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Professional Resources for your Employee Ownership Plan
By Anthony I. Mathews, Beyster Institute Staff
Just how many advisors do you need to put together an ESOP? The answer sometimes seems to be “How many can you afford?” The fact is that establishing and maintaining an ESOP, or any employee ownership plan for that matter, requires the involvement of a team of skilled professionals, and it is a time consuming and costly process. Getting the right team from the beginning is critical.
Absolutely necessary for an ESOP transaction is the ESOP Trustee, along with its independent financial advisor and legal counsel. These are the key roles that will enable you and your ESOP to live up to your regulatory and fiduciary obligations.
At the same time, other professional advisors play key roles in ESOP transactions, as depicted on the grid below. Those in the top left box are mandatory. However, most selling owners find that they need some mix of the other advisors to assist them in the transaction.
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Properly selecting and managing all these professionals is one major aspect of successfully installing and operating an ESOP, and, almost more importantly, it is in many ways the key to managing the cost.
Building Your Team of Professional Advisors
Rather than thinking about how to get away with the minimum number of players on these sorts of deals, a candid meeting with all the stakeholders early in the process is a good way to determine who needs and wants independent representation for what purpose. For example, knowing in advance that you have to address the concerns of three lawyers rather than just one will make budgeting for the transaction much easier.
Then, begin by looking where you are likely to find the expertise you need – that is, knowledgeable referral sources. For example, advice on ESOP 1042 reinvestment requires a highly specialized advisor, not a generalist who is untrained in the details of perfecting the ESOP reinvestment for tax purposes and then constructing the sort of “buy and hold” portfolio it requires.
There are several associations, in addition to the Beyster Institute, devoted to employee ownership that can start you off in the right direction. These include the National Center for Employee Ownership, The ESOP Association, the Ohio Employee Ownership Center, and the ESOP Owned S-Corps of America. All of us have resource information regarding people with expertise in developing and implementing employee ownership transactions.
You may also want to attend a conference or take a class to help you learn more about ESOPs. This will do two things. First, it will give you a chance to meet and talk with a large group of advisors in every facet of employee ownership implementation. Second, and perhaps more importantly, it will give you an opportunity to talk with other business owners in attendance who are usually very happy to share their experiences.
After you have made your preliminary selections and arrived at a short list of candidates, be very open about vetting them.
In general, I’m a big believer in “gut feelings.” If you have serious doubt about the expertise of the person you are talking with about any advisor role or you are just uncomfortable with them, they may not be the right choice for you. Comfort with your advisors is almost as important as their skill and expertise. All things being equal, an expert you like is better than one you will hesitate to call when the need arises.
Probably the best resource available to people looking into employee ownership is the experience of companies that have already been through it. Talking to a few of them will go a long way in finding the right people for you. However, these companies, while very knowledgeable about their own transaction, know nothing about yours, so keep in mind that the perfect person for them may be the totally wrong person for you. Getting a lot of information from many different sources will best help you sort it all out.
Be sure to ask the professionals you are interviewing for references. Talking to several current and former clients of the professional in question will provide a lot of in-depth information about how they work and what you can expect from them.
Finally, when you have gotten close to selecting the advisors who meet your criteria, do not be shy about asking for detailed estimates of time and cost and then holding them to their estimates.
The best advice for finding the right team for your employee ownership project is to become a very educated consumer. The more you know, the more likely you are to get the right people for the right price to help you along the way.
©2008 The Beyster Institute and its authors and their entities. All rights reserved.
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