FTX by Bankman-Fried: Leadership Challenges

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Table of Contents

Introduction
Problem Statement
Critical Analysis
Application
Evaluation
Conclusion
References

Introduction

Proper leadership implies a multifaceted approach that promotes the interests of stakeholders. The study examines the case of FTX by Bankman-Fried, in which the CEO did not meet the requirements of proper leadership. Bankman-Fried used the resources provided by his companys investors to gamble in the stock markets, acting in his own selfish interests. The misconduct of the leader led to the collapse of the company. Bankman-Frieds leadership has failed, since he did not adhere to the qualities that should be inherent in a leader. The steward leadership model could have helped Bankman-Fried avoid negative consequences.

Problem Statement

The Bankman-Fried case has received significant media coverage, which may clarify the problematic issues that charismatic leadership raises. Bankman-Fried used company securities to make transactions and obtain loans without informing members of the organization (Hern & Milmo, 2022). FTX could not account for a total of $3.6 billion in client deposits (Kauflin, 2022). Tindy (2022) from the BBC explains that Bankman-Fried often posted pictures on his Twitter account that gave his followers a glimpse of his daily life. Faux (2022) from Bloomberg reported that Bankman-Fried intended to give away most of his fortune to charity. Gerard (2022) from The Guardian explains that Bankman-Frieds portrayal was a distraction from the real state of affairs in FTX. Charisma was a carefully crafted tool to disarm potential investors and reduce public anxiety about his company (Lewis & Caldwell, 2005). The created positive image broadcast in the media allowed Bankman-Fried to commit investor scams.

The Bankman-Fried case demonstrates self-interest, abuse of position and charisma problem as one of the challenges of leadership in a strategic context spanning the organizational scale. Bankman-Fried has not disclosed important information to investors and other relevant parties inside and outside the organization. Bankman-Fried was not an adequate manager of financial resources from the point of view of leadership theory. He used FTX funds to his advantage, trading through Alameda and making risky moves that ended up costing his investors billions in losses. Bankman-Frieds philanthropic work resonated with people to the point where they believed in his company and vision. Charisma arose from carefully crafting his image to get people to invest in him and his company. The Bankman-Fried case raises the question of the acceptability of charismatic leadership.

Critical Analysis

The theoretical perspective from which the Bankman-Fried case should be considered is the issue of charismatic leadership. Charisma involves a certain social relationship between a follower and a leader, in which the leader presents a revolutionary idea (Dansereau et al., 1975). The follower believes in the leader because of insurance that the leader has extraordinary abilities (Conger & Kanungo, 1987). Horton & Riggio (2018) explain that charismatic leadership is related to the emotions a person can evoke in other people. Sy et al. (2018) emphasize that leaders use compassion, admiration, and anger to get their followers to take action. The modern approach to leadership implies the need for consciousness, which was violated by Bankman-Fried, since he acted without relying on a long-term perspective (Alvesson & Spicer, 2012). Sommer et al. (2016) identify the need for a leader to have a positive impact on stakeholders during organizational crisis, which was not addressed by Bankman-Fried. The main strategy chosen by Bankman-Fried was to pressure the compassion of the audience, as he created the image of an altruistic person.

An important problem that emerges in the case of Bankman-Fried is miscommunication, which has led to an inequality of information received by different parties. The role of communication in leadership is organizational (Ruben & Gigliotti, 2017). A large amount of research on the topic of leadership has led to a blurring of the boundaries of this concept (Dinh et al., 2014). In the case of Bankman-Fried, the leadership position remained formal, it did not contain the ethical and moral qualities that should have been inherent in the leader. Personal qualities are often decisive in the process of establishing leadership (Judge et al., 2002). Bankman-Fried tried to demonstrate integrity, responsibility and respect to his audience; however, these qualities were not inherent in him. Bankman-Fried used the diversity of existing knowledge about leadership to create a credible image in the media without being an authentic leader. The problem of abuse of leadership position, the use of charisma as a tool of deceit and miscommunication led the company to collapse.

Application

A potential solution to the crisis for Bankman-Fried would be a redesigned organizational approach based on steward leadership and promoting communication, strong team relationships and ethical standards. Situational leadership is applied to address specific problems quickly; however, in the case of Bankman-Fried, longer-term practices need to be considered (Zigarmi & Roberts, 2017). An evidence-based leadership model will enable the subsequent resolution of financial problems (Lewis & Caldwell, 2005). In the long term, Bankman-Fried can leverage steward leadership, which involves adhering to best practices for stakeholder success in all circumstances (DInnocenzo et al., 2016). If the leader wants to achieve a way out of the crisis, they must become the agent of change who will lead the team (Buchanan & Badham, 1999). The best option for Bankman-Fried should be a steward approach based on teamwork to achieve the interests of all the parties involved.

Steward leadership is based on paying attention to society, investors, clients and any other parties involved. This approach requires clear team communication where all team members will work together to resolve a crisis (Knights & McCabe, 2003). To increase engagement, a leader can use person-centered behavior, based on recognition of each person value (Burke et al., 2006). An extension of this leadership approach involves assigning specific roles to all team members to increase the awareness of personal responsibility (Hoch & Dulebohn, 2017). The leader should encourage self-development of team members and prioritize continuous learning (Boehe, 2016). Bankman-Frieds previous approach was based on enriching himself, and now the company needs to show concern for employees, investors and the community in order to restore its reputation.

Bankman-Fried lacked the real ingredient in leadership style, which can be a strong organizational culture that handle risk sustainably. Followers are critically important to FTX as they form the investment base. If Bankman-Fried can use the steward leadership style, he can influence the identity of the followers, attracting new investors; however, the refuse of abusing this power is necessary (Collinson, 2006). Bankman-Fried abandoned sound strategic planning for short-term gain, violating one of the basic principles of organizational sustainability (Carter et al., 2010). To avoid similar situations in the future, the company should consider mainly the long-term consequences.

Finally, strong leadership implies an ethical basis and compliance with moral standards under its activities. Building a strong company requires minimizing racial and ethnic differences The implementation of an ethical attitude towards employees is part of the policy of any successful company. Leadership should encourage diversity and be person-centered, promoting equality (Hobby, 2008). Human, legal and morally sound communication between subordinates and management leads to minimization of conflicts, which positively affects motivation (Clercq & Belausteguigoitia, 2016) The theoretical approach developed for FTX must be practically applicable to remain relevant (Kempster & Parry, 2011). The practical application of the above theory is to move towards communication-based steward leadership to promote teamwork based on ethical standards, clear organizational culture and strategic planning.

Evaluation

The main problem identified, which led to the collapse of FTX by Bankman-Fried, was the inconsistency of real actions with the requirements and tasks of leadership. To save the company, it is necessary to apply a new leadership model, develop and align with strategic goals, and improve the company culture to establish communication and ethical standards. The former FTX leader is unlikely to be able to return to his position due to numerous accusations from defrauded investors. To meet the new FTX requirements, a new managing leader must be appointed to the position of Bankman-Fried. The manager would look after the interests of the various stakeholders in the organization to improve the companys reputation and avoid past mistakes. The implementation of the proposed strategy should be evaluated in a timely manner for its further effectiveness.

To effectively implement the proposed changes, the new leader must have values and a clear vision of the companys mission. Leaders should not be motivated by their own personal goals, but rather should become managers whose motives align with those of stakeholders (Herrmann et al., 2007). Stakeholders include the community, employees, and various charities sponsored by the organization. Davis et al. (2018) explain that the behavior of a steward leader must be collective because the steward is committed to achieving the goals of the organization. Compliance with these standards of the new leader must be verified by understanding the satisfaction of stakeholders.

FTX employees are expected to be more motivated if their leader meets the above standards. To understand the effectiveness of the changes, it is proposed to conduct a survey of employees on job satisfaction a month after the implementation of the new policy. Numerical indicators, for example, staff turnover, will also help to understand the satisfaction of employees. The indicators of public approval need to be tracked through the number of investors and investments. Initially, the public is expected to remain distrustful, and the company must prove that with the new approach, customers do not have to be afraid of deception. FTX needs to monitor these indicators to understand the strengths and weaknesses of the new policy.

In addition to the new leadership policy, FTX is encouraged to strike a balance between short-term and long-term goals, as the previous leaders mistake was to pursue short-term profits. Such a result can be achieved through specific strategic planning, which the new leader must take control of. This criterion also requires timely evaluation by numerical indicators. It is necessary to draw up clear financial results based on the realization that there can be no quick success with a damaged companys reputation. Short-term goals should not be financial, but useful for restoring trust, such as admitting mistakes and convincing the audience of a change in leadership and new operating principles. Long-term prospects should be financial and assessed at least six months after the implementation of the initiative.

Finally, the company needs a crisis management structure that must be put in place immediately. The strategy described above is based on a strong team of employees who are motivated to work together for the benefit of the company and society. This system is difficult to assess, and the most relevant outcome may be the restoration of investor confidence. It will be possible to evaluate this indicator in the long term by correlating the number of investments before and after the disclosure of the machinations of the previous leader.

Thus, complex results are expected from the implementation of the proposed strategy, not all of which will be revealed in the short term. The expected result involves returning the companys reputation, communicating a clear mission and values to the audience, established teamwork under the supervision of a strong leader, and improved financial performance. A comprehensive assessment of all identified factors can be carried out by analyzing public statements about the company, questioning former and current investors for confidence and improved financial performance in the future.

Conclusion

FTX was derailed by the mistakes of former leader Bankman-Fried, who, by focusing on short-term profits, deceived investors, causing reputational damage to the organization. Correcting the current state of affairs in FTX is possible only with a change in leadership. The new leader must adhere to the basic principles of the theory of steward leadership and show attention to society, employees and investors. By establishing a strong organizational culture based on teamwork and strategic planning principles, FTX can regain investor confidence. The results of the implementation of the program should be evaluated in a timely manner for changes and adjustments. If the new leader of the company meets the required qualities, FTX will be able to restore its financial performance in the long term.

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