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Sam Bankman-Fried speaks at the Crypto Bahamas conference in Nassau on April 27.ERIKA P. RODRIGUEZ/The New York Times News Service

Chris Clearfield is the co-founder and chief executive officer of Clearfield Group. Andras Tilcsik is a professor with the University of Toronto’s Rotman School of Management. They are the authors of Meltdown: What Plane Crashes, Oil Spills, and Dumb Business Decisions Can Teach Us About How to Succeed at Work and at Home.

The bankruptcy of Sam Bankman-Fried’s FTX exchange displays the classic elements of the failure of what is known as a “complex” system. It’s like the remake of a famous movie franchise: a story with the same plot and basic characters, only played by different actors.

The same factors that underlie the collapse of FTX are at the root of the financial crisis, the Enron bankruptcy, and frauds such as Bernie Madoff’s Ponzi scheme and Elizabeth Holmes’s Theranos. These factors are also at the root of plane crashes, industrial accidents including the Deepwater Horizon oil spill, and failed responses to public-health crises.

As business leaders, we need to recognize that the increasing prevalence of such catastrophic meltdowns calls for a new approach to managing organizations – one that eschews control and focuses on building the capacity for change and resilience.

A complex system is not simply one that contains a lot of parts. It is one whose many parts are interconnected, more like a web than an assembly line. A disruption in one part of the system can unexpectedly affect another, so connections tend to matter more than isolated parts. The system’s dynamics are challenging for any individual to understand or control.

Also at work in these failures is what engineers call “tight coupling.” A tightly coupled system has little buffer to absorb shocks; a relatively minor disruption can bring down the system before operators can react to what’s happening.

The crypto ecosystem displays both of these traits. It is highly interconnected. Smart contracts – tokens with embedded code – can automatically trade between different currencies. And leveraged bets, when customers borrow against assets to increase their size, can go sideways as underlying collateral changes in value.

Through its collateral practices, FTX explicitly positioned itself as a linkage between different cryptocurrencies. And Mr. Bankman-Fried’s Alameda Research, the FTX-affiliated crypto hedge fund, had deep connections through the crypto world.

Over the summer, for example, when crypto firms BlockFi and Voyager failed, Mr. Bankman-Fried stepped in as a white knight.

Whether because of these commitments, other investments or continuing losses, Alameda needed assets – and Mr. Bankman-Fried and senior FTX officials lent customer money from FTX to the fund.

Many of those loans appear to be backed by questionable collateral including FTT, an FTX-created token that fell in value as confidence in FTX faltered.

The complexity of crypto (and the ability of FTX to mark crypto assets to fantastic valuations) created opacity and the opportunity for wrongdoing. The result: bankruptcy.

Mr. Bankman-Fried’s ability to dazzle investors such as Sequoia Capital by spinning a visionary tale of a future unbound by existing constraints makes him a peer of Theranos’ Ms. Holmes – sentenced last week to more than 11 years in prison.

The FTX implosion is an important story, even if you’re not a crypto enthusiast. The world beyond finance is getting more complex and tightly coupled, too. We live in a continual polycrisis, driven by everything from climate change and market shocks to changing employee expectations.

So what can we do?

Start by getting curious about how these factors show up in your world. From the pandemic and stretched supply chains to the increasing regulatory requirements businesses face, complexity and tight coupling affect us all.

When you encounter a complex system, approach it with skepticism. Executives, regulators, banks and high-status gatekeepers often fail to recognize warning signs until it’s too late.

We need to admit that we don’t know the answer (in a complex system, no one does) and focus on leading with curiosity to unleash the creativity and insights of our teams. Role modelling that we don’t know the answer – and leaning on curiosity instead – helps us create psychological safety, what researcher Amy Edmondson calls a “felt sense of candour.”

If we are going to depend on others’ insights, we must create conditions where others are willing to share.

We need to hone our ability to lead change. Many leaders are promoted because of their technical expertise, but answers are of limited value in a complex system. As leaders, our job isn’t to impose answers; it’s to engage others and bring them along on a journey.

We rarely have the potential to redesign and simplify our systems, so we must learn to navigate them so we can avoid producing endless sequels of the same kind of failure.

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