Navigating the Crypto Economy from the Boardroom
In this episode of The Corporate Director Podcast, Dan Siciliano, Co-Founder of the Rock Center for Corporate Governance and Chair of the Silicon Valley Directors’ Exchange (SVDX), discusses key findings from a report conducted in partnership between Diligent Institute and SVDX - Blockchain Digital Assets: Fad, Disruption or Strategic Driver?
In this episode:
- Inside the Blockchain Digital Assets Report: Siciliano discusses why SVDX and Diligent Institute decided to ask directors about blockchain digital assets and delves into report's key findings.
- Crypto Regulation and Strategy in 2023: Siciliano lays out the current regulation landscape around digital assets and how it is likely to evolve.
- The Role of the Board: Siciliano provides tips and advice to directors looking to best guide their organizations when it comes to advanced technologies and digital transformation.
Inside the Blockchain Digital Assets Report
Siciliano discusses the impetus behind the report: “At Stanford, crypto, blockchain, and decentralized finance were coming up a lot. In the venture capital world, in particular, lots of people talking about it. When I talked with directors though, it wasn’t really coming up, and when it did, it was in a very narrow way with a lack of strategic discussion.” He goes on, “Until something really shows up on the board’s radar screen, they don’t have the chance to dig deep on it. I wanted to see how that was changing since developments in the crypto world were moving so quickly.”
“How was this simultaneously something everyone and no one was talking about? If directors aren’t getting this information, there must be a structural issue or something else standing in the way.” - Dan Siciliano, Co-Founder of the Rock Center for Corporate Governance and Chair of the Silicon Valley Directors’ Exchange (SVDX)
Interestingly, nearly a majority of directors thought of crypto as “neutral” to their overall strategies. Siciliano expands on this finding: “This felt like the result of incomplete information. Where are you looking? If you only saw headlines about cryptocurrency, you saw crazy stories and might have concluded this issue would never impact your organization. But, if this came to you via a project that landed on your desk, maybe you thought differently about the strategic impacts.”
On the whole, the report found that directors are not being given information on blockchain digital assets by their boards or management teams. Instead, it’s coming from third parties or from their own research. According to Siciliano, “That signals an opportunity for management and companies. Whatever you might think, educating your directors on how and when crypto matters is a good way to get ahead of trends.”
Crypto Regulation and Strategy in 2023
Most of the director respondents in the survey and report believe that more regulation around cryptocurrency is on the way, particularly in the U.S. Siciliano gives his thoughts: “Six months from now is just long enough to wonder about the situation in Congress, which might make a difference on legislation. For the U.S., there will be steps and clarifications, but no consistency any time soon.”
He compares this to the situation elsewhere in the world: “In Europe, financial instruments are not considered digital assets, and this carves out a whole category of regulatory oversight. Singapore has expressed caution but has also encouraged a way for companies to figure things out when it comes to crypto without incurring more liability. There are many players who engaged in a thoughtful way.”
Given the volatility of the crypto market and economy, Siciliano then discusses how corporate leaders and companies will navigate this arena moving forward: “It is wise to be speculative and cautious. When you hear information about emerging technology and digital concepts as a director, ignore the technical stuff: On top of fundamental blockchains there are computational capacities, and on top of that are companies distributing products and services. Don’t be distracted from the bottom-line fact that there is an ecosystem happening which is getting things done.”
He explains: “The greatest analogy here is the idea of eCommerce. We don’t say the ‘e’ anymore because it’s all commerce now; it’s been normalized. Don’t think of it like crypto, blockchain, etc. Soon, we’ll drop the preface. Directors have an opportunity to get ahead of this before we ‘drop the preface.’ It’s incumbent on management to brief the board on how these technologies might disrupt long-term strategy.”
The Role of the Board
So how can boards actually wrap their arms around the crypto economy and other emerging digital disruptions? Siciliano advises: “Stay tactical and ask the questions the board already knows how to ask. What does it do? Does it do something better than a system we already have in place? Does it do something totally new? Why can it do that? How? Ask specifically for the punchline about the piece of that new concept that impacts strategy.”
He continues, “Asking the board to identify possible disruptions from this set of technologies is a great starting point. When you look at the Web 3.0 space, for example, very few of us understand how the IP structure transfer worked. You don’t have to understand any of it, but you can still use it. You may reasonably assume that the entrepreneurial developers of the world will create layers on the complicated world to make it transparent and easy. Is it reliable, compliant, and easy?”
Siciliano leaves us with a signal of good governance: “Management might start this process via integration with other strategy discussions; by giving pieces to directors over time to not overwhelm them. Add relevant information on new concepts to trends reports on topics they already care about and understand. This makes it far easier for the board to tie new development to strategy when the time comes.”
Also in this episode…
Siciliano gives his predictions for how the boardroom will change over the next ten years:
- Directors will be more diverse
- The sources of information that board members are using will become better organized and more broadly sourced
- More time will be spent on data use policy and the implications of Artificial Intelligence (AI)
- There will be less anonymity for public company directors
Resources from this episode:
- Blockchain Digital Assets: Fad, Disruption or Strategic Driver?
- Stock-Option Financing in Pre-IPO Companies, Rock Center for Corporate Governance at Stanford University, by David F. Larcker, Brian Tayan, and Edward M. Watts