Trust – it’s a magic element which contributes to the way successful businesses are built. Unfortunately, as we get busy managing our world, trust can be provided blindly. When tasks are delegated, it is easy to assume the best of intentions. In moments of busy-ness, providing clarity and transparency around the context for decisions can be easy to ignore or forget. In extreme cases this can mean what’s best for your business may be overlooked by your Key Person. Consider anything Trump-related, Qantas or even the recent Big Four Accounting firm scandals.
Placing trust in key team members does not negate the fact that the ultimate responsibility of managing the business rests with Directors or owners of the business. This is true for everyone from small businesses to large multinationals. From team members to clients and suppliers (including advisors), it’s imperative to convey extreme clarity around who the ultimate decision makers and responsible parties are.
Key Person Risk within your team is a risk easy to overlook because ‘you trust them’, ‘they know what they’re doing’ and ‘they want what’s best for the company’.
In smaller organisations, it can be even more difficult to manage as team members are more likely to wear several position hats.
So how does Key Person Risk Play Out?
The most obvious identifier of Key Person Risk (KPR) comes about when you want to understand a process and need to ask the question ‘How do we do this /access this / input this?’ If the answer relates to reliance on a single person, then KPR could exist in your organisation. As an owner, if you are locked out of your systems or unable to operate when a team member takes leave this significantly increases the risk and operational inefficiency, especially as team members move on from your business.
The same can be said for any team member hoarding or being secretive with business information. This may simply be ‘don’t worry I have this managed’ or ‘Yes, but I’ll get this to you later this week’ with information never coming through, or ‘why do I have to share information with them? They will only mess it up’. Whilst individually these comments may all have merit, over time a picture of inappropriate control may be painted resulting in dire consequences for you as a business owner.
It’s important to note that there is a fine line however, between delegating and abdicating. After all you must delegate to accelerate. Correctly allocating tasks throughout your organisation ultimately breeds efficiency and no one wants your team tripping over each other to achieve an outcome. The key element to remember is that even with perfectly allocated and efficient tasks, Owners must still take full responsibility of any tasks performed by the team. The easiest way to manage this is to ensure that key processes are written down and publicly available to the appropriate team.
How to manage this Key Person Risk?
The easiest way to manage KPR is to ensure you centralise your processes. Having a place where processes are centralised and shared, ensuring password management is controlled and being clear about your tech stack are all elements that help to ensure KPR is reduced. This creates a culture of processes and shared information allowing a scalable operation as you grow.
Another small but not insignificant factor is to monitor you team leave balances. A key risk factor around KPR includes staff with excessive leave balances. Ensure your team take their annual leave. This not only supports good mental health and rested minds for your team, but also flushes out weaknesses in processes when tasks need to be completed by different team members. There is nothing more powerful than sharing tasks and not having someone say ‘where do I get these details?’
Why is this important?
Establishing appropriate processes around KPR by documenting key processes ultimately reduces fraud risk and enhances business sustainability. As a business owner, it is YOUR responsibility to ensure you understand what is happening and approve of each action your team members take. Hiding your head in the sand does not mean that compliance obligations are hidden or removed from your charge. In an extreme case, HR requirements around bullying and or threatening behaviour could also become an issue with team members hoarding sensitive information processes which could indirectly be sanctioned without proper methods.
In addition, the benefits of ensuring good system documentation and compliance strategies mitigating KPR will also significantly increase the value around your business.
5 key questions to flush through KPR could be:
1. Do any of your team have more than 4 weeks of annual leave?
2. Do you document processes and share processes around your organisation?
3. As the owner, have you had a holiday in the last year and gotten out of the office?
4. Do any of your team manage both accounting AND cash payments/receipts?
5. Are you confronted with aggression/frustration when you attempt to take tasks away from a team member?
Action your KPR Risks
As an Owner, every time you need to undertake a process ask yourself ‘Is this documented?’
This is a great mindset to strategically consider risk, cost of retraining, and the ultimate valuation of your business. By having a well-structured key person risk management plan, you will be well resourced to navigate the business. Not to mention, safeguarding your business with a plan for managing key personnel risk is a must have in today’s disrupted work environment. When managed appropriately, risks can be transformed into opportunities.
