MKA Executive Planners Blog

Not-For-Profit Key People – The Unmeasured and Unprotected Risk

Posted by Barry Koslow on Mon, Oct, 22, 2018

When Richard E. Wiley passed away recently, he left a huge legacy at Endicott College. As its long time President, he grew the school from what was once a small regional two-year associates degree player to a nationally known multifaceted institution offering bachelors, masters and doctoral degrees. There are three campuses and a large range of options for study. It has an endowment in excess of $60 million, a 50% increase within the last five years.

When you consider the work Dr. Wiley did and the growth of the institution, his successor has a very large pair of shoes to fill. The loss of his knowledge, contacts and vision may be lost in small or large part. The question is how did the school prepare for this untimely and devastating event.

We don’t know the specifics of the plan to continue Endicott’s growth, both academic and financial. A long term dean and administrator has been named interim president. Further information has not been made public.

Our question concerns what financial preparation took place that will cover the cost of finding and/or acclimating a replacement and keeping the fund-raising goals achievable. It will take a while to do this, resulting in a potential economic loss in addition to the leadership loss.

If Endicott had acquired key person insurance on Dr. Wylie for its benefit, some or all the economic loss would be avoided and the Board could focus on the difficult task of moving forward.

An unexpected loss of a key administrator, fund raiser or donor can create a serious pause in the plans of a not-for-profit institution. Protection from this at some level is achievable and when properly planned, affordable.

This important protection is not a simple process. The need for transparency and conservation of expense suggests that a study needs to be done that measures the risk to be protected, determines the appropriate underwriting and establishes a program that meets the needs of the institution without raising concerns of its benefactors, students, faculty and community.

With appropriate key person insurance in place, an organization is able to provide for recruitment expense, near term replacement of potential philanthropic fund loss, and income replacement for the deceased person’s family (as a benefit or by cost sharing). Here again, independent thoughtful consideration and planning are important.

MKA has been insuring key people in not-for-profit organizations for more than 40 years. It is only after careful preparation with staff and Boards that a program is implemented. We continue to work with the organization after a plan is implemented for appropriate reporting and administration.

For further information contact Barry Koslow, JD 781-939-6050 (o) 781-724-6695 (m) bkoslow@mkaplanners.com.

Tags: Key Person Insurance, Board Responsibility, Not For Profit, Compensation, Disability Income Protection, Loss of Income, Out of Work