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, also referred to as a trustee board, 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.
What Does a Board of Trustees Do?
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 trustee boards 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 and aren’t compensated.
What is a Board of Directors?
A board of directors is a group of people (each person is referred to as a board director) either elected or appointed to serve on the board. One of the primary duties of the board of directors is to hire the CEO and other leaders at the company, set their compensation, and regularly review their performance. If a CEO isn’t effective, a board of directors can vote on a replacement.
Other duties of board directors vary by organization but may include:
- Monitoring the organization’s financial performance
- Representing the organization’s stakeholders
- Developing company policies
- Establishing company goals, in collaboration with the CEO, managers, investors and other stakeholders
- Ensuring the organization meets all compliance and regulatory requirements
Similarities Between Board Trustees and Board Directors
There are key differences between a board of trustees and a board of directors. However, there are also many similarities.
For starters, both trustees and directors provide strategic planning for the organizations they serve. Strategic planning is essential if an organization is to grow and thrive. Trustees and directors also provide ongoing oversight, ensuring the organization is achieving its goals. Ongoing oversight also helps ensure the organization and its employees are always employing ethical business practices.
In addition, boards of directors and boards of trustees are responsible for setting policies — and ensuring the organization abides by them. Directors and trustees alike are also tasked with ensuring the organization meets all legal and compliance requirements.
Both trustees and board directors have fiduciary duties, which include duty of care, duty of loyalty, and duty of obedience. Essentially, this means directors and trustees must always act in the best interests of the organization, rather than for personal gain.
Another key similarity between trustees vs directors is that a bulk of the word is achieved through committees. For example, a board might have committees focused on finance, fundraising, and governance, among others. As such, it’s often a requirement for both directors and trustees to serve on at least one committee.
Board of Trustees vs Board of Directors
In a discussion of board of trustees vs board of directors, there are also many significant differences. Here are a few.
Perhaps the most notable difference between trustees vs directors is the organization they serve. Boards of directors can serve organizations of all types, including publicly traded corporations, financial institutions, and nonprofit organizations, among others. Boards of trustees, on the other hand, provide oversight to specific types of entities: charitable trusts, foundations, or endowments — which we defined earlier in this post.
Often, board directors (especially those serving for-profit corporations) are compensated for their service. In 2018, the average annual compensation for non-executive directors at S&P companies was $304,856.
On the other hand, trustees typically (but not always) serve in their roles on a voluntary basis. They don’t receive compensation for their service.
Primary Point of Contact
Board directors and trustees alike act as liaisons between an organization and a third party. For board directors, that third party is investors. Trustees, on the other hand, act as liaisons between the organization and donors (as well as the public served by the organization).
Primary Focus Area
At publicly traded companies, board directors represent the shareholders. As such, they are focused on maximizing profits and ensuring shareholders achieve the maximum return on their investments.
On the other hand, trustees are focused on representing donors – as well as the communities served by the organization. Sure, trustees certainly provide oversight and guidance to ensure the organization is financially sound and will thrive in the future. However, they’re less focused on making a profit – and more focused on achieving goals and ensuring the organization fulfills its mission.
How Board Management Software Helps Boards of Trustees and Boards of Directors Achieve Their Goals
There are many moving pieces involved with managing and running a successful board of directors or trustees. But oftentimes, these boards 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.
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.
Ready to see firsthand how OnBoard can help improve the effectiveness and efficiency of your board? Start your free trial today.
Ready to upgrade your board’s effectiveness with OnBoard the board intelligence platform? Schedule a demo or request a free trial.
About The Author
- Andrew Sompels is an implementation consultant at OnBoard who specializes in helping higher education boards get the most from their board meetings. With degrees from Michigan State University and Columbia College (Chicago), Andrew's favorite part of the job is setting up customers for success. He once worked on TV shows such as Cutthroat Kitchen and Food Network Stars. Andrew lives in Noblesville, Indiana, with his wife, two children, and their dog.