Many use board of directors and board of trustees synonymously, but there are some key differences to note.
In the world of organizational governance, “board of trustees” and “board of directors” are terms that are thrown around a lot. In fact, the two phrases are often used interchangeably.
Sure, there are similarities between the two types of boards. Both play an important role providing governance and leadership to the organizations they serve. In addition, directors and trustees alike have fiduciary responsibilities.
However, there are also key differences between the two types of boards. The truth is, the differences are so significant that it’s simply not accurate to use the phrases “board of trustees” and “board of directors” synonymously.
What is a Board of Trustees?
If you’re looking for a board of trustees definition, you’ve come to the right place. A board of trustees is a group of professionals responsible for providing oversight to a charitable trust, foundation, or endowment. In case you’re not familiar with these terms (or just need a refresher), let’s examine what each of these entities is.
As the name suggests, a charitable trust is a trust that’s established for charitable purposes. It’s an irrevocable (in other words, it can’t be reversed) arrangement for a donor to sign over assets to a third party, for the benefit of the charitable organization.
Charitable foundations are similar to charitable trusts — with one key difference. Trusts involve donations from one person, whereas foundations often have contributions from multiple donors.
Finally, an endowment is a collection of assets used as investment income for organizations including universities, nonprofits, churches, and hospitals, among others. An endowment is made up of many (sometimes hundreds or even thousands) of individual donations.
So, what is the role of trustees in charitable trusts, foundations, and endowments? Generally speaking, the board of trustees is responsible for upholding the relationship between the nonprofit and its donors. The tasks that are involved vary from one organization to the next.
Some boards of trustees are solely focused on managing the assets of the entity they serve. This could include duties such as:
- Accepting contributions
- Making investment decisions
- Ensuring taxes are taken care of properly
Depending on the organization, trustees may also have other areas of responsibility, including strategic planning, oversight, and fundraising. Trustees also have fiduciary duties which typical include:
- Duty of care
- Duty of loyalty
- Duty of obedience
Trustees are bound by state trust laws. These laws and regulations are typically more stringent than those that govern board of directors. As such, trustees are often held to higher standards when it comes to their fiduciary duties — and encounter steeper penalties for missteps. For example, in some instances, a trustee can be held liable for acts related to simple negligence. In other words, a trustee could be held personally liable for certain acts — even if they’re made in good faith.
Trustees can be either appointed, nominated, or elected to their role. The professionals who sit on the board of trustees usually have careers outside of their service on the board. Oftentimes, they serve in their role voluntarily; in other words, they receive no compensation.
What is a Board of Directors?
Boards of directors, on the other hand, serve organizations of all types. In fact, while the term “board of directors” is most often associated with a publicly held company, such boards also serve private companies, nonprofit organizations, health care organizations, and associations, among others.
Similar to trustees, the role of the board of directors is to provide oversight to an organization, ensuring it’s fulfilling its mission and moving closer to its vision and goals. At a publicly traded company, board directors are elected or appointed to represent the shareholders. On the other hand, boards at nonprofits are focused on ensuring the organization is meeting the needs of the individuals and communities served by its work. For example, the board of directors at Planned Parenthood of Southwestern Oregon is focused on ensuring the organization continues to “build a strong, healthy community by providing essential health services, education, and advocacy.”
Like trustees, board directors have fiduciary duties, which include duty of care, duty of loyalty, and duty of obedience. Essentially, this means board members must always act in the best interest of the organization, rather than for personal gain.
So, what does the board of directors do? The specific responsibilities and tasks of board directors vary among organizations. However, there are some common board director responsibilities across most organizations.
A primary responsibility of a board of directors is to hire the CEO and other company leaders — and setting their compensation. Boards of directors are also responsible for regularly reviewing the performance of the CEO to ensure they’re effectively leading the organization. This is important, as CEOs play an important role in the success or failure of their organization they serve. If the CEO isn’t effective, the board can vote on a replacement.
Many boards of directors are also responsible for providing financial oversight, which ensures the organization stays out of the red and remains financially sound. Boards of directors also ensure organizations abide by all compliance and regulatory requirements.
At nonprofit organizations, board members often have fundraising responsibilities.
Similar to trustees, board directors can be elected or appointed to their roles. For-profit directors are typically compensated. The average annual compensation for non-executive directors at S&P companies was $304,856 in 2018. Conversely, most board directors (but not all) are volunteers; they receive no compensation for their service.
How Board Management Software Helps Boards of Trustees and Boards of Directors Achieve Their Goals
Boards of trustees and boards of directors are essential to the organizations they serve; there are high expectations placed on trustees and directors alike.
There are many moving pieces involved with managing and running a successful board. But oftentimes, boards of trustees and boards of directors employ manual, paper-based processes and procedures. These processes are time-consuming, taking away time they could serve the organization in other, more impactful ways.
For example, consider board meetings. Regularly scheduled board meetings are essential to the successful operations of a board. Ideally, these meetings are the place where board members discuss issues and make decisions. But at many organizations, it requires a lot of time and effort to prepare for board meetings. As such, trustees and directors often don’t have access to meeting materials until the meeting begins. That means the bulk of the meeting is spent reviewing materials, rather that having productive discussions and making impactful decisions.
Take, for example, the Idaho State Board of Education, which typically creates, distributes, and reviews 1,800 to 3,000 pages of board materials prior to every board meeting. Or, consider the College of St. Benedict, where preparing for a board meeting was, according to its president Dr. Mary Dana Hinton, a “flurry of activity that took time away that could be spent doing other things.”
It’s no wonder why many boards of directors and boards of trustees are having an “aha” moment and making the switch to digital board management by adopting a board portal.
With a secure, user-friendly board portal like OnBoard, it’s easier for boards to collaborate before, during, and after the board meeting. A board portal streamlines the key processes and procedures of boards and makes it easy for directors and trustees to find all board materials and communications within a single platform they can access anytime from anywhere.
In essence, a board portal allows trustees and directors to spend less time on cumbersome, clunky processes — and more time taking action for the organizations they serve.
Since the Idaho State Board of Education adopted OnBoard, developing and distributing board materials has never been easier. According to Dr. Linda Clark, President of the Idaho State Board of Education, simplifying the creation of board materials has freed up time and allowed for board meetings to be more strategic.
Adopting OnBoard has also improved the effectiveness and efficiency of the College of St. Benedict. According to Hinton, adopting a board portal has “proven to make our meetings much more efficient in that all of our trustees are able to access the materials, and they’re clearly presented and organized.”
Ready to see firsthand how OnBoard can help improve the effectiveness and efficiency of your board? Start your free trial today.
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About The Author
- At OnBoard, we believe board meetings should be informed, effective, and uncomplicated. That’s why we give boards and leadership teams an elegant solution that simplifies governance. With customers in higher education, nonprofit, health care systems, government, and corporate enterprise business, OnBoard is the leading board management provider.