Ethics and Legal Issues in Zenefits and Theranos: A Report

This report provides an overview of the ethical and legal issues faced by Zenefits and Theranos, two companies operating in the business sector. It delves into the specific ethical and legal problems each company encountered, such as employee training issues, regulatory violations, and misleading investors. The report identifies the key stakeholders affected by these issues, including employees, investors, clients, and patients. It then proposes and evaluates alternative solutions that could have mitigated the problems, such as transparent financial disclosures, shared decision-making, and strict adherence to regulations. The report concludes with a recommendation for the best alternative to promote ethical conduct and prevent similar issues in the future, highlighting the importance of ethical leadership and regulatory compliance for business sustainability.

Ethics
Name of the students:
Name of the University:
Author’s Note:

Table of Contents
Overview of the companies:.......................................................................................................3
Zenefits...................................................................................................................................3
Theranos.................................................................................................................................3
Ethical or legal issues:................................................................................................................4
Zenefits...................................................................................................................................4
Theranos.................................................................................................................................5
Stakeholders:..............................................................................................................................6
Zenefits...................................................................................................................................6
Theranos.................................................................................................................................7
Generation of the alternatives:...................................................................................................8
Alternative 1...........................................................................................................................8
Alternative 2...........................................................................................................................9
Alternative 3...........................................................................................................................9
Evaluation of each of the alternative:.........................................................................................9
Alternative 1...........................................................................................................................9
Alternative 2...........................................................................................................................9
Alternative 3.........................................................................................................................10
Recommendation of the best alternative:.................................................................................10
References................................................................................................................................11

Overview of the companies:
Zenefits:
This company came into existence due to the efforts of Parker Conrad in the year 2013. The
main purpose of starting Zenefits was to eliminate the necessity of investing huge time, cost
and effort by the various companies on their managerial needs or paperwork. The founder of
the company noticed that the management of several companies have to spend hours of work
and labour in activities that do not form the core of business operations of the entity. In
addition to that they require employing a separate HR department for maintaining and
streamlining the activities of the employees engaged in the provision of these non-core
activities of the entity (Suddath and Newcomer, 2016). The same was achieved by the entity
by performing all these managerial and clerical work on an online platform that eliminated a
lot of useless costs and the need to employ a full-fledged HR department.
Theranos:
The company was started by Elizabeth Holmes. The funding of the company came from
prominent venture capitalists like Draper Fisher Jurvetson and Larry Ellison. The amount of
capital raised by the owner of the company amounted to around US $ 700 million. The main
purpose for which the company started out its operations was to eliminate or reduce the
involvement of human touch in the process of monitoring the health of the patient. It is a
well-known fact that the dosage and the kind of medication to be given out to the patient
depends significantly on the individual’s health (Hartmans, 2018). For the same purpose the
doctors are required to keep a strict vigil in respect of the health status of the patient every
time. Hence, for the purpose of eliminating this need the company started out its operations
with the goal of providing the patients with wearable devices that will be capable of
monitoring the current health status of the patient with the help of blood testing. It will be

done by the device itself with a little prick on the fingertips of the patient. The devices
introduced by the company were fully capable of monitoring the blood samples of the
patients, administration of the requisite medicine and in addition to that adjust the dosage that
is required to be given out to the patients.
Ethical or legal issues:
Zenefits:
Some of the ethical issues that are present in the company are as follows:
i) One of the significant ethical issue that is faced by the company is the way the
employees had to operate or carry out their day to day operations. They were in
constant fear that any mistake on the part of the company will result in the
reduction in the growth rate of the company.
ii) Another ethical issue corresponds to the absence of the quality check of the
services and the products that are supplied by the company to its customers. It has
been found in many instances the customers have found it difficult to make their
respective claims and the response time of the employees of the company was too
long. In some other cases the name that appeared in the system was spelled
incorrectly (Davison et al., 2016). The employees of the company were very fast
in carrying out their duties but at this significantly marred the quality of the
service that is being provided to the consumers of the company.
Some of the legal issues prevalent in the entity are as follows:
i) The HR software that was provided free of cost by the company to its customers
was in violation to the rebates that is lawfully allowed to the customers of the
entity.

ii) It is mandatory for any person selling insurance to clear a state licensing exam.
Each of the states has their own separate exam. It was found that in case of
California there was a time period of 52 hours which was allocated for training to
be undergone by each of the person operating as an agent. The founder of the
company created an extension in the google chrome that made it possible for the
employees to bypass this 52 hours mandate (Trope & Hantover, 2017).
Theranos:
Some of the ethical issues that are prevalent in the entity are as follows:
i) One of the major ethical issues concerning the activities of the entity was that the
investors of the company were kept in complete darkness in respect of the
knowhow of the technology that was primarily responsible for the revenue
generation of the company. This severely restricted the decision taking power of
the investors due to the fact that in case of adoption of any unethical practice by
the company it will not be possible for the investors to have the knowledge of the
same (Ioannidis, 2016).
ii) The final power to take all the decisions rested with only one person. This
severely hurts the decision taking power of any entity. The reason being that
though leadership is required by participation from all the senior parties of the
entity is also important to ensure the effectiveness and efficiency of the decision
that has to be taken in respect of the company (Roy et al., 2019).
Some of the legal issues prevalent in the entity are as follows:
i) The most significant legal issue that resulted in the demise of the company was
not adapting to the policy as laid down by FDA in respect of conducting tests on

patients. They continued to conduct tests on patients even though the technology
that was used for the purpose was not ready for the intended use (Cortez 2018).
ii) The CEO of the company was charged for fraud as they were in complete
violation of the policies as laid down by the FDA, Centre for Medicare and
Medicaid Services and even the SEC (Couzin-Frankel 2018).
Stakeholders:
Zenefits:
The various stakeholders of the company and the impact of the decision taken up by the
management are as follows:
i) The employees:
The employees of the entity were not provided with the requisite training. They
were instead provided with methods which can help them by pass the regulatory
requirement as set up by the statute of the country. This was severely detrimental
to the future interests of the employees. The reason being that the certificates or
the qualification received by them will not be recognised by any other companies
across the country (Nunan & Di Domenico, 2018).
ii) The investors:
As the company was not keeping a tab on the quality of the service that is being
provided by it to its end consumers the demand for the product and the service of
the company will reduce significantly in the near future. Hence, this was
detrimental to the interests of the investors as they will not be able to generate
higher return on capital on the amount that has been invested by them in the
company (Cohan, 2017).
iii) The clients:

It was observed that due to the speed at which the employees of the company were
performing their duties there were many errors on their part. This created huge
problems for the end users of the product of the company. In addition to the
mistakes committed by the employees of the entity, the response time of the
company in addressing the issues faced by the consumers of its products also
increased significantly (Naylor, 2017).
Theranos:
The various stakeholders of the company and the impact of the decision taken up by the
management are as follows:
i) The patients:
The patients form a very important stakeholder of the company. The reason for the
same is that they constitute as the primary user of the product that is designed and
developed by the entity. They are of the opinion that the additional money that
they are spending on making use of the products and services offered by the
company will help them to monitor their health in a better way. On the contrary it
is found that the results given out by the technology adopted by the company is
not accurate and fails to meet the requirement of the patients. The inaccurate
results given out by the products of the company can severely impair the quality
of the treatment that is being received by the patients of the entity (Jotwani et al.,
2017).
In addition to that the patients were ready to pay the extra money to the company
believing that only the latest technology was being used by it for the provision of
its services. It was found that the company was making use of old methods to give

out the results to the customers as its own technology was incapable of providing
accurate results.
ii) The investors:
The main objective of the investors was to earn a higher rate of return from the
amount that has been invested by them in the entity. Hence, an effort must be
made by the entity to give out higher returns in the capital that has been invested
in it by the investors. In addition to that it is the right of the investors to
understand or to have the requisite knowledge about the ways in which their
money is being invested by the promoters of the entity. In this case the promoter
of the company failed to do so by not providing the requisite knowledge about the
ways in which the technology was being utilised. This severely marred the ability
of the investors to take the requisite decision (Weinstein et al., 2016).
iii) Medical industry as a whole:
It is known that it is of paramount importance that latest and innovative
technologies are being continuously adopted within the operations of the various
medical institutions operating within the country. If new entities like the company
fails to provide the assurance that new technologies are better equipped or capable
of mitigating the needs of the patients the medical industry within the country will
not be encouraged to accept the introduction of these new technologies within its
operations in the near future (Peters & Meesters, 2019).
Generation of the alternatives:
Some of the alternatives that can be utilised by the start-up ventures operating within the
Silicon Valley to operate ethically are as follows:
Alternative 1:

Complete disclosure of the ways in which the finance provided by the investors of the
company is going to be used by the promoters of the company must be given out.
Alternative 2:
The decision taking power shall not rest solely with the promoter of the company. Rather a
Board or a committee must be established for taking up the end decision (Griffith, 2017).
Alternative 3:
It must be made compulsory that all the regulatory rules and regulations are being followed
by the entity at all times failing which their ability to invite more finance can be restricted.
Evaluation of each of the alternative:
The advantages and disadvantages of each of the alternatives are as follows:
Alternative 1:
The most significant advantage of this alternative is that it will ensure that the decision taking
powers of the investors are not marred at any point of time. If all the relevant information is
being provided to the investors at any point of time they can calculate the profit generating
capacity of the entity in the present and in the current future.
The disadvantage of this alternative is that the confidentiality of the operational framework,
the methods, policies and procedures can be compromised.
Alternative 2:
The advantage of this alternative is that the limitations of the knowledge and the vision of the
promoter of the company can be eradicated with the increased participation from more
knowledgeable and experienced professionals from the industry.

The disadvantage of this alternative is that it will cause red tape in the process of decision
taking. This can lead the company to miss various opportunities that crop up in the market
and require swift decision making.
Alternative 3:
The advantage of this will be that the entity will invite very less intervention from the
government agencies that are operating within the country.
The disadvantage of this will be that the company will have to incur significant amount of
costs and time to ensure the compliance.
Recommendation of the best alternative:
The best alternative for the start-up companies will be the second alternative. The primary
reason for the same that if a committee is set up it will ensure compliance on the part of the
company on each of the other factors that affect the long term prospects of the entity.
Moreover, the interests of all the stakeholders will be better represented if the entity operates
under the supervision of a board that represents all the stakeholders of the company.

References:
Cohan, P. S. (2017). Growth via Culture. In Disciplined Growth Strategies (pp. 165-186).
Apress, Berkeley, CA.
Cortez, N. (2018). The Evolving Law and Ethics of Digital Health. In Digital Health (pp.
249-269). Springer, Cham.
Couzin-Frankel, J. (2018). The rise and fall of Theranos.
Davison, H. K., Bing, M. N., Kluemper, D. H., & Roth, P. L. (2016). Social media as a
personnel selection and hiring resource: Reservations and recommendations. In Social
media in employee selection and recruitment (pp. 15-42). Springer, Cham.
Griffith, E. (2017, December 16). The other tech bubble. Wired. Retrieved
fromhttps://www.wired.com/story/the-other-tech-bubble/
Griffith, E. (2017, December 28). The ugly unethical underside of Silicon Valley. Fortune.
Retrieved from http://fortune.com/silicon-valley-startups-fraud-venture-capital/
Hartmans, A. (2018, September 5). The rise and fall of Elizabeth Holmes, who started
Theranos when she was 19 and became the world's youngest female billionaire before
it all came crashing down. Business Insider Retrieved from
https://www.businessinsider.com/theranos-founder-ceo-elizabeth-holmes-life-story-
bio-2018-4
Ioannidis, J. P. (2016). Stealth research and Theranos: reflections and update 1 year
later. Jama, 316(4), 389-390.

Jotwani, R., Boumil, M., Salem, D., Wetterhahn, M., & Beninger, P. (2017). Theranos
experience exposes weaknesses in FDA regulatory discretion. Clinical pharmacology
in drug development, 6(5), 433-438.
Naylor, M. (2017). The Response of Incumbents. In Insurance Transformed (pp. 221-262).
Palgrave Macmillan, Cham.
Nunan, D., & Di Domenico, M. (2018). Theorizing piratical innovation: regulatory
illegitimacy and firm growth. Journal of Small Business Management.
Peters, R., & Meesters, B. (2019). Heathlands of digital health compliance.
In Pharmaceutical Care in Digital Revolution (pp. 195-210). Academic Press.
Roy, A. K., Jones III, A. A. D., & Webster, T. J. (2019). Translational medicine and
biomaterials: Basics and relationship. In Biomaterials in Translational Medicine (pp.
1-22). Academic Press.
Suddath, C. and Newcomer, E. (2016, May 9). Zenefits was the perfect startup. Then it self-
disrupted. Bloomberg. Retrieved from https://www.bloomberg.com/features/2016-
zenefits/
Trope, R. L., & Hantover, L. L. (2017). Reckoning with the Hacker Age: Cybersecurity
Developments. Bus. LAw., 73, 227.
Weinstein, A., Sipala, A., Turkington, L., & Stromberg, M. (2016). Theranos-A Case Study
on Customer Value and Technology. Journal of Marketing Perspectives, 1, 6.