When a company is sold to an Employee Ownership Trust (EOT), a new trustee body is created. This is creating a need for a new role in businesses – the independent trustee.
I’ve seen a few job adverts recently for independent trustees. The requirements for the roles these adverts outline highlights potential issues that can arise when this crucial role is not fully understood.
In this piece I would like to look at some of the key parts of the trustee function, and illustrate why it is so important to set the right criteria for the independent trustee role.
The Mistake Most Commonly Made
The adverts in question ask for an independent trustee who will be expected to work just a few hours each quarter attending a trustee meeting. The role is sometimes voluntary, sometimes offers £2k per year remuneration.
In my view, these adverts dramatically underestimate the importance of the independent trustee.
It is common when owners have been advised on the EOT transition by only accountants and/or lawyers. They will undoubtedly have received excellent tax and legal advice, but the nature of the advert suggests they may not have paid sufficient attention to some of the governance and cultural issues that arise when ownership and leadership are separated.
Ownership and Leadership
In owner managed businesses, leadership and ownership are invariably held by the same people.
This might be a board, or it might be an owner who makes all the decisions (and therefore acts as a de facto board).
Where ownership and leadership held by the same people, there is rarely any meaningful challenge or accountability. When the business is sold to the EOT, ownership is separated and put in the hands of the trustees, and a whole new hierarchy is created.
Where former owners continue on the board, or when they appoint themselves as trustees for the long term (or put their friends in as trustees), this can create a potentially inflammatory situation.
Role of the Trustees
I would suggest the trustee body has three primary roles:
- Holding the board to account
- Representing the interests of the employees as owners
- Ensuring the core values of the company are upheld (what we in the Eternal Business Consultancy call ‘The Flag’)
The trustees themselves should consist of employee trustees and an independent. A director trustee in addition provides a direct link with the board.
The trustees are there to act in the best interests of the beneficiaries, the employees. Given this make up of the trustees, and these objectives, the potential for confusion is significant.
The Independent Trustee
Given this, I hope it is becoming apparent why the role of the independent trustee is far more than simply attending a quarterly meeting. I would suggest the independent should ideally be the chair of the trustees, and their duties should include:
- Ongoing dialogue with the main board (perhaps chair to chair)
- Establishing and maintaining clear parameters for trustee body
- Support for employee trustees when communicating with employees
- Ensuring that The Flag of the business is clearly outlined and communicated within the business
The independent is especially important in the first two to three years of a newly EOT owned company. They often mentor/coach the whole trustee group on the role of trustees, and work closely with the Board to support that understanding. They should also help work through any early teething problems – that’s likely to be a lot more than a few hours every quarter
Your Independent Trustee
The role of independent trustee may settle down to be one that is a light touch, but it is also one that is ongoing. Just how active the independent will be in the long term will depend upon many factors.
Payment for the sale of the business to the ex owner(s) will come from future profit of the business. For this reason alone it is key that the ex owner(s) create a trustee body which acts as a critical friend to the board, and amplifies the voice of the employees.
This needs an independent trustee who has knowledge, experience and/or training.
All of which we can help with at the Eternal Business Consultancy.
Note: I’m not writing this because we offer trustee training and independent trustee placement; we offer those two services (and I’m writing this article) because they are so important! Get in touch if you’d like to know more about these services, or any other.