Every business has at least one Key Person, of course (hint:  if it’s your business, that person is you!), but as you continue to grow, expand your reach, expand your revenues, and expand your workforce – be careful not to lose sight of who your key people are!

What is a Key Person?  According to the Business Directory, a Key Person is “an Individual whose knowledge, creativity, inspiration, reputation, and/or skills are critical to the viability or growth of an organization, and whose loss may cripple it.”  But does this fully cover the realm of who should be considered a key person?

Most companies identify key personnel as being purely those in management  and/or ownership positions.   This is often correct, but can miss many of the valuable people that may not be in these positions.

For example, there’s a sales-based company I know of that had 3 different departments and department heads who reported to the Owner/CEO.  There were multiple other salespeople working within the departments, and over the years the sales force would turn over periodically, with people moving onto other careers, and new people coming in.   The company properly identified the department heads as being key personnel and properly planned for the possibility of their departure.

However, one of their “rank and file” salespeople happened to be with the company for nearly 20 years, and while she never had aspirations for management, nor did she typically post the highest sales totals in the company in any given year, she accumulated a client-base in the hundreds, and due to being somewhat “old fashioned” was much stronger in her customer service and client relationships than she was in her record-keeping. Clients were happy, performance and sales numbers were great, and so on they went.

You can imagine how this story ends – one weekend day a phone call came to the owner of the company who found out that their longtime employee had suddenly and unexpectedly passed away.    An emergency meeting was called and the beginning of the corporate nightmare began – unravelling 20 years worth of handwritten/paper files, determining which clients were active, prioritizing active open clients who needed immediate service or were in the middle of the sales process.   Two full years later, after hundreds and hundreds of man-hours spent by other salespeople (taking time away from their own sales) , untold numbers of lost clients who slipped through the cracks or found other vendors due to lack of followup, the cost to the company was unimaginable.

Did this person fit the classical definition of a “key person?”  Not in the classical sense.  She was a “rank and file” salesperson, not in management, not even one of the “star” salespeople of the company.  Her loss did not “cripple” the company.  However, what made her so key to the company was the accumulation of clients over a long period of time, as well as the lack of transparency in the record-keeping on these clients that made it ever so much harder for any replacement or colleague to pick up where she left off.   And the business suffered hundreds of thousands of dollars of losses in revenue, additional personnel costs, and opportunity cost of what their other salespeople could have been doing instead of unraveling a tangled web of clients and products left behind by their tragically lost colleague.

It is essential to look at your entire employee base and take the difficult step of considering business life without that person.   Can you hire a replacement of equal or near-equal experience easily and at a similar cost to what you were paying the current employee?   Or Is their position requiring of a unique level of experience, education, personal connections or rare personality traits?   These issues, among other, can help to determine whether some level of “key” exists for that employee.

Why is it important to identify the key employees in your organization?  We’ll cover this in next month’s blog entry, Key Person Insurance Planning.


Michael S. Feinberg, ChFC has been working in the insurance advisory and brokerage industry since 1995. His clients include both individuals/families, and small to mid-size businesses both locally and nationwide. Michael joined forces with McLean Insurance in 2013 and through this affiliation adds value to both individual and commercial clients by offering them not only his income replacement and business planning expertise but also valuable consultation on personal and commercial insurance protection through his experienced agency colleagues.