ESOP Super Regional Live Tweet

Live Tweets from PA/DE, NY/NJ & New England Super Regional Conference

Capital Trustees is a proud Platinum Sponsor of The ESOP Association’s PA/DE, NY/NJ & New England Super Regional Conference, being held  from June 7-8 2016  in Providence, RI.  Thanks to our fellow sponsors and to everyone involved for a very productive and informative conference. For those of you who missed the conference and are not on Twitter, we’ve transcribed our Live Tweet sessions below.

ESOP Super Regional Conference Platinum Sponsors


Basic Duties of Board Members & Trustees

Presenters:

June 7, 2016 8-10 AM EDT: This session is designed as an introduction for new Board Members and Trustees, or as a refresher for ongoing Board Members and Trustees. The session will address basic board functions, basic trustee duties and the interaction between the Board and Trustees.

ESOP BoD Live Tweet

Live tweet by Bret Keisling (@CapTrusteesBret) of @CapTrustees:
“#LiveTweet – Basic Duties of #ESOP Board Members & Trustees

Getting ready to live tweet Basic Duties of #ESOP Board Members & Trustees – @ESOPAssociation @CapTrusteesRich @ESOPDiva

[CapTrustees – The #LiveTweet of Basic Duties of #ESOP Board Members & Trustees will be from 8-10 AM EST (Mute 2hrs if you don’t want heavy twitter feed.)]

There can be confusion between the roles of a board of directors and the role of a shareholder. @ESOPAssociation Super Regional Conf.

Board role: Grow shareholder value; establish corp. goals and strategies; and…

Board role: … appoint and monitor ESOP fiduciaries/trustee (either internal trustees or external, like CapTrustees)

Board role: Eval and approve significant corp transactions (sale of the company or its assets); review corp financials

Board roles: Establish senior officer comp; est. corp stds of conduct; declare dividends;

Board Role: Retain independent advisors (i.e., auditor); establish committees (audit, compensation, nomination, etc.

.@CapTrusteesRich: There’s no difference between boards of ESOP and non-ESOP companies. Good governance is good governance.

Boards are governed by statutory law, articles of incorporation, bylaws, state case law.

Case law addresses board fiduciary matters, such as duty of care, duty of loyalty and business judgment rule.

.@ESOPDiva Corporate powers are exercised by or under the authority of a board of directors.

.@ESOPDiva Directors rely on reports of others, i.e., lawyers, accountants, but if director has expertise s/he must use it .

.@CapTrusteesRich Shares of an ESOP are held by a trust. When you have any trust, you must have a trustee.

.@CapTrusteesRich ESOP Trustees’ responsibility is the best interests of the ESOP participants.

Trustee Role: Protect shareholder value; appt directors & monitor/eval performance; eval/vote on sig. corp transactions

.@CapTrusteesRich: In an ESOP, shareholder of record is the ESOP Trustee, not the individual participants.

.@CapTrusteesRich Trustees are governed by ERISA; statutory law; Trust Agreement; Corp articles of incorporation/bylaws..

.@CapTrusteesRich … Trustees are governed by state and federal case law and federal agency expectations (DOL & IRS).

.@ESOPDiva: 2/2 Directors must exercise duties in a way that avoids harm to the corp; must be attentive to company ops.

.@ESOPDiva Directors should understand co’s gen’l business; business cycle; and the competition.

.@ESOPDiva: If company is in a technical field, board members need to develop an understanding of that technical field.

.@ESOPDiva: In addition to having a top-level view, director must understand current, quarterly and annual co. matters.

.@ESOPDiva: Board member needs to know co’s profit picture & whether obligations are met, incl. financial covenants.

.@ESOPDiva: Directors need to know how the co. stands vis-a-vis its earnings and creditors, incl banks and trade creditors .

Bus. Judgment Rule: presumes directors act on an informed basis, in good faith, and in honest belief that action was in co’s best interests.

Bus. Judgment Rule: a judicial statement that courts should not second-guess the boards’ business judgment even when there are poor results.

Business Judgment Rule: Burden is on a plaintiff to overcome the presumption of the business judgment rule.

Duty of loyalty: Intended to make sure that directors do not act greedily and do not put their own interests above those of the shareholder.

Duty of loyalty: raised whenever directors are also execs. if they’re approving their own comp; lease/purchase real estate from an exec…

Duty of Loyalty: also implicated when board is establishing special exec, bonus programs like stock appreciation rights.

If duty of loyalty is implicated, the business judgment rule does not apply; instead the board decision must pass the fairness test.

1/2 Boards of Directors are ERISA fiduciaries only “to the extent” they exercise control over plan assets, ..

2/2 … or have discretionary authority over plan management or administration.

The power to appoint an ESOP named fiduciary (Trustee or Plan administrator) is itself a fiduciary action.

Some board actions affecting the ESOP such as adopting/amending/terminating the plan, are generally settlor functions not subject to ERISA.

1/2 Directors may be PERSONALLY liable if they breach: duties of care or loyalty, misappropriate corp assets …

2/2 … or fail to disclose conflicts of interest.

Directors: Insist on indemnification and require D&O coverage.

1/2 ESOP Trustee Duty: Act solely in the interest of plan participants and beneficiaries…for exclusive purpose of providing benefits…

2/2: … to participants and beneficiaries and defraying reasonable expenses of plan administration.

1/3 ESOP Trustee Duty: …with the care, skill and diligence under the circumstances that a prudent person acting in a like capacity…

2/3 … and familiar with such matters would use in the conduct of an enterprise …

3/3 … of a like character and with like aims.

ESOP Trustee Duties: determining fair market value of co. stock; vote co. stock; elect bd of dirs; investment of non-employer securities.

ESOP Trustee Duties: understand plan terms, approved policies, operational/admin forms, review exec comp, make decisions consistent w/ ERISA

ESOP Trustee Duties: Monitor ESOP repurchase obligations, review and pay plan expenses, document and communicate process and decisions made.

.@CapTrusteesRich: Determining FMV of stock: required on annual basis and at anytime that shares are transacted with a party in interest.

.@CapTrusteesRich: Determining FMV: Trustee engages Independent financial advisor; conduct mngmnt interviews (at least annually).

.@CapTrusteesRich: Determining FMV: mgmnt interviews should cover financial performance, projects, competition, changes to Bd and mngmnt.

ESOP Trustees: Vote co. stock: elect bd of dirs.; follow plan (pass-through voting; directed vs. discretionary); 409(e) major events.

409(e) major events: Merger, consolidation, recapitalization, reclassification, liquidation, dissolution or sale of substantially all assets.

ESOP Trustee always votes company shares, but may be directed by committee or participants in certain circumstances, as per Plan/Trust docs.

Congrats @CapTrusteesRich and @ESOPDiva for a great presentation on Board duties. Well-received & loaded with great info  @ESOPAssociation”

[Copied from 07 June 2016 public Twitter feed, with light editing to remove repeated hashtags and mentions specific to Twitter and reordered with earliest tweet first. Please excuse any typos and creative abbreviations inherent to a live-tweet event!]


Super Regional Board of Directors/Trustee Keynote Presentation

Presenter:

June 7, 2016 10:30 – 11:00 AM EDT: Cindy Turcot, Chair of the ESOP Association and COO of Gardener’s Supply Company was our keynote speaker for the conference. She spoke about her connection to employee ownership both nationally and within her company. She also discussed why she believes we will see growth in employee ownership, why it matters and what our role can bein that change.

Live tweet by Bret Keisling (@CapTrusteesBret) of @CapTrustees:

“Cindy Turcot of Gardener’s Supply Co., and chair of @ESOPAssociation is about to give the Keynote address of the Super Regional Conf.

Turcot: Keynote Topic: Employee Ownership: Is It A Movement? She believes it is & will discuss how we can be a force.

Turcot: Rich Glassman sees baby boomers looking for liquidity. There is a real uptick in people asking about ESOPS.

Turcot: Joe Marx says there is a tremendous increase in inquiries about ESOPs, especially from advisors that know nothing about esops.

Turcot: The way people are reaching out and asking about ESOPs is changing.

Turcot: ESOP professionals are highly engaged in developing the cause of ESOPs and stepping up ESOP activity.

Turcot: ESOP professionals report dramatic increase in activity and inquiries [CapTrustees has seen this, also].

Turcot: Ten years ago, 3 professors studies ESOPs. There are currently 120 academians studying ESOps. @ESOPAssociation #ESOPMovement

Turcot: 2015 @ESOPAssociation Record 10,663 attendees at national and state/regional conferences. @theNCEO shows similar attendance gains.

Turcot: Most states have NCEO chapters now [@CapTrustees is a founding sponsor of Pa’s chapter PaCEO.]

Turcot: Statistics show that culture makes a difference. Consider that with your fiduciary hat on.

Turcot: Be a model. What is your company doing to create a participatory work environment? @ESOPAssociation #ESOPmovement

Turcot: Help share your stories and help with research. @ESOPAssociation

Congrats to @DrinkerBiddle’s Chicago Partner Ted Becker, who was named @ESOPAssociation 2016 Outstanding Board of Governors Member.

Turcot: Best way to continue the movement is to be successful, and that means much more than financial success/ @ESOPAssociation”

[Copied from 07 June 2016 public Twitter feed, with light editing. Reordered with earliest tweet first. Please excuse any typos and creative abbreviations inherent to a live-tweet event!]


The Future is Now: Building Succession Systems for Long Term Sustainability

Presenters:

June 8, 2016 7:45 – 8:45 AM EDT: An ESOP company’s sustainability hinges on developing leadership capacity at all levels of the company. If people are prepared to step into leadership positions whenever openings occur, companies have less risk and, therefore, more stability. This session will focus on how
companies can develop succession processes for all key positions including internal and external Board members, Trustees, the CEO, and other senior leadership positions.

ESOP Succession

Live tweet by Bret Keisling (@CapTrusteesBret) of @CapTrustees:

“Next up: Succession Planning: Board, Trustee, CEO, Leaders w/ Ginny Vanderslice (Praxis) and Rob Schatz (ESOP Plus).

CEO Succession: It is the Board’s responsibility.

Board should set up a succession committee (at least 2 yrs ahead if possible); often includes current CEO (can be non-voting member…
…Succession committee should consider inside and outside candidates.

Succession: External candidates: adv: New perspectives, experience, generates excitement;

External candidates (negatives): neg: un-tried, flight of internal leaders, expensive to search, no history.

Internal candidates: adv: known entity, career path for top people, continuity, deep familiarity w/ co and culture.

Internal candidates: Negatives: lack CEO experience, internal competition politics, gaps are known, needs development.

Steps in the succession process: (1) Strategic plan to determine company direction; (2) identify goals to achieve; skills needed;…

3) identify candidates: internal/external; 4) fully assess candidates; 5) determine development needs; 6) track progess & make adjustments

7) develop and communicate transition plans

Vanderslice: when developing succession, you need to consider the effects on the entire leadership team, not just the designated successor

Schatz: Don’t forget to apprise Trustee, bank, and valuation advisor with the succession plan.

Also, make sure customers are not surprised.

Succession challenges: 1) beginning process too late (getting the current ceo to commit to his/her own transition time line)

Have a development plan in place for top internal candidates.

2) Think beyond the skillset/functions of current CEO, particularly if CEO has been successful.

Consider values and passion for the job & realistic understanding of the job (title vs. role),

Succession challenges: judging whether someone who has not been in the role can manage effectively.”

Succession challenges: misjudging importance of culture and leader behaviors that develop and support it.”

[Copied from 08 June 2016 public Twitter feed, with light editing. Reordered with earliest tweet first. Please excuse any typos and creative abbreviations inherent to a live-tweet event!]

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