EO Explained: The EO Trust Board

Understanding the role of the trust board, what it is responsible for and, sometimes more importantly what it is not responsible for, can enable an EO company to function well with supportive oversight from trustees without contention between company board members and trustees. 

Too often, a lack of clarity or understanding by both company directors and trustees creates friction and distrust to the detriment of the company. 

This article aims to provide the basics of the role and its responsibilities. 

The Trust Board as Shareholder

In its purest sense, the trust board is the majority shareholder of an EO company with a requirement to protect the assets it holds (the shares of the company) for the benefit of the trust beneficiaries (the employees).

As a majority shareholder, there are certain reserved matters which are either defined in legislation or company specific. Company specific reserved matters usually replicate those reserved for vendors and are as defined in the shareholder agreement that was signed at the date of sales of the shares to the trust.

As a minimum, reserved matters and approval by trustees, should be documented as an audit trail for future reference. Their presentation to trustees should be for discussion, for approval or for ratification. 

The trust as a collective is the shareholder and individual members should ensure that they are contributing their personal perspectives whilst being mindful of the collective requirement to represent the interests of all beneficiaries as a class.

Trust Board Membership

Depending on the size of the Company, trust board membership usually comprises a combination of:

• A vendor trustee;
• A management trustee;
• An employee trustee; and
• An independent trustee.

The number of each reflects the size of the organisation, as well as its maturity as an EO.

Membership may also change over time and companies setting out on their EO journey should seek to have an initial trust board that supports their transition, with flexibility embedded to evolve membership alongside the evolution of EO within the business.

Specific requirements for membership are usually, though not always, defined in the trust deed.

Trust membership often changes once the shares have been fully repaid, with the vendor trustee stepping down, additional manager or employee trustees being appointed. This is also often an opportune time to reflect of the activities of the trust.

The Trust Board in Practice

1. Frequency of Trust Meetings

The majority, though by no means all, trust boards meet on a quarterly basis. Specifically:

• Trusts tended to align their meeting cycles to that of the company board, the majority of which meet quarterly.
• Where a company board meets monthly, the trust board may meet quarterly, aligning the date of the trust meeting to enable use of recent quarterly or monthly metrics.
• This also reinforces the oversight role of the trustees, in support of the company board and reflecting the fiduciary nature of the role.
• For smaller organisations where all employees may already have insights and input into operational and strategic matters, trust meetings may be more infrequent, often semi-annually or annually.

For more infrequent meeting scenarios, the trustee meeting serves to elevate the oversight function to future direction, strategic priorities and non-operational matters.

Those companies that have infrequent trust meetings may instead supplement them with ad hoc meetings as and when required. Where ad hoc meetings become the norm, a review and reflection on the need for more regular standard meetings may be beneficial.

2. Extraordinary Trust Meetings

Also known as ad hoc meetings, these are usually held to cover a specific topic which is time sensitive so cannot be held over until the next formal trustee meeting.

They are frequently topics which are specific to the organisation, but as examples, are often held to:

• review and consider the bonus distribution policy and the methodology of its calculation;
• to appoint a new statutory board members to the company board;
• to maintain a dialogue between the company board and trustees, to discuss and agree significant matters so that they can be progressed between trust meetings or to reinforce company board decisions;
• Raise significant employee related changes that are to be implemented, which can then provide the company board with an avenue to seek challenge of their proposals, adjust them based on the discussions held with trustees and enable trustee support when it is communicated with all employees.

Ad hoc meetings relating to significant employee related changes can be particularly invaluable where there is not an employee forum in place, with the trustees, reflecting their fiduciary responsibility, reviewing matters on behalf of all employees as a collective rather than as individuals or teams.

3. Decisions and Casting Votes

In line with UK company law, the Articles of the trust company defines how decision making is applied. Articles for trust companies usually also specify whether the chair of trustees has the casting vote when decisions are made.

In practice, we have found it rare for decisions to be taken to the trustees in isolation and without a clear background, justification, or informed guidance. Hence, not only are trustee decisions themselves a rare event, a contested decision or one that requires a majority decision is even more rare.

Informing Trustees

Trustee information is rarely fully bespoke to the trustees, and is predominantly either the same, or a subset of, the information that is used at the company board level:

Company updates at trust meetings are the primary means of trustees maintaining oversight of the current health and future prospects of the business. 

In most cases, this takes the form of bespoke reporting by the CEO/MD who joins the meeting for that section of the agenda.

Whilst, as mentioned, trustee meeting packs often replicate company board meeting packs, they deliberately lack the insights that personal input or an oversight focused overarching board report can provide. Specific operational matters should remain at the company board level, unless they are likely to have a significant impact on the health of the business.

Care should be taken that the trustee meeting, by receiving the same information as the company board, simply duplicates the discussions held at the company board meetings, without any differentiating benefit.

Duplicating company board packs at the outset provides a beneficial way for trustees to understand the drivers of the business, especially those trustees who may be new to company reporting, such as employee representatives. Once mastered, the specifics of oversight on behalf of beneficiaries can be incorporated and prioritised. 

It is as this latter stage develops that the differentiation between company board meetings and those of the trustees start to become both clearer and more beneficial.

Trust Meeting Attendees

Having a representative of the company board present to the trustees often serves to avoid a duplication of discussion across these two forums.

It can also be a useful tool in enabling any director or manager level trustee to attend trustee meetings purely as a trustee, and not as a presenter of the information.

Widening the attendance to other company board members beyond the CEO/MD also serves as a reminder that their position on the company board is in respect of the whole company not just their area of responsibility.

Attendance at trust meeting by other employees, or external advisers, can also serve to provide a different perspective of specific topics, or reinforce the information that is being provided. This is particularly beneficial in relation to strategic deliverables.

Examples that work well include presentations on the marketing strategy by those responsible for delivery, or project leads explaining their current projects and the benefit to the business that successful project conclusion will bring.

Reserving time at the end of each meeting for just trustee attendees enables an opportunity to reflect on the discussions held in relation to the purpose of the trust and agree any responses or further information required. This is also an opportunity to support less experienced trustees to ask questions or query content in a supportive environment.

Conclusion

The role of the trust was explained in our first EO explained article on the three pillars of EO.

This article expanded on the practical application of the trust as shareholder and oversight body in support of a sustainable business.

Having a trust board with clear parameters and purpose, can ensure that the company can focus on delivering success, with supportive shareholders aligned to the same goals and purpose.

Where there is a mismatch in understanding, the trust and the company board may be hampered in fulfilling their roles effectively. It can also drain resources from daily delivery and long-term sustainability which creates an issue for all employees of the company.

Successful relationships between the trust board and the company board can be beneficial to all concerned with members of each forum benefiting from the insights of each, in undertaking and delivering in their role.

Within IDTs members we have independent trustees who have experience of working with EO companies where the relationship between the company board and the trust board has become contentious. If you are in this situation and would like to have a confidential discussion on options, contact us at info@directorsandtrustees.co.uk

The content of this article has been collated from IDTs experience with EO companies and beyond, as well as from the results of a short research survey undertaken by IDT in 2022 on behalf of Ownership at Work and the Employee Ownership Association. The original survey findings can be downloaded from the Ownership at Work website: OAW-IDT-EOTs-In-search-of-best-practice-28-March-2022.pdf (ownershipatwork.org)