According to Forbes, a newly uncovered shareholder letter indicates that Elizabeth Holmes, CEO of troubled blood-testing firm Theranos, has been trying to wrest control of the company from stockholders since at least late 2013. If true, this is one more piece of troubling news for the former media darling, which has been in crisis mode since The Wall Street Journal raised serious questions last month about the accuracy and success of its blood tests.
In the shareholder letter, as detailed by Forbes contributor Peter Cohan, Holmes asked investors to agree to a stock split and to the creation of two classes of common stock that would give her voting control over Theranos.
Per Cohan, Holmes’s letter reads, in part:
Class A Common Stock [would receive] 1 vote per share and Class B Common Stock [holders would get] 100 votes per share, with all of the Class A Common Stock held by Theranos founder and beneficial owner of a majority of our Capital Stock, Elizabeth Holmes, being exchanged for Class B Common Stock.
According to Forbes, in a March 26, 2014, shareholder communication, Theranos said their stockholders gave unanimous consent to the changes proposed in the 2013 shareholder letter. Cohan writes that Theranos would not comment about its communications with investors. But if the company did indeed move to a two-tiered stock system, Holmes would be even more in control of her company than previously thought. Such structures occur with some frequency in Silicon Valley, where faith in founders is something of a religious tenet. Big investors, however, tend to damn the idea of putting voting control in the hands of CEOs, since it diminishes one of the key checks and balances on management’s power.
The Wall Street Journal‘s scathing expose of Theranos–which is valued at $10 billion–claimed that the company’s tests may not be accurate, that they may have exaggerated their achievements, and use traditional blood-drawing needles for many tests, rather than the high-tech finger stick system the company touts. Holmes has punched back at the assertions, accusing the Wall Street Journal of being “a tabloid magazine” and saying the company is working on an extensive rebuttal of the charges. It remains to be seen whether she’ll address this latest revelation.
Update: Seth Lubove, a senior executive with Sitrick And Company, the media relations firm that represents Theranos, emailed Fast Company today, claiming that our account of Forbes‘ report contained several errors.
Lubove detailed corrections he was seeking from Forbes.com, and other media outlets that covered the story. These corrections included the claim that Holmes owned a controlling stake in the company prior to sending the shareholder letter; that shareholders were aware of the reason for the vote; and that shareholders were adequately represented in the vote.
Our story was based only on Forbes‘ analysis of Holmes’s shareholder letter–we’ve updated our post to clarify that.