Both a board of trustees and a board of directors have specific duties and responsibilities to their organizations. Often the terms are used interchangeably, but there are important differences between the two. Read on to see how they’re legally different and their unique roles.
A board of trustees is similar to a board of directors but is more commonly found in private organizations. In non-profit organizations, boards of trustees are found in religious institutions, charitable foundations, charitable trusts or endowments. Boards of trustees can also be found in some private entities such as hospitals, universities, art museums, associations and local governments such as a board of trustees for a county or township.
The structure of the board of trustees will be determined by the laws of the state or province such as a minimum number of trustees and what positions must be filled. The organization’s bylaws and trust terms may determine the board size, how individuals are appointed and term durations.
Similar to a board of directors, board of trustees play a strong role in governance, tasked with strategic planning and providing oversight and accountability for the organization. Board of trustees do not typically involve themselves in the day-to-day life of the organization.
The board of trustees’ primary responsibility is to uphold their fiduciary duties. For example, the trustees may be responsible for holding “in-trust” the funds or property that belong to others with a fiduciary duty to protect them. Or they may receive charitable contributions, make investment decisions, handle taxes and distribute assets to beneficiaries. Often, board trustee candidates must have financial experience or a legal background to meet these unique responsibilities.
A board of directors is a governing body that meets at regular intervals, often monthly or quarterly, to provide strategic direction and oversight of an organization. Every public company must have a board of directors to represent shareholders and the board must be composed of members from both inside and outside the company.
Some private and nonprofit organizations may choose to be governed by a board of directors. Each organization’s bylaws will determine the structure and powers of their board, such as the number of board members, how the board is elected and how often they meet.
The board of directors have a collective responsibility to ensure the organization’s successful operation. The top 5 responsibilities of a board of directors include:
The board may be responsible for creating and reviewing the mission and purpose statements that articulates the organization’s goals, means, and primary constituents served. Boards must actively participate in an overall strategic planning process and monitoring management decisions.
Similar to a board of trustees, boards of directors need to ensure that they’re protecting the organization’s assets and managing them responsibly, including carrying out their fiduciary responsibilities. For example, working with the chief financial officer to establish a budget, ensure proper controls are in place for incoming and outgoing funds and review the organization’s financial statements.
Board members should serve on committees or task forces and offer to take on special assignments, as this is where the bulk of board work gets done. Example committees include governance, finance, executive and audit committees. Boards can also create ad hoc committees or working groups to accomplish specific goals or tasks.
The board is responsible for vetting and selecting a qualified candidate for the CEO or executive director to run the day-to-day management activities of the organization. Once appointed, the board works collaboratively with the chief executive to meet the organization’s short and long-term plans. On an annual basis, the board of directors is also responsible for evaluating the performance of the CEO.
The board of directors is responsible for recruiting, nominating and appointing new board members with the right mix of skills, knowledge and experience. They will also evaluate their performance on an annual basis to identify gaps and form a strategic plan.
Trustees are not the same as board directors as they are regulated by charitable trust acts and therefore held to a higher standard. For example, a trustee could be held personally liable for a poor investment decision or simple negligence. In contrast, a director would only be responsible for a reckless investment or gross negligence.
Both boards act as advisers to their organization and monitor the practices and financial decisions. The number of professionals working in these groups is usually similar and range from 3 to 31 members. Both positions are typically appointed or elected roles.
What makes a board great? Harvard Business Review suggests regular board meeting attendance, equity involvement and independence may be key factors and useful for both board of trustees and board of directors.
Board of trustees don’t actively work in the organization or involve themselves in the organization’s daily operations, whereas board of directors can make decisions for the company including selecting and evaluating the organization’s leadership.
Boards of trustees and boards of directors often use similar titles and roles such as:
An executive committee is a sub-group of the board of directors who functions as a steering committee. Their main purpose is to facilitate decision making between board meetings or in urgent circumstances such as during a crisis. They report back to the board on its activities and provide guidance as needed and may have unique responsibilities such as conducting research into emerging trends or evaluating the performance of the CEO.
A board of trustees can be appointed or elected and is the governing body of an organization that works to ensure the best interest of its stakeholders.
Director is a general term for individuals that serve on the board of directors for an organization. “Board member” and “board director” are often used interchangeably in many organizations but it can vary from company to company. Be sure to check your organizational bylaws if they stipulate using one term over the other.
Achieving good governance requires a focus on the outputs of the board in terms of oversight and quality decisions, and how the board operates including transparent and open communication, and keeping board information secure. Technology can play a critical role in supporting good board governance and increasing board effectiveness.
The right board portal software helps a board maintain good governance by making it easier to prepare for board meetings and engage everyone on the board – while keeping documents and materials easy to access and secure.
Ready to evaluate how a board portal can help your board maintain good governance? Book a custom demo with Aprio and we’ll show you how.
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