Key-person risk

Identify material dependence on individuals and establish authority, knowledge, relationship and continuity cover.

Quick answer

Key-person risk is the exposure created when a critical activity, decision, relationship or body of knowledge depends heavily on one individual. The assessment should distinguish temporary absence, permanent loss, misconduct, conflict, incapacity and transition risk.

Use the worked example

Meaning and transaction use

IFC governance guidance addresses succession, continuity and formal allocation of family-enterprise responsibilities. [S1]

SEC fiduciary guidance explains the need to address conflicts and provide full and fair disclosure in advisory relationships. [S2]

Proposed review method: Map each critical responsibility to an accountable owner, alternate, evidence repository and activation process.

Worked example

Illustrative calculation only. All figures are hypothetical.

Scroll the table horizontally to view all columns.

Measure	Calculation	Result
Critical responsibilities	Given	24
Approved alternate cover	Given	18
Coverage rate	18 / 24	75.0%
Uncovered responsibilities	24 - 18	6

The hypothetical map has 75.0% documented alternate coverage and six uncovered responsibilities.

Proposed transaction review process

Define objective

Record decision purpose, scope, owners and constraints.

Collect evidence

Reconcile documents, data, advisers and counterparties.

Assess options

Model base, downside, conflicts and implementation effects.

Approve and monitor

Record authority, actions, exceptions and review dates.

Evidence checklist

Policy

Approved purpose, limits, roles and escalation.

Data

Current records, assumptions, reconciliations and gaps.

Advice

Jurisdiction-specific legal, tax, investment or technical advice.

Decision record

Options, conflicts, approval, implementation and monitoring.

Decision framework

Situation	Proposed action
Authority is unclear	Escalate under the governance framework.
Evidence is incomplete	Defer the decision and close the evidence gap.
A conflict exists	Disclose, mitigate and use independent review.
Conditions change	Refresh advice, analysis and approval.

Common errors to check

Acting without a documented decision owner.
Using stale or incomplete evidence.
Ignoring conflicts, costs or implementation constraints.
Failing to monitor the approved action.

Build the key-person risk decision file

Bring the governing documents, reconciled inputs and decision questions to a structured review. Record assumptions, approvals and follow-up actions.

Discuss the transaction

Primary references and editorial scope

IFC Family Business Governance Handbook
Institutional guidance on family-enterprise governance, controls, succession and decision structures. Reference checked 17 September 2026.
SEC Investment Adviser Fiduciary Interpretation
Official guidance on investment-adviser duties, conflicts, disclosure and client interests. Reference checked 17 September 2026.

Editorial qualification

General family-office governance education using public institutional sources. Figures are hypothetical. Facts, governing documents, jurisdiction and professional advice determine actual requirements and outcomes.

General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.