, relevance is what protects shareholders, customers and even the founder from their own optimism.

Delaware also allows the certificate of incorporation or bylaws to prescribe qualifications for directors. A founder who wants future boards held to a standard of domain relevance therefore has a formal way to write that standard down.

The standing to say no

Expertise and access mean little if a director cannot act on what they find. Standing has two parts, and the first is independence of judgment. Delaware's provisions on interested transactions define a material relationship as a familial, financial, professional, employment or other tie that could reasonably be expected to impair a director's objectivity. The definition was written for approving deals with conflicts of interest. In our view, it also works as a recruiting screen. A director who owes the founder a career, an investment allocation or a close friendship brings that tie into every meeting.

The second part is structural. Stockholders who hold a majority of the voting shares can remove a director with or without cause, with exceptions for classified boards and cumulative voting. Where the founder controls the vote, that suggests a director can say no only for as long as the founder tolerates it. Standing therefore has to be designed in advance, through information rights, committee mandates and a board leader who is not the CEO.

Large public boards have been moving that way. Spencer Stuart reports that the share of boards with independent chairs has risen by 14 percentage points since 2016. It also finds that directors on top-performing boards are much more likely than others to say their board leader fosters high-quality discussion. According to the firm, 99% of S&P 500 boards run an annual evaluation, and 49% disclose that they evaluate individual directors.

Getting the first choice right carries extra weight. New S&P 500 director appointments in 2026 fell to the lowest level in a decade, with turnover at 0.7 new directors per board. In our reading, a seat filled for prestige may not open up again for a long time.

What to do before the next appointment

Before you offer a seat, ask each candidate one direct question: what would you need to see to believe our central claim? A candidate with real domain knowledge will name documents, data and people. A candidate chosen for stature may have nothing to add to your own presentation. Then give the directors you pick a way to get information that does not start with you. That could be a committee that meets your auditor and operating leaders without you in the room, or standing access to quality and customer data.

Next, put the right to dissent in writing. Use the bylaws to set director qualifications and committee powers, name an independent chair or lead director, and commit to an annual evaluation of individual directors as well as the full board. Delaware also lets companies buy insurance for directors against liabilities that arise from their service.

Finally, apply the Theranos test to yourself. Write down the three or four statements your company's value depends on. Then ask whether anyone on your board could independently confirm or refute each one. If no one can, the problem is not your directors' reputations. It is the design of your board, and fixing it is your job.