When it comes to corporate governance, there is often confusion between the roles of a board of trustees and a board of directors. While there are similarities between the two, the distinctions between them are important to understand. A board of trustees is typically responsible for the overall policy and direction of an organization, while a board of directors is more focused on its day-to-day operations. In this blog post, we’ll look at the differences between a board of trustees and a board of directors, and how they both contribute to corporate governance. We’ll highlight the various roles and responsibilities of each, as well as the advantages and disadvantages of having one vs the other. By understanding the differences between the two, you’ll be better equipped to make informed decisions about which one is best for your organization.
Warren Buffett explains the 3 main tasks for a board of directors
What is the board of directors?
A board of directors is a body of elected business leaders whose main duty it is to select CEOs and other top executives. They evaluate the CEO they selected for the business on a regular basis, and they have the option to vote again for a new CEO if necessary.
The board of directors also keeps an eye on the business’s financial health and represents the interests of its shareholders. Their other primary duties may include:
What is the board of trustees?
A board of trustees is a volunteer group that oversees a nonprofit organization or charitable foundation in order to support the nonprofit’s relationship with its donors. The experts who serve on a board of trustees typically have other jobs and frequently offer their advice without charge. Their primary duties include:
Similarities between a board of trustees and board of directors
Although a board of trustees and a board of directors serve different organizations and businesses, they can still have similar responsibilities. For example, both boards act as advisers to a company. Additionally, they each keep an eye on the actions and financial choices made by the organizations they work for to make sure that objectives and moral standards are being met. Here are some other similarities between these groups:
Size
The number of professionals employed by these groups is typically comparable, though it can vary. Smaller organizations can have as few as three professionals on a board, whereas many boards of larger organizations or companies have between 10 and 30 members.
Relationship to the public
A board of trustees or a board of directors may need to take the public perception of their business or organization into account. This may involve keeping track of how the general public reacts to business practices or acting as a liaison between the general public and the company executives.
Appointed positions
A director or trustee is typically appointed or nominated by members of the public, company employees, or current board members. On occasion, the current board members may also vote to add new members. Many career paths lead to serving on a board of trustees or directors because these are appointed positions.
Board of directors vs. board of trustees
A board of trustees and a board of directors are very different organizations, even though they frequently follow the same principles and procedures. Here is a list of some of their main differences:
Business type
A key distinction between these two boards is that the former is in charge of a nonprofit institution like a hospital or charity. A board of directors, in contrast, serves a public or private corporation or company.
Salary
Members of a board of trustees are both appointed positions, but they frequently serve as volunteers. Professionals who sit on a company’s board of directors are typically paid.
Participation
Although the primary responsibilities of these groups may be similar, a significant difference between them is the degree of involvement that each group has in the company or organization that they represent. Board of directors members have the authority to make decisions for the company, particularly with regard to the leadership. But those who serve on a board of trustees are advisers rather than employees of the organization. This implies that they refrain from participating in the regular business of the organization.
Contacts
A board of directors and a board of trustees both serve as the organization they represent’s representatives to outside parties. However, the third party they are in contact with differs. For instance, directors represent the interests of investors, while trustees meet with the general public and donors to understand their perspectives and objectives for the organization.
Ownership
Professionals who sit on a board of directors frequently hold a portion of the company they represent. Members of a board of trustees hardly ever fit this description.
Focus
Directors of a company are required to increase revenue and safeguard the interests of their shareholders. As a result, they frequently participate in financial decisions within the organization and have the authority to alter inefficient procedures.
A board of trustees’ focus is on the organization’s mission, even though they can offer financial advice to the organization. This demonstrates that their focus is on achieving objectives and creating the most efficient and effective methods possible rather than on turning a profit.
Frequently asked questions about trustees and directors
It might be beneficial to take into account additional facets of the role that board members fill in a business or organization in order to better comprehend these professional groups. Here are some frequently asked questions about trustees and directors and their responses:
What roles do professionals have on a board of trustees or a board of directors?
Boards of directors and trustees frequently have similar titles and job descriptions. A professional’s seniority and influence on the board may be impacted by the position they hold. A list of some of the positions on both boards is provided below:
What types of companies have a board of trustees?
A board of trustees typically serves a nonprofit organization. Organizations with a board of trustees could be, for instance,
What types of companies have a board of directors?
Most for-profit companies have a board of directors. These advisory groups are present in nearly every industry.
FAQ
What is the role of a board of trustees?
A board of trustees is a team of people who are either elected or appointed to oversee an organization’s management. The board of trustees, which is typically an organization’s governing body, works to ensure that all management decisions are made with the interests of stakeholders in mind.
What is the head of a board of trustees called?
A director is a person appointed to the board of a company, institution, or other entity.
