Why it’s important to be wary of ‘key person risk’ with ASX shares like TPG Telecom Ltd (ASX:TPM)

Some of the best businesses in the world, or on the ASX like TPG Telecom Ltd (ASX: TPM), are driven by one individual or a small group of people.

Think of some of the world’s biggest businesses – most of them got there thanks to one person’s vision. Jeff Bezos is integral for Amazon. Mark Zuckerberg has been extremely important for Facebook. Bill Gates, and a couple of others, created software giant Microsoft. Steve Jobs is credited as being the one to change Apple’s fortunes.

However, you could argue that Apple and Microsoft have been less innovative without their talismans leading the respective companies.

The more a business relies on a person for their performance, the more ‘key person risk’ there is.

I can’t imagine that Berkshire Hathaway will be as successful without Warren Buffett when he eventually stops making decisions for the business.

Will TPG Telecom be as much of a driving force with David Teoh no longer the CEO?

How much will WAM Capital Limited (ASX: WAM) and WAM Microcap Limited (ASX: WMI) miss CIO Chris Stott after his announced retirement? Geoff Wilson steps into the role for now and there are many team members at WAM.

Does Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) rely too much on Robert Millner?

The point I’m trying to make is that the main investment case for a business shouldn’t be reliant on one individual, as they won’t always be around.

Sometimes a change is necessary to continue a business’ progress. Just think of the decision by Xero Limited (ASX: XRO) founder Rod Drury to step aside from the CEO role to give Steve Vamos the role – someone who has experience in running a large technology business.

Foolish takeaway

I suppose not relying on one individual is one of the reasons why diversified index funds like Vanguard MSCI Index International Shares ETF (ASX: VGS) are good – there is no key person risk there.

However, when you can find a high-quality individual you can still back them business for the growth in the meantime, such as this top stock which has an excellent leader.

Does this stock offer the best mix of income and growth?

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Tristan Harrison owns shares of WAM MICRO FPO and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Xero. The Motley Fool Australia has recommended TPG Telecom Limited and Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.