Courts have generally said no, but in the Department of Labor’s August 2003 lawsuit against Enron (the case was settled out of court), it asserted that the board and management did have fiduciary responsibility for Enron’s stock ownership plans because they appointed and had the right to change fiduciaries for the plans. In this case and others like it, the fiduciaries were seen as instruments of the board who were appointed on the expectation that they would not necessarily put participant interests first.
In recent years, numerous “stock-drop” lawsuits against public companies, as well as some other ESOP cases, have created a significant body of decisions on this matter. Courts have focused on the board’s duty to monitor the fiduciary to make sure the fiduciary is qualified to do the job and is complying with ERISA and plan documents. This could be interpreted in a very broad way so that the board essentially becomes a co-fiduciary, but the courts have consistently taken a narrower view that the board should be alerted to obvious significant fiduciary failures, but is not required to do detailed oversight. For instance, fiduciaries acting in ways where they show a clear personal conflict of interest detrimental to the plan, promote employee stock as in investment in a 401(k) of KSOP plan when they have information that indicates it is a poor investment, or fail to obtain necessary professional advice on valuations would all be examples of failing to monitor fiduciaries properly.
For boards then, the key issue is to make sure that fiduciaries are qualified, spend adequate time in considering and recording their actions, will first consider participant interests, and get the necessary ongoing education to keep up with ESOP issues.
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