Key-Person Risk

Key-person risk arises when a business depends on an individual whose absence or departure would materially affect sales, delivery, authority, rights, compliance, or customer continuity. The person may be a founder, owner, or employee. Map the capability, successor, replacement time and cost, and consequence of interruption. Several people can each create a separate critical dependency.

Key-person risk shows up in the multiple, the deal structure, the transition requirements, or all three.

Test the impact and credible replacement or protection plan. Insurance, retention incentives, and contingent consideration may address aspects of the exposure, but none substitutes for the ability to keep the business operating.