Management Case Studies

Amazon Case

Importance: Amazon, called “Earth’s biggest store,” is deeply embedded in daily life (buying, streaming, cloud services).

- Amazon illustrates mutual dependence between business and society.

- Business relies on society for labor, customers, legitimacy.

- Society relies on business for goods, jobs, innovation, taxes.

- Amazon shows both positive contributions (efficiency, jobs, growth) and negative impacts (job losses, unfair competition, culture).

- Managers must navigate these dual roles responsibly.

2021 Data:

- Largest Internet retailer in the world.

- Valued at ~$1.6 trillion.

- 2nd largest private employer in the US after Walmart, with >780,000 employees.

- Revenue grew 37% in 2020 during pandemic lockdowns .

Founder/CEO Jeff Bezos: world’s richest person (at the time ~ $200 billion).

- Shareholders rewarded: Amazon stock ×19 in 10 years

Market value = number of shares × price of the share

→ Positive impacts:

- Amazon Marketplace gave small firms global visibility.

- Wide product assortment, competitive prices, fast delivery, one-click convenience.

- Customers benefited from low prices and choice.

→ Negative impacts:

- Cumulative loss of 1.2 million US retailing jobs (clerks, cashiers, sales). Many held by women/minorities.

- Traditional stores (Macy’s, JCPenney, Target) closed.

- Harsh work culture: “rank and yank” system, constant performance evaluation, highest turnover rates in Fortune 500.

- Unfair competition: Amazon promoted its own brands (private label, Alexa voice search bias).

BoD

- Amazon shareholders are numerous and dispersed.

- Representation is ensured by the Board of Directors, which:

→ Monitors and supports managers.

→ Ensures long-term strategies are aligned with shareholder and stakeholder interests.

- Board members are not employed by Amazon directly; they bring external expertise.

- Example: Amazon’s Board includes founders, executives from other companies, academics, and individuals with sustainability expertise.

Unilever Case

Anglo-Dutch multinational in food, beverages, cleaning, personal care.

- €50 billion turnover (2020); ~155,000 employees.

Former CEO Paul Polman promoted purpose-driven model:

- Attracted more job applicants.

- Stronger brand attachment.

- Transparency, trust, efficiency.

- Circular economy, lower turnover, motivated workers.

→ Unilever shows that having a clear purpose aligned with stakeholder interests brings real benefits:

More talent, motivated workers, stronger trust, efficiency, and customer loyalty. It proves that purpose and profit are not in conflict but can reinforce each other for long-term success.

Energy Management Inc. (EMI)

→ US company aimed to build offshore wind farm.

Purpose: supply clean energy to New England.

→ Opposition from stakeholders:

- Residents: 130 turbines would spoil view and interfere with boats.

- Nonprofit groups: worried about wildlife, energy costs, aircraft safety.

- Local utilities: refused to buy power.

→ Result: regulators denied permits; project canceled after 16 years.

→ Lesson: even nonmarket stakeholders can strongly influence business outcomes.

Valeant Case

- Valeant (Canada): acquired many competitors, cut jobs, raised drug prices (aggressive strategy).

- CEO J. Pearson: “Our duty is to shareholders, to maximize value.”

- Shareholders were pleased; stock price soared.

→ Defense: prices based on “clinical benefits”; patients shielded by insurance.

→ Criticism: price hikes raised ethical concerns about shareholder primacy.

Consequences: public criticism, government investigations, loss of reputation, stock price collapsed.

Key point: focusing only on shareholders creates long-term risks.

→ Later collapse (“The downfall of Valeant”): stock lost most of its value between 2015–2017. → CEO

Michael Pearson admitted strategy was too aggressive.

- Changes introduced:

→ New management (Joseph Papa replaced Pearson in 2016).

→ New purpose: “improving people’s lives with our health care products.”

→ New name (2018): became Bausch Health Companies Inc.

Lesson: excessive focus on short-term shareholder value can destroy long-term sustainability.

Uber Case – The App-On Gap

→ Background of the Case

- Incident: On New Year’s Eve in San Francisco, a driver using the Uber app struck a family, killing a child.

- Issue: The driver was logged into the Uber app but had not yet picked up a passenger.

- Uber’s position: company said the driver was not “providing services” at the time of the accident → therefore Uber was not responsible.

- Family’s position: driver was active on the Uber system → Uber should be accountable.

- This created the debate about the “App-On Gap”:

→ When the app is on but no rider has been connected.

→ Question: Who is liable for accidents during this gap? The driver or Uber?

→ Uber as a Company

- Technology platform connecting drivers and riders.

- Provides ride-hailing, navigation, ride sharing, and payment processing.

- Went public May 2019.

- 2019 revenue: $14.1 billion.

- May 2021 market cap: $94.91 billion.

2 - Stakeholders’ Interests

- Uber drivers: liability insurance coverage, economic protection, job stability.

- Customers: safer rides, insurance coverage in case of accidents.

- Taxi drivers: fair competition (same rules for Uber).

- Government: regulation to protect citizens.

- Insurance association: stronger insurance laws, reduction of risks.

- Competitors (Lyft etc.): keeping costs low, avoiding additional regulations.

- Shareholders: short-term cost reduction vs. long-term brand protection.

3 - Stakeholders’ Power

- Drivers: economic power (strikes, unionization).

- Customers: economic power (choosing services), informational and legal power (lawsuits,

public pressure).

- Government: legal and political power (passing bills, regulations).

- Insurance association: legal/political power (lobbying for law changes).

- Taxi drivers: political/economic power (strikes, lobbying).

- Competitors: political power (lobbying as coalition).

- General public: informational power (media, public opinion).

→ Coalitions

→ In favor of closing the App-On Gap:

- Uber drivers, Uber customers, governments, insurance associations, taxi companies,

consumer attorneys, the general public, victim’s family.

→ Against closing the gap:

- Ride-hailing competitors (Lyft, etc.), high-tech associations, some shareholders.

Outcome

- California legislator Susan Bonilla introduced a bill requiring Uber and others to provide insurance coverage during the App-On Gap.

- Supported by insurance associations, drivers’ associations, consumer attorneys, and the public

- Opposed by Uber, competitors, and high-tech associations.

After strong debate, Uber backed off → recognized it lacked political power to block the bill.

→ Compromise: some details of coverage were negotiated, but the bill passed.

Later, more than 12 U.S. states adopted similar laws requiring Uber/Lyft to guarantee primary liability insurance as soon as a driver signaled availability, even before picking up passengers.

→ Lessons from the Uber Case

- Nonmarket stakeholders (government, associations, public) can be as powerful and influential as market stakeholders.

- Coalitions matter: many diverse stakeholders united → bill passed despite Uber’s opposition.

- Uber had to decide: block or negotiate? → Chose negotiation.

Key point: responsibility and accountability in platform businesses cannot be avoided; regulation will catch up.

Meta (Facebook) – Corporate Governance

→ Board Structure

- 15 members (as of mid-2025).

- Composition includes Mark Zuckerberg plus senior executives/CEOs from major global companies (PayPal, Broadcom, DoorDash, Exor, Dropbox, Estée Lauder, UFC, Microsoft, Stripe, etc.).

- Meetings: 6–7 per year (slightly more than the 4 per year required by Nasdaq listing

standards).

→ CEO Duality

- Zuckerberg is Founder, CEO, and Chair of the Board.

- This is a clear case of CEO duality → concentration of power.

- Risk: lack of separation between management (CEO role) and oversight (Chair role).

- Mitigation: existence of a Lead Independent Director (Robert M. Kimmitt) to balance power, coordinate agendas, and call meetings of independent directors.

→ Independence

- Officially, the Corporate Governance Guidelines require a majority of independent directors.

- Reality: independence is questioned because of long-standing ties with Zuckerberg or Meta:

→ Marc Andreessen (board since 2008, close relationship with Zuckerberg).

→ Peggy Alford (2019, prior ties).

→ Sheryl Sandberg (until 2022, former COO, very close). → Houston (friendship with Zuckerberg).

Critics argue that many “independent” directors are not fully independent in practice.

Diversity & Skills

- The board includes both men and women, members from diverse sectors (technology, finance, entertainment, consulting, government, investment, logistics).

- However, nationality is heavily skewed towards the US → 12/15 are American.

- Diversity in skills and experience is high (CEOs, investors, former government officials).

- Members are generally very experienced, though relatively older → lack of generational diversity.

→ Power Structure & Voting Rights

- Meta has a dual-class share structure:

→ Zuckerberg owns only ~13–14% of economic stake.

→ But holds ~58–60% of voting power.

Consequences:

- Zuckerberg can block or approve almost any proposal, even if opposed by most other shareholders.

- Example: proposals to strengthen independence (e.g. giving the Lead Independent Director more authority) failed because of Zuckerberg’s control.

→ Meetings & Rhythm

- The board meets at least quarterly (four times a year, per regulation).

- In practice, Meta’s board holds 6–7 meetings annually, plus extraordinary sessions if needed.

- Agenda coordination heavily influenced by Zuckerberg.

Shareholder Concerns & Criticism

- Concentration of power: CEO duality + voting control make oversight weak.

- Conflicts of interest:

→Marc Andreessen was accused of sharing confidential board information with Zuckerberg and of acting in negotiations on Zuckerberg’s side rather than representing the board’s collective position.

- Close friendships (e.g. Houston) compromise independence.

- Lawsuits: shareholders sued Meta over corporate governance failures and insufficient risk consideration (e.g. social and privacy concerns).

- Shareholder proposals: requests to separate CEO and Chair roles and to appoint an independent chairperson have been repeatedly made but blocked.

- Activist investors (e.g. SHARE association) demanded governance reforms and reinforcement of shareholder rights in 2022.

→ Strengths & Weaknesses

Strengths:

- Very experienced, high-profile board members with strong industry expertise.

- Diversity of skills across sectors.

- Formal presence of a Lead Independent Director

- Frequent board meetings (above minimum requirement).

Weaknesses:

- CEO duality → excessive power concentration in Zuckerberg’s hands.

- Dual-class share structure → Zuckerberg holds disproportionate voting power.

- Independence questionable → personal and professional ties with Zuckerberg.

- Limited nationality and age diversity.

- Repeated shareholder dissatisfaction, lawsuits, and calls for reform.

→ Meta Case – Corporate Governance (Summary)

- Board: 15 members, very experienced, diverse skills but mostly American and older → low generational diversity.

- CEO Duality: Zuckerberg is CEO + Chair → high concentration of power.

- Independence: formally majority independent, but many ties to Zuckerberg compromise real independence.

- Power Structure: dual-class shares → Zuckerberg owns ~13–14% equity but controls ~58– 60% voting power.

- Criticism: conflicts of interest (Andreessen), lawsuits on governance/privacy, repeated shareholder proposals for reforms blocked by Zuckerberg.

- Overall: Strong expertise in the board, but governance is weak due to excessive power concentration and questionable independence.

Enron Case

1 - Origins and Evolution of Enron

Enron was originally created in 1985 through the merger of Houston Natural Gas and InterNorth, led by Kenneth Lay. Initially, it was an energy company focused on natural gas pipelines and infrastructure.

→ However, the context of deregulation in the United States during the 1980s and 1990s reshaped the energy industry. Enron seized this opportunity to reinvent itself not simply as an energy provider, but as an energy trader.

→ By the late 1990s, Enron branded itself as a revolutionary company in the “new economy,” no longer limited to gas and electricity but presenting itself as a market maker for all types of commodities. Its slogan, “Ask Why,” reflected an image of constant innovation and disruption. Analysts, journalists, and investors widely celebrated Enron as one of the most innovative firms in the world. At its peak, Enron was the seventh largest company in the United States by market capitalization.

2 - Deregulation Context and Transformation

The deregulation of the U.S. energy market allowed companies like Enron to engage in energy trading and speculative activities. While this opened opportunities, it also removed regulatory safeguards.

Enron aggressively shifted from being a regulated pipeline company into an energy trader and broker, creating markets in electricity, natural gas, and even broadband.

→ The transformation created enormous risks. Enron’s organizational culture embraced these risks, valuing short-term profits and constant growth over sustainability or transparency. This culture pushed employees to focus on quarterly performance, leading to dangerous practices.

→ The company also promoted a “rank and yank” system: employees were constantly evaluated, and the lowest performers were fired. This toxic environment fostered unethical behavior and intense internal pressure.

3 - Business Model and Organizational Culture

Enron presented itself as a new kind of corporation, where trading knowledge and innovation mattered more than physical assets. It moved away from tangible infrastructure into intangible contracts and derivatives.

The culture was defined by:

- Risk-taking at all costs.

- No transparency, making financial statements impossible to understand.

- Extreme focus on quarterly earnings, with short-term gains prioritized over long-term value.

Top managers, including Jeffrey Skilling (CEO, ex-McKinsey), reinforced this culture. He introduced aggressive targets and promoted mark-to-market accounting. Kenneth Lay, the founder, provided political connections and external legitimacy. Andrew Fastow, the CFO, engineered financial structures (Special Purpose Entities) that hid Enron’s true debt levels.

4 - Financial Mechanisms – Mark-to-Market Accounting

One of the key innovations – and abuses – was mark-to-market accounting.

This method allowed Enron to record the expected future profits of long-term contracts as current income.

For example, Enron signed a contract with Blockbuster for video-on-demand services. According to mark-to-market, Enron immediately recorded billions in anticipated profits as if they were real, even though the project quickly failed. Proper accounting would have required writing down the value when the deal collapsed, but Enron instead kept reporting inflated values.

→ Mark-to-market turned Enron’s earnings into subjective estimates, giving managers enormous discretion. Combined with the pressure to report constant growth, this practice created fictitious profits.

5 - Financial Mechanisms – Special Purpose Entities (SPEs)

Enron also abused Special Purpose Entities (SPEs). In principle, SPEs are legal vehicles designed to isolate risk for new projects. They should be independent, transferring risk away from the parent company.

At Enron, however, SPEs were not independent. They were supported primarily by Enron stock as collateral. SPEs borrowed money from banks, often on favorable terms, because they were guaranteed by Enron shares.

Mechanism:

- Enron transferred bad assets or contracts to SPEs.

- In exchange, Enron received cash, allowing it to report positive operating cash flows.

- Because SPEs were consolidated oB-balance sheet, Enron appeared healthier than it was.

These practices allowed Enron to hide billions in debt and present itself as a strong, profitable firm. In reality, it was financing itself through illusion and circular transactions.

→ Key Actors and Responsibilities

• Kenneth Lay (Founder & Chairman): provided political influence, maintained the façade of success.

• Jeffrey Skilling (CEO): promoted mark-to-market, created aggressive culture of risk and short-term performance.

• Andrew Fastow (CFO): architect of SPEs, exploited loopholes for personal gain, collected millions in fees.

• Arthur Andersen (Auditors): both external auditor and consultant, approving fraudulent accounting and maintaining permanent offices inside Enron → severe conflict of interest.

• Board of Directors: failed to exercise oversight, lacked independence, many members had financial or personal ties to Lay and Skilling.

• Banks (e.g., J.P. Morgan, Citigroup): financed SPEs without scrutiny, motivated by fees and short-term profits.

• Analysts: kept recommending Enron stock as “Buy” despite red flags.

• Media (e.g., Fortune): praised Enron as highly innovative, reinforcing hype.

• Government and Politicians: Enron had close ties to the Bush family and senior officials, which delayed scrutiny.

• SEC (Securities and Exchange Commission): approved mark-to-market in 1992 and failed to enforce corrective measures.

→ Collapse and Bankruptcy

By 2001, Enron’s share price began to collapse. As the truth emerged, confidence evaporated. Executives tried to reassure investors, saying, “Buy now and after you will gain more.” In reality, shares fell to zero. The company filed for bankruptcy in December 2001, the largest in U.S. history at the time. Employees lost jobs and retirement savings, which were heavily invested in Enron stock. Pension funds and investors worldwide lost billions.

→ At the same time, many top managers engaged in insider trading, selling their shares before the collapse while encouraging employees and investors to keep buying.

→ Stakeholders – Who Was Involved and Affected

Key players in the scandal:

1. Executives (Lay, Skilling, Fastow) → orchestrated fraud.

2. Board of Directors → non-independent, failed in duty.

3. Audit Committee → weak, lacked skills, not independent.

4. Arthur Andersen → massive conflict of interest.

5. Banks → supported SPEs for fees, ignored risks.

6. Analysts → continued positive recommendations.

7. Politicians → protected Enron.

8. Media → reinforced the image of success.

9. SEC → insufficient monitoring.

Those affected:

- Employees: lost jobs and pensions.

- Investors and Pension Funds: catastrophic losses.

- Communities: loss of trust and local economic impact.

- Financial Markets: massive loss of credibility in corporate governance.

Governance Failures

The Enron case highlights systemic governance failures:

- Conflict of interest: directors, auditors, analysts, and banks all compromised.

- Lack of independence: board and audit committee were tied to management.

- Complexity vs. transparency: SPEs and mark-to-market created opaque structures.

- Toxic culture: rewarded manipulation and punished dissent.

→ Aftermath and Reforms

Enron’s collapse triggered massive reforms in corporate governance and accounting.

- Sarbanes–Oxley Act (2002):

→ CEOs and CFOs must personally certify accuracy of financial reports.

→ Stronger penalties for fraud.

→ Mandatory record retention.

→ Auditor independence → prohibited auditors from also acting as consultants.

→ Mandatory auditor rotation (every 3–5 years).

→ Audit committees must be composed of independent directors.

- Best practices introduced:

→ More disclosure requirements.

→ Majority independent directors on boards.

→ Stronger internal controls.

Where Are They Now?

- Kenneth Lay: died in 2006 before sentencing.

- JeSrey Skilling: convicted, sentenced to 24 years, served 12, released in 2019. Now involved in new ventures.

- Andrew Fastow: served prison sentence for fraud.

- Arthur Andersen: collapsed; 85,000 employees lost jobs. Rebranded as Accenture (consulting) and Andersen Tax.

→ Lessons Learned

- For managers: independence, ethics, and transparency are essential; aggressive culture can destroy firms.

- For investors: do not blindly trust analysts or hype; analyze fundamentals critically.

- For regulators: complexity can hide fraud; stricter rules and oversight are required.

- For boards: independence and real expertise are non-negotiable.

The Enron scandal remains one of the most important cases in business history, reshaping global corporate governance.

Patagonia Case

→ Original Mission (pre-2018):

“Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”

→ Profit is not the ultimate goal but a tool to support society and the environment.

→ Targeted ~10% annual sales growth, but always as a means, not an end.

→ Updated Mission (2018):

“We’re in business to save our home planet.”

→ Even more radical: business exists to protect the planet.

→ 2022 Governance Change:

Founder Yvon Chouinard donated all family shares to a trust and a non-profit.

→ Family no longer receives dividends.

→ All profits not reinvested go to environmental causes (≈ $100M annually) Patagonia

→ Ensures Patagonia remains mission-driven even after Chouinard.

Origins and History

Founded by Yvon Chouinard, climber and craftsman, in 1957 (Chouinard Equipment).

- Initially sold climbing gear for himself and friends.

- In 1972 launched the clothing line Patagonia.

→ “Dirtbag” spirit: business as a way to support a climbing lifestyle.

- 1980s–90s: international expansion, crisis and layoBs, later stable growth

(~6–7% annually).

Philosophy and Values

- Non-conventional business: focus on “doing things right” rather than maximizing profit.

- Famous quote:

“It’s okay to be eccentric, as long as you are rich; otherwise you are just crazy.”

- Profitability is necessary for survival but never the final goal.

- Commitment to ethics, sustainability, and inspiring other companies.

Organization

→ Key Activities:

- Logistics: Nevada service center. Ironclad guarantee: lifetime repairs, returns, replacements.

- Marketing: <1% of sales spent. Strong reliance on free publicity, activism, storytelling.

Catalogs: 40% non-commercial content (environmental essays, photography). Campaign “Don’t

Buy This Jacket” encouraging reduced consumption.

- R&D: Innovation in recyclable fabrics, sustainable materials, durable design.

- HR: Hiring based on values, not just skills. Benefits include surf time, childcare, green transport incentives.

- Purchasing: Supplier selection based on environmental and social criteria, not only cost.

- Production: Higher costs (10–15% above competitors), but higher durability and quality.

- Sales: Wholesale, retail, and e-commerce channels.

Governance

- Private company, not listed: avoids short-term shareholder pressure.

- Pre-2022 Shareholders: Chouinard family set vision and strategy.

- Board of Directors: family + former CEOs → ensured mission alignment.

- CEO: External managers implementing the mission (since 2020: Ryan Gellert).

Stakeholders

• Customers: expect quality and sustainability.

• Suppliers: selected based on values.

• Employees: central to company culture and product quality.

• Communities: benefit from projects and donations.

• NGOs / environmental groups: recipients of the “1% for the Planet” pledge.

• Government & regulators.

• Shareholders (now Trust + Holdfast Collective): ensure long-term mission adherence

• The Environment: treated as a stakeholder in itself.

• Retailers: partners for product distribution.

Mission in Practice

• 1% for the Planet: 1% of sales, not profits, donated annually to environmental causes.

• Common Threads Initiative: reduce, repair, reuse, recycle.

• Footprint Chronicles: transparent reporting on supply chain impacts (both positive and negative).

• Activist campaigns: lawsuits and lobbying on climate and conservation issues.

• Durable products: to fight overconsumption.

• Consumer education: campaigns promoting sustainability and reduced consumption.

• Role model effect: shares sustainable innovations with competitors to reduce adoption costs and uncertainty

→ Sharing innovation: publishes R&D results → encourages industry adoption.

- Lowering the cost of adoption: competitors save resources by using Patagonia’s research.

- Lowering the uncertainty of adoption: Patagonia proves that sustainability can still be profitable, reducing risk perceptions.

Strategy and Business Model

• Differentiation Strategy: higher prices, but justified by superior quality + sustainability.

• Radical Coherence: mission drives every function, from HR to marketing to supply chain.

• Trust Building: consistency creates long-lasting relationships with customers, employees, suppliers.

• Imitation Effect: proves sustainability can be profitable, encouraging industry-wide adoption.

• Tensions: sustainability raises costs → must still maintain profitability to survive.

2022 Turning Point

- Chouinard gave up ownership:

→ Purpose Trust → governance.

→ Holdfast Collective → dividends to environment/social projects.

- Family no longer receives dividends.

- Reinforces Patagonia’s mission: profit subordinated entirely to the planet.

Key Takeaways

- Patagonia proves that profit and sustainability can coexist.

- Mission alignment across all dimensions ensures credibility and resilience.

- Stakeholder trust built through radical coherence and transparency.

- Role model for the entire industry: reduces barriers and risk of sustainable adoption.

- Main challenge: balancing high sustainability costs with competitive pressures.

Theranos Case

1 - Founding and Context

- Year: 2003.

- Founder: Elizabeth Holmes (dropped out of Stanford, chemical engineering).

- Location: Silicon Valley → environment of “fake it until you make it”.

- Vision: revolutionize medical testing by using just a finger-prick of blood instead of needles/vials.

- Claim: their device (“Edison” machine) could run hundreds of tests with a single drop of blood.

- Reality: technology never worked properly.

2 - Rise and Early Success

- Context: Tech Unicorn era → Facebook, Tesla, etc.

- Unicorn status: valuation > $1 billion (later peaked at $9 billion).

- Private company → no obligation to publish financial data or scientific validations.

→ Investors:

- First investment from a family friend.

- Later, big private investors and venture capitalists (e.g., Rupert Murdoch, Walton family).

- Motivation: FOMO (Fear of Missing Out) → didn’t want to miss “the next big thing”.

- Weak due diligence: trusted Holmes’ charisma + network instead of data.

3 - Holmes’ Charisma and Media Image

- Holmes copied Steve Jobs’ style: black turtleneck, deep voice, Apple-style marketing.

- Constant presence in magazines, TV, newspapers → hailed as “the next Steve Jobs of healthcare”.

- Network eSect: media hype + prestige board → reinforced credibility.

- Created aura of inevitability: “Theranos will change the world.”

4 - Governance and Board Structure

- CEO/Founder: Elizabeth Holmes.

- COO: Ramesh “Sunny” Balwani (also Holmes’ partner).

- Board of Directors:

• Very high-profile names (George Shultz, Henry Kissinger, James Mattis, etc.).

• Profile: mostly elderly, white, male, with military/political experience.

• Weakness: no medical/biotech expertise, no independence.

- Governance flaws:

→ Concentration of power (Holmes + Balwani both executives and board members).

→ Admiration of Holmes prevented effective oversight.

5 - Company Culture and Secrecy

- Secrecy was absolute:

→ Employees signed strict NDAs.

→ Labs and processes hidden even from internal staB.

→ Justified as protection against “intellectual property theft.”

- Effect: prevented whistleblowing, created opaque environment.

- Culture: toxic, fear-based, centralized around Holmes’ control.

6 - Operations and Walgreens Deal

• Walgreens partnership:

- Pharmacies agreed to host Theranos testing centers.

- Signed due to network trust + FOMO, not because of validated results.

- In practice: samples taken at Walgreens were flown back to Theranos labs (machines not approved for use in pharmacies).

• FDA and approvals:

- Edison machines not approved for broad use.

- Theranos had approval only for limited in-lab testing.

• Reality:

- To run tests, Theranos diluted blood samples and used conventional analyzers.

- Results were inaccurate and unreliable → patients received false medical results.

7 - Exposure of the Fraud

- Whistleblower:

→ Tyler Shultz (grandson of board member George Shultz).

→ Raised doubts internally, ignored.

→ Eventually leaked information to journalist John Carreyrou (Wall Street Journal).

- Investigations:

→ 2015: WSJ articles revealed problems.

→ Regulators and public scrutiny began.

- Response by Holmes: denial, intimidation of employees with lawsuits, insistence that tech worked.

8 - Collapse

- 2018: Holmes and Balwani indicted for fraud.

- Findings:

→ Machines never capable of performing as advertised.

→ Tests often done with modified third-party devices.

→ Patients misled, partners deceived, investors defrauded.

- Closure: Theranos shut down.

Sentences:

- Elizabeth Holmes convicted → sentenced to prison in 2022.

- Balwani also convicted and imprisoned.

→ Stakeholders Involved and Affected

- Executives: Holmes & Balwani → masterminds of deception.

- Board of Directors: lacked expertise/independence, failed oversight.

- Investors: lost hundreds of millions.

- Employees: silenced, some turned whistleblowers.

- Patients: directly harmed by false medical results.

- Partners (Walgreens): financial + reputational damage.

- Media: first glorified, then exposed.

- Regulators (FDA, SEC): criticized for delayed intervention.

→ Governance Failures

- Charismatic founder with unchecked power.

- Celebrity board without competence.

- Lack of transparency, justified as secrecy.

- Investor FOMO culture.

- Media hype instead of scientific evidence.

→ Comparison with Enron

Similarities:

- Lack of transparency.

- Charismatic leadership (Holmes vs. Skilling/Lay).

- Celebrity directors, weak boards.

- Media admiration before collapse.

- Toxic culture (fear, secrecy, manipulation).

- Very ambitious → they wanted to be very rich

Differences:

- Enron = public company, fraud via accounting (mark-to-market, SPEs).

- Theranos = private company, fraud via false technology claims.

- Enron hid debts; Theranos hid lack of scientific validity.

Lessons Learned

- Board composition matters → need sector expertise + independence.

- Transparency is essential → secrecy can be weaponized.

- Charisma is dangerous if unchecked by oversight.

- Investors must perform due diligence, not just trust media or big names.

- Startups need governance just as much as public companies.

- Fraud can thrive when hype and FOMO override rational checks.

Google

- Started → functional structure

- Grew → too complex (Gmail, YouTube, Maps, etc.)

- Adopted matrix:

• Product-specific teams combined with functional expertise

• Still keeps dual reporting despite difficulties

→ Helps innovation around products

→ Dual reporting issues remain (confusion, slower decisions)

McDonald’s

- Started with functional structure

- Then → divisional by country

→ Local divisions (Italy, UK, US, etc.) could adapt strategies (e.g., marketing campaigns) to local needs

→ Importance: recognizes evolving customer needs & geographic diversity

Wildfire Case – Organizational Structure Evolution

1) Flat Structure (Early Start-up Stage)

→ How it worked: Wildfire started with a flat, project-based structure. Just a few dozen developers, no formal hierarchy, everyone worked side by side. Communication was immediate: “people just walked to the next desk.”

→ Advantages:

- Very fast and flexible.

- Minimal bureaucracy, creative and fun environment.

- Perfect for innovation and speed at a start-up stage.

→ Problems:

- As headcount grew, founders became overloaded with admin and operational tasks.

- Role ambiguity and duplicated tasks.

- Product launches slowed down → need for more structure.

2 ) Functional Structure (By Departments)

→ How it worked: The company created specialized departments (Engineering, Marketing, Sales, Finance). Classic top-down CEO → functional VPs.

→ Advantages:

- Clear roles and accountability.

- Professionalization, less overload on founders.

- Efficiency through specialization.

→ Problems:

- Departments became silos (engineers, marketers, sales rarely interacted).

- Cross-functional communication slowed down.

- Bottlenecks at the top → delayed product launches. (decision-making concentrated at the top → delays, because only a few people can authorize critical steps.)

3 ) Matrix Structure (Functions × Projects/Products)

→ How it worked: Employees reported to two bosses: a functional manager (e.g., Engineering head) and a project/product manager (e.g., Game X lead).

→ Advantages:

- Cross-functional collaboration encouraged.

- Resources could be shared across projects → efficiency.

- Better innovation thanks to multiple perspectives.

→ Problems:

- Dual reporting confusion → employees unsure who had authority.

- Conflicts over resource allocation (which project gets priority?).

- Decision-making slowed due to disagreements between managers.

→ Great for creativity, but complex and hard to manage as the firm scaled.

4 ) Divisional Structure (By Products/Markets)

→ How it worked: Wildfire created self-contained divisions, each responsible for a product line (e.g., Games Division, Animation Division, Learning Tools Division). Each division had its own marketing, sales, and development team, reporting to a division manager, who in turn reported to the CEO.

→ Advantages:

- Each division focused directly on the customer/market.

- Faster decision-making (divisions independent from HQ for daily operations).

- Each division had its own P&L (profit and loss) → clearer performance.

→ Problems

- Duplication of resources (each division needs HR, marketing, etc.).

- Higher costs overall.

- Sometimes divisions competed instead of collaborating

→ Key Lessons from Wildfire

- No single “best” model: every structure has trade-oSs.

- Flat → speed and creativity, but unsustainable as firm grows.

- Functional → specialization and eBiciency, but silos emerge.

- Matrix → integrates resources and fosters creativity, but adds complexity and confusion.

- Divisional → market responsiveness and autonomy, but costly and duplicative.

→ Leaders must adapt structure to strategy and growth phase but also avoid changing too frequently (change-fatigue).