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.
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.
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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.