In this video, we discuss how much control the ESOP trustee has in the ESOP.
Typically when we are presented with this question, it’s out of a concern that putting the shares in the hands of a trustee is going to result in the trustee being involved in the operation of the company. The ESOP trustee is the shareholder. The trustee does hold stock and that stock does vote, for example, for the board of directors or for corporate transactions.
However, an ESOP trustee, and in particular an outside independent ESOP trustee, is not interested in being involved in the management of day to day affairs. The corporation will continue to be run by the board of directors, the CEO, and the officers of the company. The ESOP trustee will attend the annual shareholder meetings, vote for the board of directors, and participate in that level of corporate governance.
If an ESOP trustee is holding a minority block of shares, then under state law their shareholder rights are going to be fairly limited. If the ESOP buys a controlling interest in the company then that issue of corporate control has to be built into the governance structure of the articles, the bylaws, and the contracts under which the ESOP buys the share and that control is a negotiable level of control and participation for the ESOP trustee.