Board of Trustees vs Board of Directors: Key Differences Explained

For organizations large and small, strong governance and leadership are critical to success. Two key leadership bodies – the board of trustees and the board of directors – play vital oversight roles. But what are the differences between these two groups?

While trustees and directors share similarities there are important distinctions in their legal duties, responsibilities, and overall purpose. Read on as we compare and contrast these key leadership entities.

What is a Board of Trustees?

A board of trustees is a governing body that provides guidance and oversight for non-profit entities like

• Charities
• Foundations
• Educational institutions such as private schools, colleges, and universities
• Hospitals
• Museums
• Religious institutions
• Other charitable or philanthropic organizations

Trustees are volunteers who are appointed or elected to the board They donate their time and expertise to help steward the organization’s mission and manage its assets

The board of trustees does not make day-to-day operational decisions. Rather, they provide high-level oversight and strategic advice to the executive director and senior management team.

Key Responsibilities of a Board of Trustees

While specific duties may vary, boards of trustees typically hold responsibility for:

• Selecting and evaluating the executive director
• Providing guidance and advice to management
• Reviewing and approving the annual budget
• Fundraising and development
• Managing organizational finances and assets
• Maintaining effective programs aligned to the mission
• Recruiting and orienting new board members
• Ensuring compliance with laws and regulations
• Enhancing the organization’s public image

What is a Board of Directors?

A board of directors is a governing body elected or appointed to oversee the management and direction of an organization.

Boards of directors are found in:

• Publicly traded companies
• Privately held companies
• Nonprofit entities

Directors may be internal senior leaders or external advisors brought in for their expertise. In for-profit companies, directors often receive compensation for their governance role.

Key Responsibilities of a Board of Directors

Though specific duties differ across organizations, boards of directors typically hold legal and fiduciary responsibility for:

• Selecting, evaluating, and compensating the CEO
• Reviewing and approving the company’s financial statements
• Providing guidance on business strategy and major plans
• Overseeing risk management
• Setting corporate policies
• Representing shareholder interests
• Ensuring adequate financial resources
• Facilitating relationships with external partners
• Supporting leadership recruitment and succession planning

Key Differences: Board of Trustees vs Board of Directors

While trustees and directors fulfill important governance functions, there are key differences between the two entities:

Organizations They Serve

• Trustees provide oversight to nonprofits and charitable entities.

• Directors govern for-profit companies in addition to nonprofits.

Fiduciary Duty

• Trustees have an absolute duty to act in the best interests of the organization’s beneficiaries.

• Directors must balance duties to shareholders, the organization, and other stakeholders.

Financial Interest

• Trustees cannot have any financial stake in the organization.

• Directors may own stock or have other financial ties.

Compensation

• Trustees typically serve as unpaid volunteers.

• Directors often receive compensation for their governance role.

Decision-Making

• Trustees serve in an advisory capacity but do not make operational decisions.

• Directors hold responsibility for strategic decisions and risk oversight.

Liability

• Trustees face greater personal liability for failures in their fiduciary duties.

• Directors are generally protected against personal liability for good faith errors.

Donors vs. Shareholders

• Trustees focus on maintaining relationships with donors and grantors.

• Directors must protect the interests of shareholders.

Best Practices for Effective Governance

Whether a board of trustees or directors, some tips for governance success include:

• Clearly define roles – Document responsibilities in bylaws and policies.

• Assess skills gaps – Recruit members to provide missing expertise.

• Board education – Provide orientation and ongoing training.

• Meeting management – Circulate organized, focused board materials in advance.

• Strategic focus – Align on vision, mission, values and strategic priorities.

• Respect management’s role – Allow them to run daily operations.

• Performance evaluation – Assess board effectiveness periodically.

• Risk oversight – Ensure adequate internal controls and reporting.

• Succession planning – Proactively plan for future leadership needs.

• Information security – Protect sensitive documents and data.

• Adopt board management software – Streamline governance workflows digitally.

Frequently Asked Questions

Can a board of directors also be called trustees?

While some organizations use the terms interchangeably, trustees and directors have distinct roles. Trustees are specifically responsible for nonprofits and charities.

Do nonprofits have a board of directors or board of trustees?

Nonprofits can have either a board of trustees or board of directors. The trustees model is more common since it focuses on the interests of beneficiaries over shareholders.

Who typically sits on a board of trustees?

Trustees may include community leaders, business experts, alumni, donors, parents, clergy, attorneys, accountants, philanthropists, or other supporters who contribute specialized skills.

Are board members the same as trustees?

Board members refers broadly to both trustees and directors. But trustees specifically serve charities and nonprofits in a volunteer capacity.

Can a board member be paid?

Nonprofit trustees typically serve as unpaid volunteers. For-profit directors often receive compensation for their governance duties.

Do nonprofits have shareholders?

Nonprofits do not have shareholders, since they do not issue stock or ownership shares. They serve beneficiaries rather than seeking profits for shareholders.

Strong governance is crucial for organizational success. While trustees and directors fulfill overlapping duties, their legal responsibilities differ across for-profit, nonprofit, and charitable entities. By leveraging the expertise of qualified leaders in their respective governance roles, organizations can pursue their mission effectively.