November 2015 – StockShield

Recent News Articles
Center for American Progress Issues Report on Mitigating Risks of ESOPs

19 November 2015

Center for American Progress Issues Report on Mitigating Risks of ESOPs

Think tank says inclusive capitalism should be encouraged while mitigating the associated risks

The Center for American Progress (“CAP”) has released a comprehensive 32-page report entitled “Mitigating Risk to Maximize the Benefits of Employee Ownership.”

The report is intended to “start a dialogue about how to better protect workers while still offering the benefits of inclusive capitalism.” It offers a thorough evaluation of the financial benefits and risks associated with ESOPs, particularly for employee-owners who are vital to the ESOP’s success.

Drawing on a large body of research, the report concludes that, from a public policy perspective, the risks associated with ESOPs are outweighed by the wealth-generating benefits ESOPs regularly produce for employee-owners. This conclusion is based primarily on two considerations: (a) unlike most public companies, ESOPs allow employees to directly participate in corporate profitability; and (b) because of employee loyalty, tenure, and motivation, ESOPs are less likely to experience catastrophic failures as compared to their non-ESOP peers, although the report acknowledges that some failures are inevitable, even among ESOP companies.

After reaching this conclusion, the report considers how ESOPs can be further improved by focusing on mitigating the risks associated with concentrated stock positions. The report correctly points out that although ESOPs have a strong historical track record of growth and stability, no business is immune to failure and, when they do fail, the consequences for ESOP participants can be more severe than the consequences for equity holders in non-ESOP companies because their job security will be affected as well as their investment in employer stock.

It is this vulnerability of ESOPs and their participants that the report fully considers in its concluding pages. The report commends ESOPs for pursuing various ways of reducing risk to employee-owners, including participation in the ESOP Protection Trust. The report doesn’t fully explore the differences between traditional means for dealing with risk, which are generally focused on mitigating the risk of lack of diversification, and the EPT’s approach, which reimburses losses on concentrated stock positions when they occur, regardless of the source of the losses.

Guiding Principles

StockShield, LLC strives to maintain your trust and confidence in our firm, an essential aspect of which is our commitment to protect your personal information to the best of our ability. We believe that each of our clients and anyone who contacts our firm values his or her privacy. As a result, we will not disclose your personal information to anyone unless it is required by law, at your direction, or is necessary to provide you with the services you request. We have not and will not sell your personal information to anyone.

This Privacy Notice outlines our policy regarding information we may collect about you and our use of that information. We therefore strongly encourage you to review it and to ask questions if you do not understand any of the following. This policy may change as we modify or expand our services and/or as legally required.

Information we collect

StockShield, LLC, does not collect any personal information about you unless you contact us and voluntarily provide it. When appropriate, we maintain the information to provide such services to you as you request and to comply with applicable laws and regulations. The types and categories of information we may collect and maintain about you include:

Information we receive to determine your eligibility and suitability to invest in a Stock Protection Trust
Information we receive to accept you as a client of our firm
Information we generate by sponsoring a Stock Protection Trust (such as performance and tax reporting information)
Information we receive from third parties with respect to a Stock Protection Trust (such as account statements from escrow agents).

Use of Information

If you or your agent provides information to us, we may use that information to determine your eligibility and suitability to invest in a Stock Protection Trust. If we determine you are not eligible or suitable, we will maintain and disclose your information only as required to comply with applicable laws and regulations. If we determine you are eligible and suitable to invest in a Stock Protection Trust, in order for us to provide services to you, we disclose your information in very limited instances, including:

Disclosures to unaffiliated third parties (subject to strict confidentiality agreements) that perform services on our behalf or on behalf of a Stock Protection Trust (such as trustees, escrow agents, accountants, auditors, and attorneys).

Disclosures to unaffiliated third parties as required by law in order to comply with government agency regulations, respond to a subpoena or court order, or to prevent money laundering and fraud

Responding to the Unpredictable

StockShield, LLC has developed a Business Continuity Plan on how we will respond to events that significantly disrupt our business. Because the timing and impact of disasters and disruptions is unpredictable, we will have to be flexible in responding to actual events as they occur. With that in mind, we are providing you with the following information on our Business Continuity Plan.

If after a significant business disruption you cannot contact us as you usually do at 310.203.8844, you should visit our web site at www.stockshield.com. If you cannot access us through either of these means, you should contact the trustee of your Stock Protection Trust.

Significant business disruptions can vary in their scope, such as only our firm, a single building housing our firm, the business district where our firm is located, the city where we are located, the state where we are located, or the whole West Coast region. Within each of these, the severity of the disruption can also vary from minimal to severe. In a disruption to only our firm or a building housing our firm, we plan to transfer our operations to a local site when needed and expect to recover and resume business within 24 hours. In a disruption affecting our business district, city, state, or region, we plan to transfer our operations to a site outside of the affected area, and recover and resume business within 48 hours. In either situation, we plan to continue in business, transfer operations to outside parties if necessary, and notify you through our web site (www.stockshield.com) how to contact us.

We plan to quickly recover and resume operations after a significant business disruption and respond by safeguarding our employees and property, making a financial and operational assessment, and protecting our firm’s books and records. In short, our Business Continuity Plan is designed to permit our firm to resume operations as quickly as possible, given the scope and severity of the significant business disruption.

Our Business Continuity Plan addresses: alternate physical location of employees; data back-up and recovery (hard copy and electronic); financial and operational assessments; mission critical systems; alternative communications with clients, employees, and regulators; critical service providers; banking relationships; regulatory reporting; and assuring our clients prompt access to information relating to their Stock Protection Trust.

Our firm does not maintain custody of clients’ funds or securities. These funds are custodied at institutional trustees that also maintain Business Continuity Plans.

In addition, our firm backs up our important hard copy documents in a secure location. In the event that a significant business disruption causes both our primary and backup records to be inaccessible, we will go directly to the trustee of your Stock Protection Trust to obtain copies of client records.

If you have questions about our business continuity planning, please call us at 310.203.8844.

News

Center for American Progress Issues Report on Mitigating Risks of ESOPs

Think tank says inclusive capitalism should be encouraged while mitigating the associated risks

Further Reading

Keeping Your Information Safe

Guiding Principles

Information we collect

Use of Information

Responding to the Unpredictable

Outside Director