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 (down to the third most valuable as of this writing) is in the throes of a major PR scandal that hasn’t just shaken trust in the tech company’s leader, but in the entire entity.
Over the weekend, Nvidia CEO Jensen Huang admitted to having an extramarital affair with suspected Chinese spy Alice Huang (no relation to Jensen), an executive from Singapore-based tech company Megaspeed. Nvidia announced it would launch an independent investigation into the CEO’s relationship over reports that he was the “target of a foreign intelligence effort.”
As the company grapples with the controversy and its 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 Nvidia’s stock was trending down ahead of the midterm elections, since the revelation of Huang’s affair it has plummeted, now sitting 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 leader.
What is Key Man (or Person) Risk?
The ordeal is a prime example of something called key man (or person) risk, which refers to when a company leans too heavily on one leader, making that leader’s actions—their successes and failures—crucial for the entire company’s survival. That seems to be precisely the case for Nvidia, where tech mastermind Huang has become not just an asset but seemingly 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. But according to Wright People PR, companies should seek to mitigate key person risk by cross-training employees and focusing on succession planning and team collaboration.
Why the risk is growing
Still, as a handful of tech leaders become more and more powerful, key person 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. Many of the world’s Big Tech companies have similarly given outsize power to their leaders—Meta’s Mark Zuckerberg, Anthropic’s Dario Amodei, Tesla and Space X’s Elon Musk, to name a few.
The phenomenon can also show up in politics, as it recently has 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, stating in a November 8 press release: “The Board prioritizes US national and economic security, which is paramount to the interests of Nvidia and its shareholders,” adding it “has no reason to believe that either national security or Nvidia secrets were compromised.”