Limitations and Potential Dark Sides of Transformational Leadership: The Case of the Founder and Former CEO of Theranos

Abstract

Transformational leadership is widely recognized as an effective leadership style; however, it is important to recognize its potential misuse, where it may serve a leader’s self-interests at the expense of others, both inside and outside the organization. In this article, we present an experiential exercise that uses the case of Theranos and its founder and former CEO, Elizabeth Holmes, to highlight the limitations and potential dark sides of transformational leadership. In this exercise, students watch three YouTube videos about Holmes, identify the characteristics of Holmes that match transformational leadership, and discuss issues with her leadership style. This exercise can be used in Introductory Management and Organizational Behavior courses, in-person or virtually. Students who have completed the exercise agree it is effective in teaching the concept of transformational leadership and in fostering active class engagement.

Transformational leaders “are those who stimulate and inspire followers to both achieve extraordinary outcomes and, in the process, develop their own leadership capacity” (Bass & Riggio, 2006, p. 3). It is an effective leadership style (Bass, 1999; Derue et al., 2011) with positive impacts on followers, including higher job satisfaction, organizational commitment, innovative behaviors, and better task, contextual, and creative performance (Avolio et al., 2004; Pieterse et al., 2010; Wang et al., 2011). In addition, transformational leadership positively influences organizational-level outcomes, including organizational learning, innovation, culture, and performance (García-Morales et al., 2012; Liao & Chuang, 2007; Wang et al., 2011).

One criticism of transformational leadership is that the leader can abuse it for destructive purposes and self-interests, at which point it might be deemed pseudo-transformational leadership (Bailey & Axelrod, 2001; Christie et al., 2011; Howell & Avolio, 1993). Although research shows distinctions between pseudo-transformational and true transformational leaders (Christie et al., 2011), their behaviors may appear similar in practice. O’Reilly and Chatman (2020) argue that narcissistic leadership, which shares traits with transformational leadership (e.g., being good at inspiring followers), can lead to harmful outcomes such as employee stress, unethical behavior, and irrational decision-making as the leader’s motives are self-serving rather than other-directed. For students who will be influenced by leadership and who may become leaders, we believe they should understand the negatives that may lurk behind the positive facade of transformational leadership.

We present Elizabeth Holmes, the founder and former CEO of Theranos, as a leader who may exemplify the potential limitations and dark sides of transformational leadership. Holmes, once lauded as a visionary leader reshaping the landscape of health care technology, misled investors, regulators, and the public about the capabilities of her company’s blood testing technology (Carreyrou, 2018). The Theranos scandal is a sobering reminder of the ethical pitfalls inherent in idealized influence (one of four transformational leadership behaviors). By dissecting the case of Theranos, we aim to deepen students’ understanding of transformational leadership, prompting critical reflection on the balance between inspiration and deception. While Holmes’s actions may cast a shadow on transformational leadership, they also underscore the imperative for aspiring leaders to cultivate ethical awareness and moral integrity. We encourage students to navigate the challenging terrain of leadership with wisdom and ethical acumen. Our approach allows students to develop a nuanced understanding of transformational leadership, recognizing its capacity for positive impact while remaining vigilant against its potential for misuse. This exercise is appropriate for undergraduate courses such as Introductory Management and Organizational Behavior, wherever transformational leadership is discussed. It can also be adapted for virtual settings using video links, documents with prompts, and online discussion boards.

Theoretical Foundation

Leadership can be either transactional or transformational (Burns, 1978). Transactional leadership depends on the economic exchange between leaders and followers, where, for instance, employees work in exchange for remuneration. Transformational leadership outperforms transactional leadership through the implementation of its four core factors: idealized influence, inspirational motivation, intellectual stimulation, and individual consideration (Bass, 1985). Idealized influence reflects a leader’s adherence to strong ethical standards, positioning them as a role model for their followers (Bass & Riggio, 2006). Inspirational motivation involves inspiring and energizing followers, for example, by communicating a compelling vision. Leaders use intellectual stimulation to encourage innovation and creativity among followers, prompting them to think critically and propose novel solutions to problems. Individual consideration encompasses an empathetic approach toward understanding and addressing the needs and emotions of followers. Appendix A offers a detailed description of transformational leadership.

In some cases, transformational leaders may be better described as pseudo-transformational. Bass and Steidlmeier (1999) suggest the differences are grounded in the moral foundation of leaders’ choices and actions. For example, while pseudo-transformational leaders are skilled at communicating compelling visions, their intent may be self-interested (Barling et al., 2008). Pseudo-transformational leadership negatively affects both followers and organizations. It contributes to fear of the leader, obedience to the leader, dependence on the leader, perceived abusive supervision, and perceived job insecurity (Barling et al., 2008). When followers perceive their leaders as pseudo-transformational, they are less likely to identify with the company, negatively impacting their contextual performance (Lin et al., 2017).

Although transformational leadership has been well researched, it can be difficult for students to understand (Boyd, 2009). Students gain a deeper understanding of concepts when they study real-life examples (Williams & Rosser, 2008). Using the case of Holmes can help students comprehend transformational leadership’s four key factors as well as its potential limitations and negative aspects.

Learning Objectives

Students should be able to:

1. Define transformational leadership.

2. Describe the four factors of transformational leadership.

3. Apply the concept of transformational leadership in organizational contexts.

4. Identify aspects of an individual’s leadership style.

5. Identify the limitations and potential dark sides of transformational leadership.

Instructions for Running the Exercise

Overview

Much has been written about Elizabeth Holmes and Theranos, perhaps most effectively in the book Bad Blood: Secrets and Lies in a Silicon Valley Startup (Carreyrou, 2018). Instructors may wish to require or recommend this book. In addition to or in place of reading the book, we ask students to watch three YouTube videos and discuss several questions. Appendix B includes detailed descriptions of the videos. The in-class exercise lasts about 50 to 60 minutes, depending on the time allocated for each of four discussion questions (Appendix D). The activity can be adjusted for shorter classes by either substituting the video(s) with the text in Appendix C or eliminating Video 2 altogether. The activity can be altered for distance learning by prompting students to watch each of the assigned videos and then respond individually or in a group to the discussion questions (Appendix D) by a specific deadline.

Research suggests that using YouTube videos promotes active learning (Varma, 2020) and creates an engaging educational experience (Berk, 2009; Granitz et al., 2021; Seemiller et al., 2020). One limitation of using YouTube videos is they are uploaded by users and may become unavailable. Although this exercise’s videos are owned by media companies (CBS Mornings, 2015; CNBC, 2015; 60 Minutes, 2022) that may be more reliable than individual users, we cannot eliminate this limitation. If the videos become unavailable on YouTube, we recommend using the text in Appendix C.

Introducing Transformational Leadership—10 Minutes

• [If the class is less than 60 minutes, consider completing this first step in a previous class.] Explain the concept of transformational leadership including its four factors.

• Assign two to three students to a group; give each group the discussion questions.

• Ask students to address the first discussion question (Appendix D).

Understanding the Four Factors vis-à-vis Elizabeth Holmes—15 Minutes (5-Minute 51-Second Video)

• Watch “Youngest Self-Made Female Billionaire Takes High-Tech Approach to Blood Testing” (Video Example 1 in Appendix B) in class.

• Ask students to address the second discussion question (Appendix D).

• After the small group discussion, assign and ask each group to address only one of the four transformational behaviors. It is OK to have multiple groups addressing each one of the four behaviors.

Understanding the Potential Dark Sides of Transformational Leadership vis-à-vis Elizabeth Holmes—25 to 35 Minutes (9-Minute 31-Second Video and 14-Minute 2-Second Video)

• Watch “Theranos CEO Elizabeth Holmes: Firing Back at Doubters| Mad Money| CNBC” (Video Example 2 in Appendix B) to understand concerns about Theranos’s technology.

• Ask students to evaluate Holmes’s leadership and address the third discussion question (Appendix D). Give student groups 5 to 7 minutes to reflect and then ask each group to share one answer with the larger class.

• Watch “Elizabeth Holmes & The Theranos Deception | 60 Minutes Archive” (Video Example 3 in Appendix B).

• Give students 5 to 7 minutes to discuss possible limitations or dark sides of transformational leadership, answer the fourth discussion question (Appendix D), and share one of their answers with the class.

Debriefing

We recommend debriefing this exercise by section. First, we ask students to describe an example of real-life transformational leadership, thereby satisfying the exercise’s first and second learning objectives. Instructors can ask several groups to describe a transformational leader and explain what that leader does to exemplify the four factors of transformational leadership. Instructors may need to correct or redirect if students incorrectly match leader behaviors to the four factors.

Second, we introduce students to Elizabeth Holmes. After watching the first video, we ask students to describe and analyze her leadership using the four factors of transformational leadership. The second question in Appendix D addresses the exercise’s second and third learning objectives. We ask which of the four factors Holmes best portrayed versus portrayed the least, followed by whether the evidence supports Holmes as a transformational leader and why or why not.

Third, students watch a video where questions and concerns are raised about Theranos’s technology, and Holmes responds to the concerns. We ask students to evaluate Holmes’s responses via the third discussion question in Appendix D, which addresses the fourth learning objective. We ask why people complied with Holmes’s expectations and demands for as long as they did, thus highlighting some challenges of identifying ineffective or unethical leadership, and the biases that may cause us to remain committed to a leader and course of action (e.g., escalating commitment).

After discussing the potential issues, students watch the third video, which reveals the backstory of Theranos and the negative effects of Holmes’s leadership style. We ask students to identify the potential limitations or dark sides of transformational leadership in the fourth discussion question, which relates to the fifth learning objective. We ask students what overall lessons they have learned and what they might do in the future to determine if a leader is a pseudo-transformational leader. Then, we emphasize the value of critically evaluating a person’s leadership behaviors and style, the importance of understanding the potential limitations or dark sides of transformational leadership (or any leadership style), and the possible impact of our own biases on our perceptions of leaders. We also highlight pseudo-transformational leadership and discuss techniques for determining a leader’s intentions and the likelihood they are self- versus other-focused. Being asked by a leader to engage in unethical behavior, such as falsifying data or ignoring regulations, is one clue that a leader’s style may be pseudo-transformational. Another might be the lack of authentically positive outcomes for employees and the organization despite being told that everything is fine.

It is a simplification to say that transformational leaders are always ethical and other-focused, while pseudo-transformational leaders are always unethical and self-focused. It is possible for followers to receive positive treatment and outcomes even when leadership is pseudo-transformational. This should be acknowledged, with the caveat that a full diagnosis of a leader’s style requires more detail on their intentions, decision-making, and actions. Furthermore, whether a leader is perceived by their followers as transformational or pseudo-transformational may be unrelated to their actual intentions. One can be perceived as having negative intentions, for example, because a previous leader did so, even though the current leader may not. We ask students to reflect on the degree to which they believe the exercise has contributed to their ability to recognize that leadership is seldom all good or bad, and that follower perceptions matter.

After engaging in this exercise, we asked students in an undergraduate Organizational Behavior course to provide feedback. Most found the activity to be valuable for deepening their comprehension of transformational leadership. Many reported not only an enhanced understanding but also a significant improvement in retaining their knowledge. In addition, students appreciated the exercise’s practical application, finding it both engaging and interesting. This was further evidenced by their high satisfaction with the experiential activity, highlighting its effectiveness as an educational tool in teaching the potential limitations or dark sides of transformational leadership.

Conclusion

Understanding transformational leadership and being able to recognize pseudo-transformational behaviors are crucial skills for students. The case of Holmes is an opportunity for students to apply transformational leadership concepts to a contemporary example. Feedback from students indicates this activity both aids in understanding the topic and engages them in the learning process such that their knowledge retention is enhanced, as is their satisfaction.