Prostate cancer is the most common cancer diagnosed ... and we have the highest incidence rates internationallyProf. David Smith Aust Cancer Council.
- Talking about health
- Talking about money
- The risk in the community
- The rise of a new business risk
- Types of business at heightened risk
- The study
- A typical scenario
- The chances of returning to work after prostate surgery
- Traditional concerns
- Time exposes the decline
- Protecting capital investment and men's health
- A common solution
- Crisis insurance can pay a lump sum upon a cancer diagnosis
- Shareholders Agreements and the deficiency in the detail
- The mistake of protecting the lowest risk, while ignoring the highest
- So what are the odds?
- How both an investor and a business owner can reduce their risk
- Where to from here?
Talking openly about this modern male disease (and the radical surgery it often requires) is helping normalise everyday discussions about its management, as well as increasing awareness and reducing the stigma often surrounding its side effects.
What's not often discussed is the unusual consequences this health event can have upon a business owner, their business’s viability and their investors relying upon legal shareholder agreements to protect their capital invested, in those same businesses.
Almost 3,000 men die each year in Australia of prostate cancer and around 18,700 new cases are diagnosed every year.
- Today and every day about 32 men will be told they have prostate cancer – and tragically one man every three hours will lose his battle against this insidious disease.
Emerging data about the long-term effects of prostate cancer in the workplace has implications for Private Investors and Family Offices, who have capital invested in companies and partnerships.
This same data raises additional concerns for startup businesses seeking venture capital or part ways through series A or Series B capital raising. The unexamined side-effect of prostate cancer surgery is its growing risk to business.
Recent studies have identified two recurring patterns within a statistically significant number of men who have undergone radical prostate cancer surgery.
The two recurring patterns are;
- an unusual diminished capacity and motivation to continue to work, and
- men being forced into early retirement.
Businesses at heightened risk of the effects of prostate surgery are often;
- Entrepreneurs, (many of who start later and work longer in commercial life),
- Partnerships, (comprised of interdependent teams of knowledge workers of varying ages - often with an older experienced male acting in a key person role), and
- Investors and Family Offices (relying upon shareholders agreements and some form of insurance to protect invested capital).
At the recent Asia-Pacific Prostate Cancer Conference in Melbourne, Canadian Prof. Dr John Oliffe discussed the results of a five year study of men returning to work after radical prostate surgery.
"Many found they could not manage their old jobs and had to negotiate a change."
Prof. Oliffe went on to explain,
"Given the way it affects work, men now confronting this disease are facing a perfect storm ... not only is the cancer being diagnosed earlier, but with retirement being pushed out, they are being expected to work longer."
Not surprisingly, the study found ‘men consistently defined themselves through the context of their work environment’—but when the cancer diagnoses was made, this identity and drive for work, was no longer front of mind. And for approximately 50% of study participants, this drive would cease altogether.
While this may be expected given the sensitivity of the diagnosis; for the self-employed professional, people working in interdependent partnerships, knowledge workers, and their investors, this new information uncovers a growing and significant business risk.
Motivation injuries, like brain injuries are difficult to see, but their effect upon an individual's more complex decision making and motivational capacities, often only becomes obvious over timeDrew Browne Sapience Capital Protect.
When facing surgery, men typically;
- took between 2 to 4 weeks off work, thinking this would be the end of the matter.
- all reported they didn’t anticipate the fatigue and the resulting lack of concentration that followed after the surgery.
This significantly reduced their situational awarenesses and forward planning ability.
Interestingly, the extent of their cognitive and motivational decline only became apparent after their return to work, with many finding they needed to renegotiate work expectations or stop work altogether.
Not being able to perform on return to work, eroded confidence, made men anxious about being perceived as vulnerable, increased absenteeism and can hasten retirements Prof. Oliffe.
The study reported over 50% of the men who completed radical prostate surgery sustained a significant change in their work life.
- 26% stopped work
- 14% decreased their work hours
- 13% suffered a reduction in income
- 9% had a change in roles and responsibilities
- 5% had a change in employers
- 3% increased their work hours
- 47% reported no changes
Traditionally, the concern of many men living with prostate cancer has been ‘how the radical surgery would affect their confidence and sexual performance’.
Men who receive long term androgen deprivation therapy (ADT) are already known to be at higher risk of reduced treatment decision-making skills and impaired occupational motivation.
Health care professionals, HR Managers and alike are now facing the scenario of having to discuss long term treatments and return to work strategies with men who have begun to experience a post surgery, reduction in cognitive capacity.
- The study showed on average, those men in paid employment stated they retired 4-5 years earlier than planned.
With advances in early detection of prostate cancers and society's changing expectations to working longer, Professional Investors are now having to consider how this new statistical reality affects their investment capital protection process.
Both individual men and investors are now using crisis insurance policies as part of their risk reduction strategy and long term health protection planning.
- Individuals can utilise this type of insurance policy to provide potential future personal liquidity for major medical treatments (if ever needed).
- Investors can utilise this type of insurance policy to further reduce their exposure to capital risk, from the known statistically higher risks affecting business owners; such as prostate cancer.
Capital protection Shareholders Agreements are designed to protect invested capital from known insurable major risks. These documents typically require insurance to be in place to safeguard against the ‘unexpected death or long term disability’ of a director (or keyperson).
For example, if a $500,000 capital investment is made into a new business venture, it's usual for a $500,000 insurance policy to be put in place protecting the shareholders from the capital loss that would result from the unexpected death or extended disability of the director or (key person) in the venture.
The Keyperson Agreement wording is usually along the lines of; “...death or extended incapacity of the persons referred to in this agreement ...”
But as these agreements are often drafted by lawyers who are not financial advisers, they’re often unfamiliar with the changing data around statistical risks to business. The unintended consequence can be drafting a shareholders agreement that only requires protection from the statistically lowest insurable risk events (like unexpected death or long term disability) and not the insurable high risk event (a health crisis event) like prostate cancer.
Below are the three main statistical probabilities we all face before age 65?
- 1 in 20 risk of a long term disability
- 1 in 10 risk of an unexpected death
- 1 in 3 risk of suffering a medical crisis
Clearly, the highest risk we all face is the 1 in 3 chance of suffering a medical crisis event; for males, this is often prostate cancer. The medical crisis event of prostate cancer – and together with heart attacks for males – represent the highest proportion of insurance claims for critical illness claims.
To protect a shareholders' invested capital, the shareholder's agreement needs to address the core statistically known risks of unexpected death, disability and medical crisis events.
Addressing the highest risks to capital investment may require an addition to the current wording of any keyperson or shareholders agreements to be clear it's requiring protection against;
“...death, significant medial trauma or extended incapacity of the persons referred to in this agreement.”
Pro tip: The average insurance claim for Critical Illness being age 46. Investors might take a prudent approach and insist upon evidence that business owners receiving capital investment, have their own Critical Illness cover in place to potential fund personal medical treatments, rehabilitation costs (and even pay down significant personal debt).
This could reduce the complexity of managing an insurance claim protecting their own invested capital while dealing with an ex gratia request from an uninsured business owner (or their spouse), facing significant medical and rehabilitation costs.
The risk of diminished work capacity is a new field of risk management with significant relevance for investors and those working in high performing interconnected knowledge-based teams.
- As cancer diagnosis rates are occurring earlier and men's working lives are getting longer, better managing these insurable risks can have a positive impact upon the people who run our businesses and the risk management needs of their investors.
- For businesses with a higher proportion of males in key-person positions and interdependent teams, new conversations will need to be learned around issues of disclosure, support and flexibility, rehabilitation and even re-negotiating a change in work practices.
These conversations will need to balance the commercial realities of motivation injury and the risks these increasingly common health events present to investors placing capital and expertise into new and growing business, and how to best protect that capital.