Director – Professional Services organisation
The cryptocurrency space has been pushed into the spotlight once again amid the collapse of the exchange FTX. A corporate failure of this nature would naturally encourage conversations around the governance in place, or lack of it, and the lessons we can all learn from the massive oversights and lack of corporate responsibilities that lost more than $8 billion of its customers’ money.
Following the collapse, it was found that FTX suffered from severe conflicts of interest, nepotism and a general lack of oversight at the top of the organisation. The lack of corporate governance within such an unregulated sector has been identified as a key reason as to why these failings weren’t caught and fixed sooner.
Findings have shown that:
- FTX had no board of directors during their massive period of growth. The executive team was instead made up of 3 individuals; the founder – Sam BankmanFried, another employee, who was also a personal friend of Sam’s, and a Lawyer. It is vitally important, especially with young and growing organisations, that an independent, experience and well-informed board is appointed to ensure best governance practices are implemented.
- The key codes and exchanges that were used to match the engine and fund were only accessible by 3 senior staff members at FTX, with no checks in place to monitor any changes. A previous employee stated that “If they [Sam and the executive] moved them around or input their own numbers, I’m not sure who would notice.”
- Nepotism was rife with the Head of HR being an executive staff member’s girlfriend. She was hired and immediately promoted to Head of HR and would allegedly fire at will – especially those who disagreed with Sam’s decisions
- They had been buying political influence on both the left and right to avoid scrutiny and to continue having favourable policies regarding crypto exchanges.
- The organisation had a massive growth in revenue, increasing 1000% during 2021 alone. Such a rapid growth with so few checks and balances in place can often lead to strategic decisions that are made in the benefit of financial success rather than corporate governance.
The current CEO of FTX John Ray, who has been tasked with the insolvency and recovery of assets from the firm, has stated that in over his 40 year long career he has never seen "such a complete failure of corporate controls and such a complete absence of trustworthy financial information as what occurred here".
Ultimately, the organisation had unfortunately fallen foul to an inexperienced senior management team which was led by a single omniscient individual who’s concentrated power led to the loss of billions of dollars of customer money.
This unfortunate series of events has help highlight the importance and need to have a solid corporate governance understanding within organisations which is implemented and fed from the top down. This is important not only with the less regulated environment of the cryptocurrency market but across all organisations; no matter the size, complexity or sector.