ESOP Tip: Should Your Board See Your Valuation Report?

Some outside trustees do not want board members to see the full valuation report. Their concern generally is that board members might be tempted to intervene in the appraisal. But ESOP boards are responsible for monitoring the trustee to make sure that the appraisal process is properly handled. Moreover, the appraisal report is an exceptionally valuable tool for understanding the business and what can make it more valuable.

Boards can mitigate trustee concerns by agreeing that while they will read the report and ask questions, they will not in any way attempt to influence the appraisal. The questions may stimulate the trustee to look at certain issues not being looked at (such as not reflecting the repurchase obligation), but the trustee needs to retain the ultimate decision power. The board should replace the trustee only if there is clear evidence the trustee is not handling the appraisal in compliance with ERISA.