The Benefits of Outside Directors in ESOP Companies  - CLEO Skip to main content


Selling a business to an ESOP often requires significant changes to the company’s governance structure. In many cases, this can include expanding the board of directors to satisfy the requirements of the ESOP trustee, whose first concern is protecting the value of the stock for ESOP participants. If your board of directors has consisted solely of family members, or close friends, you may not welcome this change. Outside directors can offer checks and balances that usually don’t exist with an internal board. With no outside financial stake in the business, they can make corporate governance decisions without the conflict of interest that may occur with employees, former or current non-ESOP owners, selling shareholders, and/or family members. Outside directors can help you run the business more judiciously and effectively, including enhancing the value of shares for ESOP participants and shareholders who still retain stock outside of the ESOP.

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