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.

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.

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