The FTX fiasco shows the benefits of creating a group of formal advisors with experience to help executives of young, fast-moving companies avoid failure.
Robert McManigal is an Associate at Nixon Peabody . Opinions are those of the author.
Decentralization has played a central role since the birth of the crypto industry, but in the aftermath of the FTX debacle, crypto companies and other fast-moving It might make sense to adopt an equilibrium with It creates the stability that listed companies value.
This could help protect these companies from the internal dynamics that led to crypto exchange FTX filing for bankruptcy late last year and former CEO Sam Bankman-Fried being arrested on eight charges against him. There is a nature.
It is well known that successful companies continue to adapt as their business grows. FTX management was clearly wise, but apparently lacked the basis for making decisions in the best interests of the company and its customers.
The scale of the FTX disaster makes it an outlier, but in many ways it is symptomatic of the problems that are prevalent throughout startup culture in general and the cryptocurrency industry in particular.
Similar fast-growing organizations may come under scrutiny after the FTX deal is revealed. While there are important steps such companies can take to prevent or deter legal action, it is essential to recognize that malicious behavior is not beneficial in the long run.
But for companies looking to bolster their business in a post-FTX world of increased regulatory scrutiny, the benefits of acting smart will go beyond mere legal certainty to include improved efficacy and longevity. Become.
Governance:
Part of the culture of the crypto industry, and more broadly in the startup world, is the emphasis on rapid growth with as few checks and balances as possible.
However, while this may be characteristic of fast-growing companies, reluctance to form boards, expand management teams, and establish internal controls could also be seen as red flags to be addressed. It is important to recognize that there is engage in fraud or dishonesty.
It may be helpful to take a page out of the traditional playbook for publicly traded companies.
Listed securities are generally controlled by shareholders with voting rights. Shareholders elect a board of directors and ensure that the officers act in the company’s best interests.
Conversely, cryptocurrency companies have little to no oversight. Founders act with little impunity when making strategic decisions that can affect the value of cryptocurrencies.
To increase investor confidence, cryptocurrency companies should consider incorporating a system of checks and balances into their governance structures.
Originally published at https://businessdor.com on February 3, 2023.
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