Key-person risk is the risk that a firm's results or a fund's performance depend on one individual whose departure, incapacity or loss of focus would damage the asset. In law firm lending it often attaches to the lead trial lawyer or the rainmaker.
Contingency practices frequently depend on a few lawyers who bring in and try the cases. If one leaves, the matters they were handling can stall, move or be lost, and the firm's receivables lose value with them.
Lenders address it through covenants, succession planning, assessing how matters are staffed and measuring how much of the book depends on one person.
Key-person risk is not a judgment about an individual. It is an exposure created by structure.
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