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Key-person risk

Core
In briefKey-person risk describes a company's dependence on individual key people such as the founder, CEO, CTO or head of sales. Small caps are more often shaped by a few people, whose loss can have significant operational and capital-market consequences.

Definition

Key-person risk is a company's operational, strategic or commercial dependence on individual key people, for example the founder, CEO, CTO or head of sales.

How it is calculated

Formula. No standardised metric. Points to check are the centralisation of decisions, customer relationships, documented know-how, deputisation, succession and retention mechanisms.

Why it matters for small caps

Small caps are more often shaped by a few people; the loss of these people can have significant operational and capital-market consequences.

Common misreadings

  • A charismatic founder figure is seen only as an advantage. A lack of delegation and succession can jeopardise growth, financing and company value at the same time.

In the process

→ Used in Step 2 – Stop-or-go check

Frequently asked

What is key-person risk?
It is the risk that success hinges strongly on individual people. Operational, strategic or commercial functions can be affected.
How do you examine key-person risk?
You look at the centralisation of decisions, documented know-how, deputisation rules, succession and retention mechanisms. The more widely knowledge is distributed, the lower the risk.
Why is a charismatic founder figure not only an advantage?
A lack of delegation and an unresolved succession can burden growth, financing and valuation at the same time. Dependence on a single person remains a real risk.

Related terms

Founder RiskSuccession riskManagement TurnoverCFO change

Sources

Primary
Regierungskommission – Deutscher Corporate Governance Kodex
https://www.dcgk.de/de/kodex.html
Methodology
Bundesministerium der Justiz – Handelsgesetzbuch (HGB)
https://www.gesetze-im-internet.de/hgb/
Category: Risks & Red Flags · Operational concentration risksRelevance: CoreJurisdiction: International

Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.