Case Study: The FTX Collapse

The Giant That Vanished

Imagine a company so big its name was on sports stadiums and Super Bowl ads, only to vanish almost overnight. This was FTX. While it dealt in digital currency, its spectacular crash wasn't caused by tech—it was a massive failure of governance. It was a multi-billion dollar empire run like a disorganized lemonade stand.

The 'One-Man Show' Problem

In a healthy company, the CEO is the driver, but the Board of Directors is the steering wheel. The Board’s job is to make sure the driver doesn't go off a cliff. At FTX, founder Sam Bankman-Fried had total control. There was no independent Board to ask the hard questions, like 'Where is the customers' money?'

The Missing Paper Trail

Governance relies on transparency. If you can't see the records, you can't manage the risk. FTX famously managed billions of dollars using software meant for small home businesses. It's like trying to build a skyscraper using a LEGO instruction manual—it simply isn't designed for that level of complexity.

Module 2: Governance Recap (Part 1)

Let's pause and recap. Without a steering wheel—the Board—a CEO can drive a company straight off a cliff. And without a clear paper trail, no one will even know the car is moving until it's too late.

The Wild West Bus

Imagine a bus full of passengers. The driver decides to take a shortcut through a canyon. In a governed company, a GPS tracker would alert headquarters. But at FTX, the driver turned off the GPS, threw the map out the window, and used disappearing ink to write the passenger list.

Spotting the Red Flags

If you were looking at FTX before the crash, there were obvious 'potholes' or red flags. Click each flag on the road to see what went wrong. The first flag was the Lack of Independent Oversight. Most of the leadership consisted of a small group of friends living in the same penthouse. No one was there to say 'No'. The second flag was Mixing Wallets. They took money belonging to customers and moved it to a sister company to make risky bets—a massive breach of accountability.

The Governance Auditor

Now it's your turn. Imagine you are an investor looking at a new startup. Ask the CEO about their governance structure to see if you can spot any FTX-style red flags.

Module 2: Governance Recap (Part 2)

As we wrap up the FTX case, remember: total power in the hands of one person, without oversight, almost always leads to disaster. Don't mistake hype for health.