Employee Ownership and ERISA Litigation

I had the pleasure of speaking at the sold-out National Center of Employee Ownership ("NCEO") conference on April 21 about board education, compensation metrics and procedural prudence. Consonant with NCEO's commitment to providing trustee and director education about Employee Stock Ownership Plan ("ESOP") administration and governance, my co-speakers and I fielded lots of questions from the audience relating to insurance coverage, selection of directors, board composition, training, governance red flags to avoid and long-term versus short-term strategy.

In conversing with some of the ESOP company CEOs and independent trustees who traveled to Denver for this annual convening (last held in Atlanta), the message was clear. Employee ownership is working for their respective companies. The sentiment struck me as quite different from what I heard last week when I attended the American Conference Institute meeting about ERISA litigation. Post Dudenhoeffer (courtesy of the U.S. Supreme Court), there seems to be a lot of caution on the part of large company counsel about how much equity should be in the hands of employees.

Clearly, facts and circumstances will determine the appropriateness of any particular structure. That said, results of a recent survey reflect a growth in employee power, at least as of several years ago. According to NCEO's research project director, Nancy Wiefek, the tabulated results show that 214 Employee Stock Ownership Plans commenced between 2001 and 2012, a rise of 44 percent from earlier periods. Out of 502 ESOP company responses, 317 were reported as fully owned at 100 percent. Click here to read more about the complete survey.

Whether the 2014 Dudenhoeffer decision will have an impact on the mostly private businesses that consider ESOP implementation remains to be seen. For now, it is important that venues exist to allow for an exchange of ideas about what works and what to avoid, should a company's management decide to embark on putting company stock in the hands of employees.

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