Establishing a Non-Fiduciary Board of Advisors

Posted by Aaron Juckett, CPA, CPC, QPA, QKA on Wed, Apr 21, 2010
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The April 14, 2010 Employee Ownership Update is online and discusses the following:

  • ESOP Tax Costs Projected at $1.7 Billion
  • Broad-Based Employee Ownership Alive and Well in 2010
  • French Companies with Employee-Elected Directors Perform Better
  • Boards of Advisors Instead of Boards of Directors?

The Update discusses an alternative to forming or a complement to a Board of Directors, establishing a non-fiduciary board of advisors:

In recent years, many ESOP and other employee ownership companies have created more formal boards of directors, including independent directors. While this is a best practice, current company boards may be reluctant to take on the added costs these boards can create, may worry about losing too much control, and/or may have difficulty finding people willing to take on the fiduciary responsibility. An alternative is to create a board of advisors, a non-fiduciary group that can provide input into any corporate issue without having fiduciary responsibility for it, provided the advisors are really just that, not de facto decision makers called something else. These boards can also be set up when there is a more formal board. For instance, they can be a way for getting employee input into corporate-level decisions without raising all the potential legal and conflict-of-interest issues that could otherwise arise.

The Update also discusses the White House 2011 budget estimates for the "special ESOP rules":

The White House fiscal year 2011 budget estimates that the special ESOP rules will cost $1.7 billion in 2010 and $1.8 billion in 2011. For context, this comes to 1.79% of the total tax costs of retirement plans and 3.2% of the tax costs of 401(k) plans, even though ESOPs have about 30% of the assets 401(k) plans do and roughly the same percentage of employer-contributed assets.

It also provides a Decade in Review for ESOPs and discusses French companies with employee-elected directors.

Topics: ESOP Corporate Governance, ESOP, employee stock ownership plan

Aaron Juckett, CPA, CPC, QPA, QKA
Written by Aaron Juckett, CPA, CPC, QPA, QKA

Aaron is President and Founder of ESOP Partners and provides implementation, administration, and consulting services to hundreds of companies. He is a member of The ESOP Association (TEA) and the National Center for Employee Ownership (NCEO).

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