Beyster Institute

ESOPs in the Mainstream

By Anthony Mathews

A recent TIME magazine article by Christopher Matthews highlighted the work of employee ownership scholars Blasi, Kruse and Freeman, suggesting that employee ownership has the potential to be a core solution to the economic woes of our country.  Of course, we agree, and it is very encouraging to see articles taking that position in such a mainstream magazine.  We think this sort of exposure might indicate the emergence of employee stock ownership plans (ESOP) as a mainstream solution for a large segment of our corporate population that will be looking for liquidity as its baby-boom ownership finally retires – and, at the same time, help address the retirement deficiencies of the millions of employee owners who are on the other side of the equation and receiving capital ownership that would otherwise be completely out of reach.

In the end, though, the success of these specific dreams on a large scale will rest on the shoulders of those who accept the responsibility to oversee the value of the equity the employees are accumulating and to do whatever is within their power to nurture and grow it. Whether professional or otherwise, those who act on behalf of participants and serve as ESOP trustees have a significant and difficult responsibility. In a practical sense, trustee duties are fairly easy to state.

The trustee:

  • Has fiduciary responsibility for the care and investment of the ESOP assets on both a custodial and transactional basis overall (often with direction from an ESOP committee or the board);
  • Determines the value of assets held in the plan (with the advice of an independent appraiser in the case of employer stock);
  • Exercises governance authority on behalf of the plan (also, often with direction of an ESOP committee or the board and occasionally with instructions from the participants);
  • Oversees the operation of the ESOP to assure that it complies with the requirements of ERISA and the Internal Revenue Code and reports to participants and the government on plan performance.

In practice, meeting these responsibilities requires training and adherence to complex operational processes that range from understanding of and skill implementing laws, regulations and discretionary ESOP provisions; all the way to representing the best interest of the ESOP as a whole in any transaction regardless of which side the ESOP is on. Of course, along the way, the fiduciary needs to be versed in business language, accounting and law, human resource matters, communication and psychology as well as the intent of the plan sponsor in establishing the ESOP in the first place. No easy task, but one that is successfully accomplished by literally thousands of fiduciaries across the country.

We have been very gratified lately to see the number of newly developed training opportunities for these people to get enhanced training and to form networks so that a truly “best practice” model can continue to develop in this area as it is the most crucial in protecting the public image and the business community understanding of employee ownership. And the spread of the concept will absolutely depend on success in both arenas.

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