(When Logic Finishes Second)

(By Dr. Joseph W. Koletar) The Wall Street Journal of May 26, 2016 carried the following front-page article:

“Deal With Theranos Haunts Walgreens”

The article recounts the long and somewhat confusing saga of an old drug store chain and a young “up-start” company called Theranos. In the Spring of 2011, the founder of Theranos, Elizabeth Holmes, arrived at John Hopkins University with a machine she claimed could test much smaller amounts of blood than existing procedures and produce data on patients’ medical issues much more cheaply and quickly than before. Walgreens was intrigued. The machine, called Edison, could revolutionize the blood testing arena and could be a huge addition to the company’s many stores.

Scientists at John Hopkins, an old and well-respected academic instruction, asked the obvious question – “Could we have a machine to verify its results?”

To quote the Wall Street Journal article: “It never happened.”

Thus did Walgreens, in its quest to be “first to the market,” proceed to try to strike a deal with Theranos.The article, based on almost twenty interviews of both Walgreens and Theranos officials, describes the once-promising relationship as now being in “tatters.” Issues with the Theranos device were reported by the Wall Street Journal in October 2015, and in January 2016, regulators advised the testing procedures might pose a threat to patients’ health. Logically, Walgreens pushed Theranos for answers and was given promises and partial information. To some degree, Theranos had them over a barrel – if they pushed too hard, Theranos might go elsewhere. In January 2016, Walgreens began to unwind their relationship with Theranos. Much is still uncertain – many details have yet to come out; the Wall Street Journal article has more detail, but one issue stands out:

Why did Walgreens, founded in 1901, with roughly 7,500 drugstores as of 2010, travel so far down a road filled with murky signs? It is an old, respected, and successful company filled with bright, well-paid people. What went wrong? It seems to defy logic. We offer some possible explanations’ from the realm of the mind:

Thrill, excitement – we’ve found the gold mine!

• Ego – we’re better, smarter, and braver than the other guys.

• Ego (part two) – we’re Walgreens – we don’t make mistakes.

• Insecurity – somebody else may steal our cookie.

• Sunk cost (an economic term) – we’ve put so much into this, we have to make it work.

• Narcissism – This is my baby, and if it works I’ll be a star. Besides, I don’t make mistakes. (I haven’t yet.)
Is the Walgreens-Theranos episode a rare example of logic losing to emotion? Perhaps not. Crain’s New York Business, of May 16-22, 2016 carried the following article on page one: “The Little Crane That Should.” Starting on page 13 of that edition, the sub-title is “Cheaper, Faster, Safer.” It recounts the experience of Dan Mooney, himself a former crane operator. Mooney, based on his work in the industry, decided that a smaller, lighter, safer, more nimble, and efficient crane could handle smaller jobs, and even establish the first 20-30 floors of an even taller building. At that point, the tower and crawler cranes could take over. (A tower crane looks like a huge letter “T;” a crawler crane travels on treads, much like a military tank.)

Mooney built what he called a “Skypicker” crane, a machine he designed and built himself. He got a contract from a construction company that was building a 34-story hotel in mid-town Manhattan. The building was completed in a relatively quick six months, and his phone was ringing off the hook with calls from construction companies seeking his services. Sensing opportunity, Mooney built four more cranes. They still sit, unused, in a warehouse in Queens, New York.

Per the article, after initially receiving approval from the NYC Department of Buildings, that approval was quickly reversed due to opposition from the tower crane operators’ union. Why? A tower crane operator, per the article, receives $73.91 per hour, plus $32.50 an hour in benefits, before overtime. In addition there is a $2 per hour surcharge for each hour they are behind the controls, and double wages on weekends when a crane has to be moved. Some crane operators were making close to $500,000 a year. The big cranes (tower and crawler) also required a supporting cast of master mechanics, relief operators and “oilers” whose job it was to start the crane each morning. They saw Mooney’s Skypicker crane as a threat to their livelihoods, as did their Union.

Mooney was counting on logic – Cheaper, Faster, Safer – but he has been sidelined by the big crane operators and their Union, which sees him reducing the amount of work they get. They will always have work, since Mooney’s cranes can only go as high as about 30 stories, and most new buildings in a vertical city like New York are well above that.

The final decision is up to the City of New York and politics and lawsuits will raise their surly heads. This is not to suggest that the big crane operators and their Union are bad people; they are not. They are merely following the basic human instinct to protect what one has.

In the Walgreens matter, logic seems to have failed. The New York City issue remains to be seen, but in both instances human emotion played a significant, if not decisive, role.

Yet we continue to expect corporations and their executives to routinely behave in a logical manner. The realm of the mind is, indeed, powerful.

© 2016  Joseph W. Koletar



The Behavioral Forensics Group is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives.  The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics Group.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, BFG is a premier, pioneering practice in this field.

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