Board of Directors or Board of Trustees, What’s the Difference?
A Brief Introduction…
Most people understand that most organizations have a body referred to as a Board of members that plays a crucial role in ensuring the smooth running of the given organization. However, the terms Board of Directors and Trustees are sometimes difficult for most people to distinguish. It is common to find people who wonder ifthese two terms are similar in any way. This article will explain the real meaning and roles of nonprofit Boards of directors and trustees with the primary goal of answering this question.
What is meant by the Non-Profit Board of Directors?
A Non-profit Board of Directors is a governing body of individuals for nonprofits equipped with varying skills. Their primary concern and responsibility are to provide a clear direction, oversight, and high-level of strategy that translates to expanding the organization's resources and connections.
As the board members are responsible for the organization's direction, their decisions are geared towards addressing issues that pertain to the goals, mission, vision, and strategy to capture public interest motivating them to purchasing and utilizing the organization's goods and services.
What about the Board of Trustees?
A board of trustees, on the other hand, is board members who might have been appointed or elected according totheir experience or expertise to oversee the management of an organization. In most cases, a board of trustees comprises both internal and external trustees. Their primary concern relates to governing an organization so that their decisions are based on the best interests of the company's stakeholders. As such, a Board of trustees is similar to a Board of directors in most ways, with the primary difference between them being the board's composition and primary roles, as explained below.
What is the Difference and Similarity Between Board of Trustees and Nonprofit Board of Directors?
Board of trustees and directors may have a lot of similarities, but there is a significance difference between them especially in their composition and functions.
The Board of trustees is responsible for managing the endowment, foundations, and charitable trusts. As the interest of the stakeholders is the basis of their decisions, they are accountable for upholding the good relations of the organization. On the other hand, nonprofit Boards of directors can be found in public and private organizations. They are involved in most day-to-day activities by forming the foundation of governance of the organization. They provide overall oversight in strategic planning and accountability for an organization.
Nevertheless, although both Boards have fiduciary duties; fiduciary duties are the basis of the Board of trustees. A board of trustees is in charge of protecting funds and property of the stakeholders through making investment decisions, distribution of assets to beneficiaries, handling of taxes, accepting and receiving contributions. As such, although fiduciary duty is one of the responsibilities of a nonprofit board of directors, it is not their primary concern.Their major role is hiring the chief executive officers and other company leaders to ensure the smooth running of the organization, partaking in strategic focus in the organization's culture, fundraising responsibilities, serving as advocates and ambassadors of the organization and financial sustainability.
Another clear distinction between the Board of trustees and the nonprofit Board of directors is that the Board of trustees is held at a higher standard than the nonprofit Board of directors. State trust laws regulate trustees. As a result, they tend to be more competent and effective in their duties. For instance, a director may be personally liable for reckless investment, while a trustee can be held responsible for a poor investment decision. In terms of composition, Board of directors have to be members of the organization while it is possible for an organization to hire an outsider to become one of the members of the Board of trustee.
Making a Comparison on the level of Exposure.
As outlined earlier, the Board of nonprofit directors is responsible for the company's daily activities with no significant liabilities on their side in case of accidents or actions that may lead to a damaging reputation of an organization provided they followed the organization’s constitution. However, this is not the case for trustees. Trustees are personally answerable to the stakeholders. The roles of trustees vary from financial reporting, selection of outside service professionals and oversight of the work of these professionals, and management of investments. The act of most trustees to deal with large organizations means that they significantly have a higher level of Exposure as they are responsible for high volumes of assets.
They are required to exercise their duties with reasonable care and skill when managing the organization's assets or property. Moreover, they are not to delegate tasks that require their skills and judgment. For the reason of being personally liable for their actions, whether in good faith, by accident, or supported by co-trustees, a trustee is at a higher risk of financial, criminal, and legal liabilities that they may be subjected to.
Who then is the best option for a small nonprofit organization?
Small nonprofit organizations need to establish a foundation and connections that will lead to their expansion. As in all accountability cases, a party exposed to a higher level of liability tends to be more diligent and act with reasonable care to their duties than parties that are merely responsible for gross liability or negligence. As such, one can easily argue that the best option for a small nonprofit organization is a board of trustees.
However, this is only true when viewed from a theoretical point of view.
When one looks at this question on a practical sense, the choice of the type of board depends on some factors. For instance, when forming a nonprofit corporation, you are required to follow state law (Which may require a board of directors), and if the nonprofit organization comprises member volunteers or are subsidiaries or chapters of a national organization that uses the board of directors’ model, then the Director would probably be preferable. However, Suppose the corporation is formed as a foundation where they will be making investments endowments where trusts are involved. In that case, the board of trustees should be preferable as they can bring in outside experts (non-members) to serve on the board.