Board of Trustees vs. Board of Directors
You may have heard people use board of trustees and board of directors interchangeably. Today, trustees and directors can mean the same thing. In other cases, however, there are stark differences, especially when dealing with state laws.
What are their responsibilities? When it comes to trustees vs directors, trustees usually operate solely for the trust. Additionally, they have an obligation to the beneficiaries of the trust. Directors, on the other hand, usually operate for financial gain and ensure a seamless flow of company operations. When creating a trustee system or director system, use the same terminology consistently to avoid confusion.
This article will highlight the differences between trustees and directors. Let’s explore.
Trustees can act purely in a non-profit manner. Trustees usually manage non-profit organizations, while the board of directors usually helm publicly-traded corporations.
However, you can still find a trustee system in private organizations (i.e. banks). You’ll typically see a trustee system within the following organizations:
- Public arts centers
As such, none of these organizations have a profit motive. On the other hand, the main goal of the board is to maximize profits for shareholders.
Further, trustees and directors also adhere to different regulations. Trustees must abide by state trust laws, which are more stringent than laws governing board of directors.
Example: An organization can hold a trustee liable for poor management decisions. On the other hand, a company can only hold directors responsible for reckless decisions that endanger the company.
Board of Director Responsibilities
In addition to making fiduciary decisions on behalf of the company, the board of directors also engage in the following roles:
- Executing long-term company goals
- Allocating company resources where necessary
- Assisting with other executive roles
Overall, they oversee all aspects of the company, especially in financial areas. They greenlight yearly budgets and ensure the company has enough resources to operate successfully. They must also confirm future sources of capital to maintain long-term operations.
Even though directors represent the interests of management and shareholders, they oversee the business practices of all senior members. The board will make sure that senior board members engage in ethical business practices and adhere to company standards. The board is free to remove any senior executive who fails to live up to the organization’s expectations.
In terms of board makeup, they’re usually comprised of company insiders and company outsiders. Outsiders who usually become board members are public shareholders or investors.
Moreover, board members can include other company executives, politicians, or academics. Outside board members are usually not involved in the company’s daily operations. They do, however, receive some form of compensation for attending meetings.
All Members are also allowed to sit on different boards simultaneously.
Example: Chris Sarofim serves as a trustee for Brown Foundation Inc. but serves as a board member for Wood Partners and Kemper Corp.
Any person can become a board member, as long as he or she receives enough votes within the board. With that, the voting system depends on the company’s bylaws.
Company bylaws determine the governing structure of the board. The bylaws will stipulate how often the board votes and when they cast votes.
In terms of numbers, a board can comprise anywhere between 3 to 31 members. In many cases, a seven-member board is an ideal number, according to experts.
In North America, the managerial structure of the board primarily concerns the executive branch. In Europe and Asia, the governing structure may be different.
Example: Internationally, a board may consist of two tiers: a supervisory board and an executive board. The executive board usually comprises members elected by shareholders and employees. The supervisory board is similar to the North American model and oversees company executives.
Board of Trustee Responsibilities
Like directors, trustees secure the interests of the shareholders. They’re involved in all management decisions to ensure the organization operates without fail. Trustees are devoted solely to the success of the organization.
They’re usually responsible for protecting the assets of the organization. Additionally, trustees can receive payment for their work. They’re also elected depending on the governing system of the organization.
Insiders and outsiders can serve as trustees if other trustees bestow approval. Board members usually choose trustees based on expertise and skill level.
Trustees engage in the following duties:
- Planning short-term goals and long-term goals
- Establishing policies
- Managing money and assets
Trustees may also take on roles similar to the board structure of a corporation, such as making investment decisions. They could also file taxes for the company.
The governing trustee system depends on the organization’s bylaws. Similar to the board of director system, trustees can comprise anywhere between 3 to 30 members.
Separation of power is also another trait found in trustees. The board may consist of several sub-committees that manage different parts of the organization.
There are also times when people use the board of directors and the board of trustees interchangeably.
Example: Hospitals also have medicine boards, otherwise called trustees. The sole duty of the hospital board is to preserve the longevity of the hospital. They maintain the hospital for the owners and the public.
Board of Trustees vs Board of Directors
The board of trustees is different from the board of directors because trustees usually operate in a non-profit capacity. Primarily, you’ll find directors within a corporate structure.
Director boards usually operate with a profit motive in mind and look out for the interests of shareholders and management. Both systems are similar in structure, but they follow different state regulations.
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