The dust from the wreckage of FTX’s collapse doesn’t have time to settle before it’s stirred up again. The latest revelation – that one of the world’s most “admired” cryptocurrency exchanges was comically terrible at both IT security (the “crypto” part) and tracking funds (the “currency” part) – should keep the dust billowing for a while.
While there are many lessons to be learned from FTX’s implosion, three things in particular stand out as someone who advises leaders during a crisis.
First, leaders need to fully understand the risk of incompetence. FTX, a digital exchange and asset repository, “failed to implement basic, widely accepted security controls to protect crypto assets,” according to a newly released analyst’s report filed as part of FTX’s bankruptcy proceeding. “Each failure was egregious in the context of a business entrusted with consumer transactions.”
As Stephanie said in her analysis of the SVB collapse, we think about risks as falling largely into one of these buckets: strategic, preventable and external. Of the three, the worst is preventable risk in terms of impact on reputation. Simply put, no one should accept the result of a preventable failure. The consequences of incompetence are all preventable. People should expect any business to be run competently, especially if it takes customers money for any reason.
Incompetence can not only destroy a business’s reputation but also the business itself. In the case of FTX, it also destroyed its customers’ assets and whatever value they may have had.
This leads directly to the second lesson: put the “I” in integrity. At any point, FTX’s executives could have righted their ship by insisting on maintaining the highest standards – or any standards, really – of business operations. They didn’t seem to care about such details. A laissez faire attitude for ethics among leadership welcomes a crisis.
An organization’s mission and values must dictate its decisions. This is not only critical to effective crisis response but also the right thing to do, always. If the C-suite doesn’t behave ethically or legally, or if mission and values are amoral at best, then get the hell out of there. Only you can protect your own integrity. Your reputation as a professional may long outlive the reputation of your employer. Don’t trade one for the other.
The third lesson arises from the fact that people put their trust in FTX in the first place. People can put lots of faith into things they don’t understand. Trying to explain how crypto works is harder than explaining the infield fly rule, but at least you can see the runners and the baseball while you’re struggling to explain it. But crypto is not the first complicated thing to get showered with people’s cash.
As a policy director for a Texas legislative committee, I once dared to raise questions about Enron, then a darling of the energy sector, because I could not figure out how the enterprise could possibly be profitable, let alone make the money it claimed. It turns out it was all a mirage. Lots of investors, some quite sophisticated, poured huge sums into Enron without understanding how it worked. They were dazzled by what should have baffled them.
Regardless of what you think of cryptocurrency (I think of it like I think of Beanie Babies, except that I can hold a Beanie Baby in my hands and cybercriminals can’t steal them remotely.), the baffling complexity of it seems to lower people’s desire to understand what they’re investing in. Instead, they become more willing to take a leap of faith than they would for a manufacturing company that actually makes things, like cars. We understand how cars work, how cars are valued and how they’re bought and sold. Boring! Web 3.0, blockchain, DeFi, NFT, wow! Cool!
As a crisis leader or strategic communicator, it’s ultimately on you to explain your company’s story when a crisis hits. Be prepared for incompetence, but don’t accept it. Be prepared for unethical behavior from leadership, but don’t accept it. And if your organization’s strategy is to dazzle the public, don’t accept it. Speak the truth, make ethical decisions and insist on integrity. That’s how you protect reputation – your company’s and your own.