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Law for Business

Knowhow - guidance - precedents

23 AUG 2013

Key Man

"Take away my people, but leave my factories and soon grass will grow on the factory floors.

Take away my factories, but leave my people and soon we will have a new and better factory"

Andrew Carnegie; Industrialist, Pioneer and Philanthropist (25th November 1835 - 11th August 1919)

Credited as one of the founding industrial and educational influences in the birth of the modern United States, Scotsman Carnegie appreciated the value of his business' human capital. It's a principal that still holds true today.

For all business,' contingency planning is a critical part of good governance insisted upon by shareholders and creditors alike. The management of risk and the decisions to outplace or retain them are normal strategic tasks dealt with under "business as usual".

It's only human nature that the risks at the top of the list for evaluation are the things that can be readily identified. Material things. Like factories. More often than not, it's the important people to whom Andrew Carnegie referred in his quotation, that get overlooked.

Impact assessment on the health of the business from the loss of key staff through death or serious illness is also an essential part of good governance. Impacts can range from; largely unseen to catastrophic, measured by reduction in profits, cashflow, orders, stalled research and development and loss of critical contacts.

To replace important staff requires recruitment, which takes time and money. Those where the impact is felt most by the business could be those people who:


  • Bring in the new business
  • Who manage production
  • That others look to for leadership
  • Who have specialist skills
  • Who have contacts critical to the business.

Good governance demands the consideration of all risks to the business through contingency planning. No contingency planning is fully complete without the audit of the loss of key people to the organisation and a decision made on how to deal with the impact should the worse thing happen.

Case Study

Mark is the Managing Director of an Events Company. He has spent 20 years successfully staging conferences, arts events and festivals. What sets him apart from his competition is his eye for detail, his use of the very latest technology and especially his extensive network of high profile contacts.

He employs 25 people and they rely heavily on his knowhow and contacts for the ongoing success of the business.

Without him, through incapacitation or death, the impact on the business profits would be very serious. The best case would see the business struggling for survival. The worst, having to downsize and maybe cease trading.

Outplacing the risk to an insurer is simple, effective and is not an expensive option. Without Mark but with some funds to tide over the business to enable it to recover, it has every chance of surviving, maintaining shareholder value, keeping creditors happy.

What it does need is foresight on behalf of the business and a careful consideration of what sort of cover is needed and how it is set up.

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