Ethical Dilemmas: A Business Ethics Analysis of Zenefits and Theranos

This report provides a comprehensive analysis of the ethical and legal issues surrounding the business practices of Zenefits and Theranos, two startup companies. The report begins with an overview of each company, highlighting their core business models and origins. It then delves into the specific ethical and legal challenges faced by each, including violations of insurance laws, fraudulent claims, and the impact on stakeholders such as employees, investors, and customers. The report identifies key stakeholders affected by the companies' decisions and evaluates potential alternatives to address the ethical dilemmas. Finally, it recommends solutions for ensuring appropriate business practices, emphasizing the importance of ethical innovation, transparent communication, and adherence to regulatory terms. The analysis draws upon various business ethics theories and relevant references to support its arguments.

Running Head: BUSINESS ETHICS
Business Ethics
Name of the Student
Name of the University
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Overview of Companies
The Zenefits is a company which is based in the United States and provides software
services for the management of human resources. The main focus of the company is to help
people with the health insurance coverage. The company was founded in the year 2013 by
Parker Conrad. The headquarter of the company is located in San Francisco. There are many
offices of the company which are located in Atlanta, Tempe, Vancouver, Bangalore and
Chicago. The company began with the aim to help the startups and other small businesses to
find the correct insurance and manage the employees to benefit (Griffith, 2017, December 28)..
The company also supported the stock options in the cloud HR platform.
On the other hand, Theranos was a corporation that dealt with the privately held health
technology. The company was founded by a 19-year old lady called Elizbeth Holmes. The
company began to become a breakthrough technology in the healthcare industry. The company
was formerly named as Real –Time Cures but later changed its name. Founded in the year 2003,
the company was headquartered in Palo Alto, California, the United States. While Holes was the
chairman, David Taylor became the CEO of the company (Griffith, 2017, December 28).. The
company claimed that it holds such technologies which required less amount of blood for the
tests that subsequently reduces the costs too.
Ethical and legal issues
The Zenefits company- The legal issues - In the year 2016, an investigation found that
the licensing of the company was beyond compliance and the CEO had established a browser
extension for selling their insurances in California. They were found flouting the insurance laws.

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They were also found to be allowing employees who were not licensed to sell the insurance
policies and circumvent the education requirements for the agents.
Ethical Issues- Zenefits behaved unethically in two different ways. Firstly, smoking
cigarette is illegal in the office premises as per the California State law. Secondly, boozing is
only allowed when there is an informal meeting with the approval of the boss. Thirdly, selling
unlicensed insurance is also unethical. Lastly, encouraging sexual activities during the office
hours is also completely unethical (Crane & Matten , 2016). According to the virtue theory, it is
sheer immoral and despicable. These are the wrong steps to succeed as a business. They
presented themselves as lying and fraudulent.
The Theranos company- Legal issues- In the year 2015, the Wall Street Journal
questioned the validity of the Theranos claims to own the high-tech machines. The company
faced legal and ethical challenges from the medical authorities and the investors too. The
investigations found that their blood testing machines hardly worked and moreover the company
was faking their proficiency having used the other commercial machines in order to complete the
tests. They were charged of criminal fraud (Lyles et al., 2017).
The ethical issues- It is not unethical or scandalous of the technologies of the company
does not work, it is scandalous if they fake out the news about the proficiency of their
technologies, their state of development and the revenues ( Davies, 2016). They lacked both the
corporate and the personal ethics which are supposed to be the foundations of a business. Along
with the lawbreaking in the business it is a severe ethical disruption.

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Stakeholders
In the case of Zenefits, the stakeholders are anyone who is engaged in the operations of
Zenefits. The primary stakeholders are the employees, the insurance companies which have
purchased the products of Zenefits. It involves the customers too. It encompasses the employees
of those insurance companies because their policies were selected by the technologies of
Zenefits. The company has impacted the major stakeholders in any ways. The decision has left
the jobs and livelihoods under high stake. The investors have also undergone loss as the slashing
value of the company has come down to $ 2 billion from $ 4.5 billion. It has maligned the
relationships with them as their ownership stake has increased from 11 % to 25 %. The reaction
of the stakeholders made the CEO of the company resign from his position and lose Jet.com, its
e-commerce start-up (Griffith, 2017, December 28).
In the case of Theranos, since it dealt in the health care services, its major stakeholders
were the people who were connected to the services and technologies of the company. The
Theranos company forgot that government and the media are also the important stakeholders in
this case. The investors who had invested large amounts also might have been affected by that.
One of the most important stakeholder the Walgreens pharmacy terminated all contracts with the
Theranos company and also filed a lawsuit. The company almost lost its everything after the
revelation dropped from $ 4.5 billion to almost nothing. It became bound to close the labs for
two consecutive years (Hartmans, 2018, September 5).
Alternatives
1) The Silicon Valley startup companies should have innovated ethically. They must
have followed the principles of organizational innovation such as designing with the

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users, understanding the existing ecosystem, building for sustainability, being data
driven, not harming and being collaborative (Suddath & Newcomer,2016, May 9).
2) They could have revealed or communicated the truth about their business to all of the
stakeholders. It might have reduced the extremity of their conditionsv (Pearson,
2017).
3) The Silicon Valley companies should have followed the regulatory terms of
government and the society which could have saved them from such allegations of
being illegal and unethical.
Evaluation of the alternatives
The First alternative- It could have helped the companies to substantially improve the
society and the working conditions. Selling insurances without proper licenses is a critical factor
which could have left the lives of the stakeholders under pressure. The disadvantage is that it
could have raised the costs of issuing the licenses that could have slowed down their success
(Griffith et al., 2019). The cost of ethical training of the employees would also have to be bore
by the company.
The second alternative - They could have revealed or communicated the truth about their
business to all of the stakeholders. It might have reduced the extremity of their conditions. This
alternative definitely could have clarified the confusions with the stakeholders had they kept the
communications transparent. The ethical programs could have aligned with the personal values
in order to improve the performance (Gower, 2017). The disadvantage is that, it could have
received adverse reactions from the part of the stakeholders and nobody would have agreed on
working with the company.

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The Third alternative- The third alternative is that they should have followed the
regulatory terms of government and the society which could have saved them from such
allegations of being illegal and unethical. The advantage is that it could have promoted a strong
goodwill and efficient public image. It would have been useful for the business in the long run
The alignment of the values with the behaviors is important for the businesses to develop a
positive image for the business (Gaughan & Javalgi, 2018). The consistent application of the
ethical values to everyday businesses decisions would have helped the company to build a
trustworthy and truly successful company with social responsibilities. The disadvantage is that, it
required time investments and legal knowledge too. The changing legal environment ca also
hinder the regular business process and pressurize to make instant methods obeying the
regulatory aspect of the government.
Recommendation
After the evaluation of the three alternatives, it can be discerned that the disadvantage of
the first alternative is feasible. The other two could have increased with the cost of the business
or required huge time period for the management. The first alternative is a type of preventive
method that is better than resolving the issues when the situation has already become worsen.
Hence, it can be recommended that the Silicon Valley Start-up companies can adopt the strategy
of innovating ethically from the beginning.
They must follow the principles of organizational innovation such as designing with the
users, understanding the existing ecosystem, building for sustainability, being data driven, not
harming and being collaborative. Had the Zenefits company invested time, patience and a little
amount of money to issue the licenses instead of falsifying to the people, it would not have faced
such scenario. Likewise, had the Theronos company stopped faking news of the supremacy of

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their technologies which were not real, they would not have dropped down to zero. Ethics is at
the core of the business and following the ethics is more important than earning higher revenues.
The lack of ethics in the business can leave greater impact on the business and the society.
Hence, the business organizations should follow it as much as possible.
References
Crane, A., & Matten, D. (2016). Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Davies, P. W. (2016). Current issues in business ethics. Routledge.
Gaughan, P. H., & Javalgi, R. R. G. (2018). A framework for analyzing international business
and legal ethical standards. Business Horizons, 61(6), 813-822.
Gower, K. K. (2017). Legal and ethical considerations for public relations. Waveland Press.
Griffith, E., Dennett, D., Dobbs, D., Vlahos, J., Loucaides, D., Kelly, K. & Rogers, A.
(2019). Techies Still Think They're the Good Guys. They're Not. | Backchannel. [online]
WIRED. Available at: https://www.wired.com/story/the-other-tech-bubble/ [Accessed 22
Feb. 2019].
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

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https://www.businessinsider.com/theranos-founder-ceo-elizabeth-holmes-life-story-bio-2018-4
Lyles, C. R., Fruchterman, J., Youdelman, M., & Schillinger, D. (2017). Legal, practical, and
ethical considerations for making online patient portals accessible for all. American
journal of public health, 107(10), 1608-1611.
Pearson, R. (2017). Business ethics as communication ethics: Public relations practice and the
idea of dialogue. In Public relations theory (pp. 111-131). Routledge.
Suddath, C. & Newcomer, E. (2016, May 9). Zenefits was the perfect startup. Then it self-
disrupted. Bloomberg. Retrieved from https://www.bloomberg.com/features/2016-
zenefits/

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