ESOPs and Corporate Governance, 6th Ed.

Excerpts

From Chapter 1, "An Overview of ESOP Governance"

Boards and managers may also assume a fiduciary role if they withhold information from the trustee that is material to the proper operation of the plan or if they provide false or misleading information. The theory here is that either of these can cause the fiduciary to make improper decisions. This has been a particular issue in cases where boards and/or management have led trustees to believe that the company is doing better than it is, thus causing the fiduciary to take actions regarding the sale or holding of company stock when some other action should be taken.

Boards may need to respond to serious offers to buy the company. While they can consider a broader range of issues than ESOP trustees, if an offer represents a significant premium, it may need to be passed on to the trustee to make a decision as to how to act regarding the ESOP’s shares. Boards should develop a policy for how they will respond to unwanted offers. This can include requiring that any offer must be specifically for the ESOP company, be well-financed, and be at a significant premium. Boards can let prospective buyers know that if an offer is made, the trustee is the ultimate decision-maker and may want to seek other offers as well to maximize what plan participants get. The board can also require prospective buyers to pay due diligence costs. The effect of these policies will be to discourage all but the most ardent buyers.

From Chapter 4, "The Role of the ESOP Fiduciary"

By contrast, directed trustees have more limited fiduciary responsibility. They take direction from another party, generally the ESOP committee. In the 2025 survey, 19% of the trustees were fully directed and 25% directed on all issues other than valuation. In general, partly directed trustees are independent when it comes to decisions about valuation and outside offers, but directed as to voting the shares on any issues other than offers. Fully independent directors, however, almost always go along with board recommendations on voting the shares, most commonly for new board members or required corporate resolutions. Institutional directed trustees still do all the work of an independent trustee, including carefully vetting the appraisal report, providing input into corporate governance practices (possibly including executive compensation), and evaluating offers passed on by the board to buy the company, but they make recommendations, not decisions. Inside employee-directed trustees (a relatively rare arrangement), in our experience, perform a largely formal role, taking directions from an ESOP administrative committee or the board, but not doing a lot of independent work. It is unclear what the benefit of this arrangement is.

From Chapter 6, "The 2025 ESOP Corporate Governance Survey" (figures and tables omitted)

Among the respondents, most companies (84%) have at least one independent director, defined as a director who is not a current or past employee of the company and who has no financial relationship with the company other than their board compensation. Larger companies (greater than $50 million in revenue) are more likely to have at least one independent director (94%) compared to smaller companies (79%).

From Chapter 7, "The DOL Fiduciary Process Agreements"

The GreatBanc Process Agreement formally applies only to GreatBanc. It is not a consent decree, injunction, or court order. Rather, it is the product of a constructive and collaborative effort engaged in by the DOL and GreatBanc. It is not a regulation and does not supersede, replace, or otherwise modify existing regulations, Field Assistance Bulletins, or other advice by the DOL.

At first glance, the GreatBanc Fiduciary Process Agreement may appear to impose new, onerous requirements on the ESOP trustee and valuation advisor when considering whether to approve an ESOP transaction. However, when viewed in the context of ERISA, the Proposed Regulation, case law, and established practice, there actually is very little in the GreatBanc Fiduciary Process Agreement that is new or more onerous than what an ESOP trustee was always expected to do in undertaking a prudent process in analyzing and approving a transaction in which the ESOP is purchasing or selling stock in the ESOP sponsor company.