Board of Trustees vs Board of Directors: Understanding the Differences

A group of designated individuals, known as the board of trustees, is responsible for managing and overseeing the operations of an organization to ensure the best interests of all shareholders are met. This group has the power to appoint and dismiss senior officers. While similar to the board of directors, the board of trustees is specifically responsible for governing private organizations, foundations, charitable trusts, or endowments, while the board of directors governs nonprofit organizations or private companies.

What is the Board of Trustees?

In essence, the board of trustees serves as the governing body of an organization, comprised of either assigned or elected members. Their primary responsibility is to oversee and manage the organization, including any property or funds held in trust. The board of trustees plays a crucial role in providing effective management and strategic planning for the organization.

A board of trustees is responsible for overseeing the organization and its stakeholders, including shareholders and any associated charitable trusts, foundations, and endowments. Comprised of five to twenty dedicated members, the board works in good faith to ensure the organization's best interests are prioritized.

Forming a Board of Trustees

Start by establishing a trust, endowment, or foundation in accordance with state laws before forming a Board of Trustees. It is important to avoid creating a board of trustees to manage a nonprofit or a board of directors to manage a trust. Seek the advice of an attorney if you are unsure.

The board structure of trustees should adhere to the legal requirements set by the state, as well as the nonprofit's bylaws, articles of organization, and terms of trust. State laws typically dictate the minimum number of trustees and specific board positions such as the chair, treasurer, and secretary. Meanwhile, the bylaws and trust terms provide guidance on board size, member appointments, and term durations.

How does the Board of Trustees Work?

The board of trustees comprises key individuals who serve as the backbone of an organization's management. These individuals hold the authority to appoint or elect other members who possess the necessary experience and expertise. Often, the board is assisted by skilled professionals who oversee both internal and external trustees. Typically, a board of trustees is more prevalent in private organizations like universities, endowments, art museums, and mutual savings banks.

The volunteers frequently collaborate as sub-committees to effectively manage the targeted areas as a cohesive unit. The Board of Trustees, a private organization, is responsible for safeguarding the shareholders' best interests. Those leading the board are responsible for strategizing with a focus on business oversight, determining the annual budget for the treasurer, and safeguarding the interests of all stakeholders.

Role of Board of Trustees in Charitable Trusts, Foundations & Endowments

To understand the concepts of the boards of trustees and their role in a charity, foundation, and endowments, the first thing to acknowledge is the role of charitable trusts.

Rewritten:

A charitable trust is a legally binding agreement that allows donors to transfer their assets to a third party, known as the trustee. This type of trust benefits a wide range of people in various fields, including education and health. By creating a charitable trust, donors can also enjoy tax benefits and maintain control over how their assets are distributed.

On the other hand, a charitable foundation involves a group of donors, rather than a single individual, who come together to make contributions. Like charitable trusts, charitable foundations offer tax benefits to donors. These foundations can work on charitable projects or enterprises and also provide charity grants to other organizations.

The management of endowment, which is a portfolio of donated assets that generates investment income for the university, falls under the purview of the board of trustees in universities. Acting as the governing body of the university, the trustees are responsible for forming a strong connection with the leaders of charitable organizations. In the case of nonprofit organizations, trustees are often tasked with fundraising efforts. Whether paid or unpaid, the primary focus of trustees is to foster donor loyalty.

Board of Trustees Vs. Board of Directors

It has always been an arguable topic between the Board of Trustees and Board of Directors. as they are interchangeably used terms.

The board of trustees has a distinct focus on non-profit organizations, particularly charitable funds and hospitals, in addition to their primary role in governance. On the other hand, the Board of Directors is primarily involved in the management of private corporations. Notably, the trustees are held to a higher fiduciary standard than board directors due to the charitable trust laws that govern their actions.

Both boards may have similar titles, but they are distinguished by the different lawsuits they uphold. The Board of Trustees serves as a management tool for corporations, ensuring the fulfillment of fiduciary duties and offering guidance to donors and the general public. On the other hand, the Board of Directors directly engages with shareholders as a third party. While the workers under the Board of Trustees are mostly volunteers who are passionate about supporting non-profit organizations, the members of the Board of Directors hold partial ownership in the company, whereas the Board of Trustees solely believe in doing what is right.

Board Directors

The Board of Directors comprises seasoned professionals who hold the crucial responsibility of appointing high-ranking officials such as CEOs, executive directors, and company leaders. They keep a close eye on the performance and management skills of these appointed individuals and can even replace the CEO via a voting system if required. The members of the Board can be held personally accountable for their decisions and the consequences that follow. Their primary duties include:

Monitors the financial status of the corporation

Represents the best interests to the company’s investors

Drafts the documentations regarding trusts

Attend meetings with the company’s CEOs, investors, and other professionals

Reviews the performance of the company thoroughly

Manages the ethical corporative works within the company

The board of directors plays a crucial role in establishing connections with both profit and nonprofit organizations, both in the public and private sectors. One of their main duties is to search for and hire qualified professionals for executive positions, including the CEO, while also having the authority to suspend underperforming executives.

Similarities between Board of Trustees and Board of Directors

1. Size

While there are similarities between the roles of a Board of Trustees and a Board of Directors, each serves a distinct purpose within an organization. Both groups act as advisors, but the Board of Trustees typically focuses on the organization's overall mission and long-term strategy, while the Board of Directors is more directly involved in day-to-day operations and financial management. Additionally, the Board of Trustees is often responsible for ensuring that the organization adheres to its ethical standards and values.

2. Approach towards the public

The composition of these groups typically ranges from three to thirty skilled professionals, with each group having a similar number of members. The determination of the group size is based on the specific needs and scale of the organization, with members being appointed accordingly.

3. Appointed positions

The Board of Directors has the authority to select or propose qualified individuals from the current members to join the Board of Trustees. Similarly, the Board of Trustees frequently designates members within the group or casts a ballot for a new addition.

4. Responsibilities

Trustees and directors are bound by state laws and are entrusted with specific obligations and responsibilities towards for-profit and non-profit organizations. Their core duties include maintaining records of income and expenses, disbursing funds to the rightful recipients, and ensuring that all income taxes are duly filed.