Looking for Mr. GoodTrustee

By Anthony Mathews

There are numerous (mostly differing) opinions on the real impact of the process agreement included in the GreatBanc/DOL legal settlement, but one thing is clear: it is getting fiduciaries across the country thinking a lot more about process and the liability ESOP trustees assume when they take control of an ESOP trust.  This concern is becoming increasingly acute among those brave souls who serve in that capacity as non-professional, employee (in-house) trustees.  This group continues to include the majority of ESOP trustees across the country, but ESOP companies seem to be more inclined lately to measure the possibility of moving that function to an outside professional.

The purpose of this brief article is to suggest an interview script that reflects a list of areas that an ESOP company should want to understand completely before handing over this extremely important role to an outsider.  

In that context, the following is a list of questions I have used in the past for the purpose of interviewing potential ESOP trustees:

  1. How long has your firm been in the business of serving as ESOP trustee?
  2. Describe your personal background in ERISA fiduciary service.
  3. For how many ESOPs have you served as trustee?
  4. What is the mix of transactional versus ongoing trustee positions?
  5. Do you generally serve as a directed or independent trustee?
  6. Explain how each functions in operation.
  7. How do you see the ESOP trustee’s role in corporate governance?
  8. Describe your process interacting with the board of directors, the management, our appraiser and other service providers?
  9. How are your fees determined?
  10. Where you are serving as trustee of a small minority ESOP, how do you want to stay in the loop on corporate performance and other business health matters?
  11. What is your role in administrative matters like the annual valuation, allocations of shares, distribution processing, etc.?
  12. How deep is your staff (i.e. who, besides yourself, will be engaged with our account)?
  13. Are you a member of the ESOP Association or the National Center for Employee Ownership?
  14. Do you attend related conferences?
  15. Do you have any questions for us?
  16. Please provide a few references from ESOP companies of similar size with a similar situation to ours and in our area, if possible.

Of course, this is not an exhaustive list of things we would like to know about a potential trustee before your board of directors decides to bring them on board, and we would be very happy to hear from any of our readers with comments or additions to this list.  The point is to find out how the professional trustee can be expected to position itself as a member of the company governance team.  The governance collaborative comprising the board of directors, the management of an ESOP company and its shareholder representative (in the ESOP’s case, the trustee), is a flexible and very effective structure to build a successful business, but it only works when the three members work well together.  So it is worth spending some time and thought on the subject before inviting an outsider into that important role.

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