Fraud Detection: How PR Can Help Keep Startups from Becoming the Next Theranos

Erin Griffith recently wrote in Fortune Magazine about the ugly underbelly of Silicon Valley exemplified by Theranos, Hampton Creek and other startups that have fudged the truth or outright lied about their performance, financials and even core product capabilities. While there are different levels for bad behavior, it’s a reminder that the tech industry is as ripe for fraud as the next industry, and at times, even more.

It’s no surprise why this happens — heated markets and arrogance. We’re in the midst of California’s latest Gold Rush. Every startup is looking to the media to help stand out from the noise. Griffith shared the three main influencers behind workplace fraud (according to the Association of Certified Fraud Examiners): pressure from stakeholders and/or competition, opportunity for private companies to self-report unaudited results, and the rationalization that startups are supposed to break the rules to be disruptive. That combo can create an environment of “anything goes” and risky temptations for scrappy startups whose reputation and money are on the line.

Companies don’t operate in a bubble; if a startup has a dirty little secret, chances are it will get out, it’s just a matter of time. Public relations firms are often privy to information about problems at client companies, but not always. Even if they don’t know about any unethical practices their reputation can take a hit when the client gets publicly excoriated over a scandal. If they do have insight into such behavior, they obviously should advise against it and steer clients against the path that can lead to fines and possibly jail time. It’s incumbent on PR firms to be alert for suspicious activity that could put their clients out of business and drag them through the mud too.

So what can a PR firm do to protect itself? With Theranos and Hampton Creek, their PR firms were clearly successful in helping create buzz around the companies, despite the fact that the companies lack the breakthrough technology, business momentum and paying customers and overstated the situation to media. In a crowded market subject to strong scrutiny, it’s critical for PR firms to demand transparency from their clients when it comes to financials, customer traction and other business metrics and push back on clients when things don’t seem to add up.

PR professionals must be trusted and valued in order to help clients stay honest, ethical and in business. Avoiding the hard questions and turning a blind eye is not doing good PR. A bubble only bursts when it’s over-inflated, right? PR firms have a responsibility to their clients and themselves to help make sure they’re not inflating truth. As Olivia Pope, the strategist on the TV series “Scandal,” says: “Do not lie to me,” and we’ll be all good.