Case Study: Adhering to the Board’s Risk Management Intent
Situation:
For more than a decade, a regional restaurant chain had managed its own Employee Stock Ownership Plan (“ESOP”) with minimal complications. Because there were several individual shareholders outside of the ESOP as well as leadership team members who participated in the ESOP, however, the board of directors wanted to be sure to uncover and eliminate any potential conflicts of interest. The team sought to demonstrate to its growing employee base that the ESOP was being run effectively and that the executive team was taking an objective approach to overseeing the business’ affairs and transactions. Due to the intimate nature of the company’s culture, the board of directors wanted to hire an independent fiduciary who could:
- Demonstrate a seamless cultural fit,
- Quickly get up-to-speed on the history of the existing ESOP,
- Fully grasp the stakeholders’ future vision, and
- Take action to align the company’s current structure and practices with that future vision.
Approach:
Roland|Criss:
- Dedicated four months to immersing itself in the company’s business, strategic goals, key team members and unique culture.
- Worked with the CEO and CFO to outline a strategy that would satisfy the objectives of the company’s three key stakeholder groups: 1) the ESOP participant pool, 2) the executive team, and 3) the shareholders.
- Proposed and implemented best practices for the internal committee, which included regulating meeting frequency and content, instituting a regular evaluation and reporting system, and assessing all service agreements between the ESOP and the company.
- Issued detailed opinions on each of the parties that held interest to the plan, regarding whether their third-party agreements were fair and appropriate.
- Adjusted the 13-year contract with the company’s existing investment advisor to create efficiencies in the Plan’s investment strategy.
- Completed a 408(b)(2) assessment to ensure the company’s compliance with the new ERISA regulations.
Result:
Within one year, Roland|Criss restructured third party service provider arrangements to conform to fiduciary best practices. This included coordinating with the ESOP’s investment advisor to significantly modify the investment policy for the ESOP’s liquid assets and; to ensure that these investable assets met the ESOP’s repurchase obligation objectives.
The restructuring also led to a 20% cost reduction of investment expenses and simplified the management oversight process. Roland|Criss wholly reformed the company’s governance structure and decision-making authority to ensure that each stakeholder group clearly understood its role and how to effectively carry out its respective responsibilities.
Ultimately, Roland|Criss stepped into a discretionary fiduciary role with respect to opining on fairness and appropriateness of purchase and sale transactions and other corporate arrangements impacting the ESOP. With committee best practices in place, the company’s executive team gained confidence in its approach and assurance that its processes complied with the most current ERISA mandates.
In the end, Roland|Criss partnered with the leadership team to match their fiduciary practices with their strategic intent, creating a sound strategy and a secure go-forward plan for all of the company’s stakeholders.
