EOT Trustee Board Structure

Designing the structure and nature of your Trustee Board is a key step in your Employee Owned Trust (EOT) journey.  Every business is different, and so will have different concerns to factor in, however, these guidelines are to help you arrive at the right Trustee Board for your situation.

The Trustee Board should not make daily or monthly executive decisions, as this will continue to be the role of the Company Board of Directors. Rather the Trustee Board should be the body to approve the business strategy and budgets, being responsible for the appointment and ongoing accountability of the CEO or MD. The Trustee Board has a fiduciary duty to the EOT beneficiaries, i.e. the company employees, and must make all decisions based on their best interests.

How to Design Your EOT Trustee Board

We hope these FAQs act as a useful starting point to help you design your EOT Trustee Board, particularly to achieve the right balance of Trustees.

1. How many Trustees? Having an odd number of Trustees is beneficial, as it helps avoid an equal votes stalemate! Most EOTs tend to have between 3 and 5 Trustees.
2. Who can control? The stipulation is that the former owner or owners can not, directly or indirectly, control the Trustee Board.
3. Can Trustees be resident outside UK? No, Trustees of EOTs must be a UK resident.
4. What are the different types of typical Trustee? There are typically four types of an EOT Trustee and the value they tend to bring to the Trustee Board:
   1. Founder Trustee: often a former owner of the business, who normally brings sector experience and strategic insight. The Founder Trustee may also seek to represent the former owners, however, they need to beware their potential conflict of interest on the ELT Board.
   2. Financial Trustee: a Trustee with a financial background, typically a qualified Accountant. They firstly ensure that the Trust does not pay more than the market rate for the business, and secondly help the EOT comply with its financial contractual commitments.
   3. Employee Trustee: a Trustee selected to represent the concerns and interests of the employees, providing a two-way communication link between the employees and the Board of Trustees; this may or may not be in conjunction with an employee voice group.
   4. Independent Trustee: a Trustee who is selected for their independence. Good independent Trustees will be able to listen to all stakeholder views, apply their own strategic thought, and seek to make wise decisions.
5. First Trustee requirement? This is to ensure that the EOT does not pay above the market rate for the business, and the Trustees can fulfil this duty in two ways:
   1. Being comfortable that the valuation is properly independent, that the assumptions employed are sound, and that the methodology has been accurately employed. Also ensuring that the valuation is addressed to the EOT Trustees as well as the Founder Owners.
   2. Commissioning their own Trustee valuation. However, consider should this generate a different valuation, how will the proper ‘market value’ be ascertained? We would not recommend this route, as it appears confrontational, and unlikely to result in a fair deal to all stakeholders. It might even result in the need for a third ‘independent valuation’ a costly exercise for all parties!
6. Should there be a Chair of Trustees? A chair of Trustees can be useful, particularly if the character of stakeholders makes it likely that disagreements might arise, where the chair could provide a helpful bridge-building role.
7. How can Trustees minimise their liability? Trustees can be Directors of a Corporate Trustee, and this provides some limitation to their liability. In addition, each EOT Trustee should ensure that the Trustees provide a balanced Board, with key attributes of strategy, financial commitments and employee engagement are all covered. Trustees must ensure that the EOT does not pay more than the market value for the business. In addition to these steps, Trustees should ensure that appropriate Trustee Liability insurance is taken out (similar to Directors and Offices insurance).

We hope you found these guidelines a useful starting point.

If you’re seeking a Trustee with board-level experience and financial leadership, take a look at our vfdnet EOT Trustees.

James Shand is on hand to provide advice, book a call with James to seek advice specific on your EOT Board of Trustees selection.