When companies put all their faith and trust in one powerful leader, backup plans when things go south are hard to come by. Just ask Nvidia. The world’s second most valuable company (but as of today, the third) is currently in the throes of a major PR scandal that hasn’t just shaken trust in the tech company’s leader, but in the entire company.
Over the weekend, Nvidia CEO Jensen Huang admitted to having an affair with a suspected Chinese spy. Amid the controversy, the company announced it would launch an independent investigation of the CEO’s relationship with Alice Huang, an executive from the Singapore-based tech company Megaspeed, over reports that he was the “target of a foreign intelligence effort.”
As the company grapples with the controversy, and potential legal ramifications, concerns over the leader’s judgment loom large, especially given he’s been one of AI’s most vocal advocates and as China and the U.S. continue to battle it out to keep pace with one another in the AI race. While the company’s stock was trending down ahead of the midterm election, since the revelation, it’s been plummeting ever since. It now sits 22% below its October peak.
Turns out, there’s a phenomenon that explains the dangers of putting all your eggs in the basket of a single, all-powerful and important leader.
What is Key Man (or Person) Risk?
The ordeal is a prime example of something called key man (person) risk, which refers to when a company leans too heavily on one leader, making that leader’s own actions—their successes or failures—crucial for the entire company’s survival. That seems to be precisely the case for Nvidia, where Huang (a tech mastermind) has become, not just an asset, but utterly irreplaceable. That’s especially true because there is no clear successor for the powerful CEO.
As an analyst at Bernstein explained to Reuters, “Nvidia is not an ordinary company, and Jensen is not an ordinary CEO; he is Nvidia” and “clearly sets the long-term strategy and direction.”
Of course, all businesses have leaders—or maybe a few. But that doesn’t mean that companies should depend entirely on them for their most important connections, tasks, and undertakings all at once. According to Wright People PR, companies should seek to mitigate key person risk by cross-training employees, and focus on succession planning and team collaboration.
Why the risk is growing
Still, as a handful of tech leaders become more and more powerful, key man risk seems to be accelerating.
Dan Ives, partner and senior managing director of Yorkville Ives & Co., told CNN that it “has never been more of a blessing and a curse” than it is right now.
“We’ve always had powerful CEOs but never in history have we been at a point where such an important industry is run by people you can count on two hands,” Ives explained.
In other words, it’s not just Huang and Nvidia who are exemplifying how to put all of your eggs in one basket. All of the largest tech companies and their single leaders—Meta’s Zuckerberg, Anthropic’s Amodei, Tesla and Space X’s Musk, and so on—are guilty. That could mean that some of the most powerful companies are the most at risk.
The phenomenon can also show up in politics, as it recently has come on full display following last week’s blue tsunami in the U.S. midterms: GOP leaders are increasingly backing away from President Donald Trump, as the Democrats’ blowout win highlights just how disillusioned they are with the policies of a Republican party that’s been remade in his image over the last decade.
As for Nvidia, the company is busy trying to downplay the controversy while surveying the damage. In a Nov. 8 press release, the company said, “The Board prioritizes US national and economic security, which is paramount to the interests of Nvidia and its shareholders,” it said in a statement.
It noted that the board “has no reason to believe that either national security or Nvidia secrets were compromised.”
