One common misconception about the role of a trustee in an employee-owned trust (EOT) is that they ‘run the business’. In reality, the role of the trust board is very different from the board of a trading company.
Overview of who controls an EOT
Under an EOT structure, the governance and day-to-day running of the EOT are shared between the trading company board, the trustee board, and the employees. Each group has specific responsibilities and priorities that together ensure the overall running of the employee ownership trust.
- Trust board: This group has oversight of the trading company board. They protect the trust’s beneficiaries and assets.
- Trading company board: These individuals are responsible for the daily management of the company's operations. They set the strategy for the business and manage risk.
- Employees: This group are beneficiaries of the EOT. As employees, they work under the terms of their contracts. They can share their perspectives when opportunity arises, but do not hold day-to-day decision-making power.
As a result, each team helps power the others and ensures the overall direction and operation of the EOT is efficiently run.
In the traditional sense, the directors of the trading company run the business. At trading company level, the strategy and daily decisions around the business are made. This is similar to any other company that does not have an employee-owned structure.
What do the trustees do then?
The trust is the majority shareholder of the company, owning shares and acting solely under the terms of the trust on behalf of the beneficiaries (i.e., the employees).
The trustees ensure the main asset of the trust (aka the trading company) is run optimally and safeguarded for the benefit of the employees. The trustee’s role is therefore one of holistic oversight, providing support and challenge to the trading board of directors.
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How does the relationship between the board of trustees and the employees work?
The board of trustees should ensure that employees feel they are part of an employee-owned business and have a voice. They can encourage the trading board of directors to establish mechanisms to achieve this in the EOT.
It is a balance though; the board of trustees should be clear that the employees, like them, do not ‘run the business’. Employees cannot expect to have a say in every day-to-day business decision or have all their concerns listened to by the board of trustees.
Balancing commercial decisions and employee participation
While there is a desire to have a positive, employee-focused culture, the board of trustees are accountable for the long-term health of the asset that the employees (as a group) are the beneficiary of (i.e., the trading company).
This means that they should not let employee ownership inhibit the correct commercial decisions being taken by the trading board directors, even if this sometimes might result in a difficult decision impacting individual employees.
The interaction between the board of trustees and the employees can be a difficult one to balance, particularly in managing employee expectations of the board of trustees role.
What is the relationship between the board of trustees and the trading company board?
Getting this interaction right is often a tricky challenge when a business first becomes employee-owned. Over time it evolves as each party understands its roles and responsibilities better. Sometimes the trustees can get dragged down into too much operational detail, or they won’t challenge the trading board enough when big decisions are made.
To bring this to life a little, set out below are a few examples of situations that can occur and what the expected involvement of the Board of Trustees would be:
| Situation | Suggested Trustee Involvement |
| Approval of trading companies annual statutory accounts. | Approval required as majority shareholder. |
| Applying for a new bank loan. | Approval as could have a significant impact. The board of trustees would want to understand the rationale for the loan and the implications. |
| Purchasing a new IT system. | Not relevant to board of trustees unless a very significant cost. Decision for the trading company board. |
| Setting the trading company’s annual budget. | Trustees should be informed by the trading company board as it is important information for them to fulfil their role. It is for the trading board of directors to set and ‘own’ the budget though. |
| Appointing a new marketing senior manager. | Not relevant to board of trustees. Decision for the trading company board. |
| Appointment of a new trading company Board Director. | Board of trustees would need to approve. They would also expect some level of discussion in advance. |
What other basic tasks should a board of trustees do?
- Meet regularly (maybe 2-4 times a year) and organise themselves well.
- Ensure they have all relevant information to have efficient meetings and make well-informed decisions.
- Keep clear meeting notes outlining the logic and rationale for decisions.
Hopefully, this helps demystify the role of the board of trustees in an employee-owned trust. If you are contemplating a sale to an employee ownership trust, Shorts can provide further detail in a full trustee guide as well as ongoing guidance on the board of trustees' role.
Discover more about how EOTs work
EOTs can prove an excellent ownership model for some businesses. Learn more about employee ownership trusts and how they can work for your company via the document below.
