EO Trustee aims to raise awareness of the importance of independent directors in employee ownership trust (EOT) governance

The number of employee owned companies is growing in the UK, and in other countries, because of the EOT. One reason for this success is the established practice of appointing an independent director to the board of an EOT trustee company. This is someone who is neither an employee nor an executive director of the EOT controlled company.

An independent director is not a statutory requirement but as Graeme Nuttall OBE explains this role is vital to EOT ownership and governance arrangements.

Why independent directors are vital to EOTs

As the UK Government’s independent adviser on employee ownership, Graeme Nuttall OBE produced the ground-breaking ‘Nuttall Review of Employee Ownership’. This Review’s findings resulted in the UK Government providing statutory recognition of the employee trust model of employee ownership, in the form of the EOT. Interviewed by Campbell McDonald, Chief Executive of think tank Ownership at Work, Graeme summarises the role of the independent director as follows:

“The independent director must work collaboratively with the entire board of the EOT, they cannot act alone. The independent director must work together with the other trustee directors to fulfil the EOT’s purpose and achieve its key tasks. The other directors should bring management knowledge and the employees’ perspective to the trustee board discussions. Good practice is to have a trustee board that ensures the board has these vital inputs, a board that has the same number of directors drawn from senior management as from employees, together with an independent director. This is “paritarian” governance.

The vital contribution the independent director makes is to keep the EOT “on purpose”. The independent director, as chair of the trustee board, can set an agenda that can:

  • achieve the EOT’s purpose of long term employee ownership of a professionally managed and successful business,
  • ensure key tasks are properly performed, namely providing:
    • good work,
    • employee engagement,
    • profit sharing, and
  • get deferred consideration paid to former shareholders.

The fact the independent director does not have a day-to-day involvement in the underlying business either as a manager or an employee means they have the freedom and focus to help the trustee board achieve the EOT’s purpose.”

Graeme Nuttall’s full explanation of how and why the independent trustee role is so vital to EOTs is available in the Ownership at Work article ‘Nuttall Shares – On the role of the independent trustee director’.

Graeme Nuttall OBE is the independent trustee director and chair of a number of employee trust owned companies.

Published 1 December 2022

© Graeme Nuttall