Which statement best identifies types of organizations that should be concerned with personnel loss exposures from a manager leaving for another organization?

Which statement best identifies types of organizations that should be concerned with personnel loss exposures from a manager leaving for another organization?

• A. Sole proprietorships and close corporations, but not corporations with separation of ownership and control
• B. Sole proprietorships, but not corporations with separation of ownership and control
• C. Close corporations, but not sole proprietorships
• D. Sole proprietorships, close corporations, and corporations with separation of ownership and control

Answer: (D)

Key person risk affects all organization forms. When a manager who holds critical knowledge, relationships, or authority leaves for another organization, the business can face disruption, loss of strategic direction, or weakened operations. In a sole proprietorship, the owner-manager is the business; their departure can mean the end of the business unless a solid succession or transfer plan exists. In a close corporation, a small group of owners often also serves as the management team, so losing a key manager can disrupt day-to-day operations and strategic decisions. In a corporation with separation of ownership and control, management dependence on particular individuals means a departure can create governance gaps, slow decision-making, and knowledge loss despite dispersed ownership. Because any organization can suffer significant impact from the loss of a key manager, all three types should be concerned with these personnel loss exposures.

Key person risk affects all organization forms. When a manager who holds critical knowledge, relationships, or authority leaves for another organization, the business can face disruption, loss of strategic direction, or weakened operations. In a sole proprietorship, the owner-manager is the business; their departure can mean the end of the business unless a solid succession or transfer plan exists. In a close corporation, a small group of owners often also serves as the management team, so losing a key manager can disrupt day-to-day operations and strategic decisions. In a corporation with separation of ownership and control, management dependence on particular individuals means a departure can create governance gaps, slow decision-making, and knowledge loss despite dispersed ownership. Because any organization can suffer significant impact from the loss of a key manager, all three types should be concerned with these personnel loss exposures.