Loss of Key Personnel (The Bus Problem)

OK, this is the last in my series of topics about taking necessary measures to protect you company against the loss – at least for now. Have you adequately protected yourself against the loss of key personnel?

I usually call this the ‘Bus Problem.’ What happens if you (or someone else in your organization) doesn’t look both ways as you cross the street, steps off the curb, and gets hit by a bus?

Loss of an Owner

Thoughts in this area usually begin with addressing ownership transition. What happens to the business if the owner’s heirs want to extract their value? You need to take adequate preparations to deal with this possibility. At a minimum, there should be an agreed method of valuation. Write it down and have it assigned by the owners.

You may also want to anticipate and create by-out contigencies. For instance, creating a life insurance policy where the company as the beneficiary, so the business could buy back the shares of the company so the heirs could extract the value.

Loss of Other Key Employees

In addition to the owners, you should also consider critical personnel. What if a key manager or technical expert is incapacitated? You may want to consider getting keyman insurance that would provide money for the company to replace and train an new person.

In some case, companies attempt to minimize this risk by cross-training employees. But, you may encounter objections from employees who want to ‘protect their turf.’ If so, you might appeal to them to help you help protect the company and their fellow employees against the potential risk of their incapacitation.

Oustsourcing to Reduce Risk

Some people consider subcontracting as a related matter. They use subcontracting as a risk mitigation strategy to reduce the chance of lay-offs. So, they plan to have 20-40% of their labor subcontracted. Particularly in light of the recent economic issues, it may seem like a prudent strategy.

Insurance Plans

As we continue our discussion about protecting your company against potential loss, we do need to talk about insurance. I know, I know – not very exciting. But, here are some major areas to consider:

Property Insurance

Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. Property is insured in two main ways – open perils and named perils. Open perils cover all the causes of loss not specifically excluded in the policy. Common exclusions on open peril policies include damage resulting from earthquakes, floods, nuclear incidents, acts of terrorism and war. Named perils require the actual cause of loss to be listed in the policy for insurance to be provided. The more common named perils include such damage-causing events as fire, lightning, explosion and theft.

Professional Liability

Most integrators carry some sort of general liability to insure their work. Liability insurance protects the assets of a business when it is sued for something it did (or didn’t do) to cause an injury or property damage. The amount of coverage a business needs depends on the perceived risk associated with their business. For example, a business that manufactures heavy machinery is at a greater risk of being sued than a company that manufactures linens, and would therefore need more liability insurance.

Errors and Omissions

By the way, if you do a lot of consulting work, you may also want to include Errors and Omissions insurance on the advice you give, or at least put language into your T&Cs that limit your liability (e.g. just recommendations based on information available at the time).

Workman’s Compensation

Workers’ compensation provides compensation medical care for employees who are injured in the course of employment. While plans differ between jurisdictions, provision can be made for weekly payments in place of wages and payment of medical expenses.

Misunderstood

Sitting down with an insurance broker is ultimately going to provide you with more answers than I can in this blog. But, I often here from Alliance Partners that getting insurance is often difficult because the agents often don’t understand our business. If so, you may want to look into the CSIA organization which offers its members insurance options specifically designed for system integrators.