Key Man Risk

The (corporate) danger of over-reliance on one or a few individuals.

The recent downgrading of Berkshire Hathaway Inc.’s credit rating by a number of agencies was attributed, in part, to the issue of key man risk – the threat posed to a company from over-reliance on the skills of one or a few individuals.

In March, the ratings agency Fitch lowered Berkshire Hathaway’s rating from AAA to AA-plus, noting:

[Berkshire Hathaway's] ratings also continue to reflect Fitch long-standing concerns with respect to “key man” risk in the form of the company’s chairman, Warren Buffett. Fitch views this risk as unrelated to Mr. Buffet’s age, but rather Fitch’s belief that [Berkshire Hathaway's] record of outstanding long-term investment results and the company’s ability to identify and purchase attractive operating companies is intimately tied to Mr. Buffett.