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The ESOP Company Board Handbook

by Stephen P. Magowan, Scott Rodrick, Corey Rosen, John D. Schlichte, Cecil Ursprung, and Michael Wade

$25.00 for NCEO members; $35.00 for nonmembers

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Serving on any corporate board is a serious responsibility. Serving on an ESOP company board adds the additional responsibility of understanding how ESOP law and best practices interact with corporate law and best practices. Special ESOP issues such as valuation, the repurchase obligation, S corporation anti-abuse rules, monitoring fiduciaries, stricter considerations for executive pay, and responding to takeover bids demand at least a working knowledge of ESOP requirements.

This book helps board members navigate through these issues. You will learn how ESOP company boards actually function from interviews with a number of outside directors, what your corporate and ESOP responsibilities are, how to think about executive pay, and more. The final chapter provides a detailed review of ESOP basics for board members.

Note: You also can buy this book as part of our ESOP Company Board Member Training Package.

Publication Details

Format: Perfect-bound book, 128 pages
Publication date: July 2009
Status: In stock

Preface
1. Governing the ESOP Company: Fiduciary Issues and Practical Solutions for Boards of Directors in ESOP Companies
2. Serving on an ESOP Company Board: Reflections of ESOP Board Members
3. The Role of the Board in ESOP Companies
4. Directors, Officers, and Fiduciary Liability Insurance for ESOP Companies
5. ESOP Basics for Board Members

Excerpts

From Chapter 1, "Governing the ESOP Company: Fiduciary Issues and Practical Solutions for Boards of Directors in ESOP Companies"

The financing and structuring of ESOP transactions can be complex and will affect a company's finances for years to come. A well-planned ESOP transaction will include a careful "before and after" analysis of the impact of the transaction on the company's finances, including its income statements and balance sheet and, if required, its bonding requirements.

The board should consider engaging an outside advisor to propose and assess various transaction structures. The board's role in reviewing the transaction should be consistent with the way it would view any other financing or stock sale transaction. The board must assess the impact of the transaction on the long-term needs of the company. It must determine whether the transaction best suits the company.

One issue that frequently arises is the question of how much employees need to know about the transaction. An owner is often concerned with whether employees have to know what he or she received in the transaction. The board is not legally obligated to disclose the financial details of a transaction to employees; however, the interests of having a broadly inclusive structure indicate that reasonable disclosure of the deal is better over the long run. For example, let us say in an ESOP transaction an owner or group of owners is to receive $5 million that is borrowed from a bank and will be paid back over five years. The participants in the ESOP will have a much better sense of what their task is (work hard to pay off a $5 million loan) if they have an understanding of the transaction. Furthermore, having a concrete goal (paying off the $5 million loan) can be useful in building the camaraderie of the company. With proper education, most employees will recognize that the owner deserves to receive payment for his or her shares and will welcome the opportunity to be the buyer through the ESOP rather than to be an employee of a new unknown third-party buyer.