Board of Trustees – Who Are they and What do they do?
What is a Board or Trustees?
The board of trustees is composed of key individuals that are involved in the management of an organization.
Board of trustees are often composed of a combination of both internal and external trustees and other individuals can be elected or appointed based on their role and expertise in managing the organization.
Often times “board of trustees” and “board of directors” are used interchangeably because they are so similar but a board of trustees is more commonly found in private organizations, while public organizations will more often times use the term board of directors.
Other phrases used to describe a board of trustees include board of governors or board of regents.
Some examples of organizations or entities that have a board of trustees include universities, museums, mutual savings banks, art museums, and different types of associations.
Publicly traded companies have requirements that are often determined based on industry regulations pertaining to the obligations of the board of trustees.
Boards of trustees are responsible for the oversight and management of comprehensive organizations.
The framework and obligations of the board of trustees are outlined in an organizations bylaws.
These bylaws include how many members are appointed to the board of trustees (this can range from 3 – 30 members) and they outline the segregation of power.
The board of trustees are responsible for ensuring the best interest of the stakeholders and they are often responsible for holding funds, assets, and/or property belonging to their stakeholders.
Members of a board of trustees may be paid or unpaid for their roles, depending on the type of organization.
Many universities and nonprofit organizations have volunteer board members.
Difference between Board of Trustees and Board of Directors
While these two terms are used interchangeably because they are so similar, it is still important to know the key differences between the two because they have different legal meanings.
- Board of trustees are regulated by State law.
- Trustees could be liable for simple negligence when making decisions – trustees are held to a higher fiduciary standard than other board directors.
- Board members are generally more protected and are only personally liable for willful acts of misconduct and gross negligence.
What Positions are on a Board of Trustees?
A board of trustees will typically have similar positions within the organization which can include:
- Board chair
- Board directors
Some state laws require a minimum number of directors on the board and that a board of trustees have a treasurer and chair at the very least.
Examples of Board of Trustees
To help you better understand the role of the board of trustees, we are going to talk about two common entities that they operate in: University Endowments and Mutual Savings Banks.
In a University Endowment, the board of trustees has the responsibility of managing the funds in the best interest of the stakeholders.
The portfolio of assets is called the endowment, and the board of trustees manages and oversees this asset.
The board of trustees may decide how and when to invest the endowment assets and has a fiduciary responsibility towards the stakeholders when doing so.
Mutual Savings Banks
Just like University Endowments, Mutual Savings Banks also have a board of trustees who are responsible for the oversight of their stakeholders which include depositors, borrowers, and members of the banks community.
They are responsible for ensuring that the customers deposited funds are kept secure, invested fairly as well as safely, and that any interest is paid.
In summary, the board of trustees has an overall responsibility for the management of an organization.
Whether the board of trustees is appointed or elected, their fiduciary, responsibilities, and obligations are outlined in the organizations bylaws.
All decisions made by the board of trustees must be to ensure the best interest of the stakeholders in the organization on which they manage.