Board of Directors Vs Board of Trustees: What’s the Difference? 

Unless there are clear duties and responsibilities, there’ll always be a clash of powers pitting the board of directors vs board of trustees. However, depending on the organization, whether private or public, the two boards may be the difference between success and failure.

Ideally, a Board of Directors mainly oversees a public company’s decision-making process and management. In contrast, a Board of Trustees serves as an advisory board for a nonprofit, charity organization, or private business but isn’t directly involved in overall decision-making.  

Note, however, that boards of directors can still be found in private businesses (even though they aren’t too common, as they are only mandatory in public companies). We don’t have boards of trustees in public companies. 

Having said that, the two boards differ according to the nature of the organizations they serve, their scope, primary responsibility, appointment, compensation, financial interest, and representation. We shall cover all these differences to enable you to distinguish the two boards easily. 

Besides covering the differences, we’ll also explore the similarities between the two boards. Without further ado, let’s dive in!

What is the difference between the board of directors and the board of trustees

Key Takeaway

  • The Board of Directors is the governing body of a company (primarily public) elected or appointed by shareholders to protect its interests and oversee its management.
  • The Board of Trustees is the governing body of a nonprofit, charity organization, or private business that serves in an advisory capacity.
  • The Board of Directors and the Board of Trustees constitute members from within and outside the organization.
  • The structure of the Board of Directors and the Board of Trustees constitute a chair/president, vice chair, secretary, and treasurer, and both boards have a membership size of at least five members.
  • Both the Board of Directors and the Board of Trustees owe the fiduciary Duty of Care, Duty of Obedience, and Duty of Loyalty.
  • The Board of Directors is directly involved in the decision-making process and overseeing the management of the company they serve, while trustees only offer advisory services and manage a trust fund. They aren’t directly involved in top-level decision-making. 
  • Members of the Board of Trustees focus on upholding and furthering the organization’s mission, while members of the Board of Directors focus on overseeing the company’s financial performance and maximizing its profits. 
  • Members of a Board of Trustees are appointed by the organization’s founder, existing members, or Court, while shareholders elect members of a Board of Directors. 
  • Trustees volunteer their services, but directors, especially outside directors, may be compensated. 
  • Trustees typically have no identifiable financial affiliations with the organization they serve, whereas directors may have (in the form of shares or stocks).

Board of Directors Vs Board of Trustees Quick Summary

Board of DirectorsBoard of Trustees
Nature of the OrganizationPublic companies (mostly) and some private businessesPrivate companies, nonprofits, and charities
Key FocusMaximizing the values of shareholdersFurthering the organization’s mission
ScopeDirectly involved in the decision-making processServes in an advisory capacity
CompensationMay be compensatedOffer volunteer services
Financial InterestMay have some financial interest (in the form of stocks or shares)Doesn’t have any financial interest in the organization
AppointmentElected by shareholdersAppointed by the founder, existing members, or the Court
Engagement and RepresentationEngages stakeholders and represents their interestsEngages donors and the general public and represents their interests

What’s the Board of Directors?

The Board of Directors (BOD) is the governing body of a particular company or organization whose members are appointed or elected by shareholders to protect stakeholders’ interests, oversee the organization’s management, and set operation strategies. 

In a public company setup, a Board of Directors is mandatory. Every public company should have the BOD in place. It’s, however, optional for private businesses, as some have it and others don’t, and instead have a Board of Trustees, which we shall talk about later. 

In an ideal scenario, a Board of Directors would consist of at least 5 members who shareholders elect. However, the qualified candidates are first nominated by the company’s nomination committee before their names are forwarded to the shareholders for them to decide by voting. 

Similarly, the shareholders may hold an election to vote out or dismiss a board member whom they deem unfit for office. This could be due to abuse of power or absolute laxity, neglect of responsibility, or violation of the Duty of Care. 

What is the board of directors

The Structure of the Board of Directors

First, the Board of Directors members are either inside directors (otherwise known as executive directors) or outside directors (at times known as non-executive directors).

The difference is that inside directors are company employees, and examples include the MD (managing director), company president, or CEO (chief executive officer).

In contrast, outside directors are not directly involved in the company’s day-to-day operations, as union representatives and other third parties are. 

That said, the BOD structure is usually defined by the following key members: 

  • Board Chair: Sometimes identified as the board president, the board chair heads the board. They chair board meetings, set meeting agendas, oversee the establishment of committees, and recruit and evaluate top executives. 
  • Board Vice Chair: The board vice chair or vice president is the second in command after the board chair. They support the board chair in all affairs and assume the chair’s office in their absence, especially during board meetings. 
  • Secretary of the board: The board secretary handles the board’s administrative duties, including taking meetings during board meetings and keeping accurate company records. 
  • Treasurer of the board: The board treasurer handles the company’s financial interests, which include budgeting, accounting, monetary policies, and invoicing. 

Board of Directors Roles and Responsibilities

The Board of Directors is an integral part of the running of a company. Here’s what it does: 

  • Define the company’s objectives and goals and facilitate their pursuit
  • Establish the right company policies for its employees
  • Recruit, evaluate, and even dismiss top-level executives such as the CEO, company president, and MD
  • Advise top executives on meaningful company discussions and plans, especially those the board has approved
  • Ensure proper company funding and oversee Budget Implementation 
  • Declare company dividends and applicable payouts 
  • Build and maintain a solid company image and brand identity 
  • Lead efforts by the company to manage risks
  • Institute dividend policies for the company 
  • Oversee company mergers, new acquisitions, and asset diverting 
  • Make the necessary accounting and financial changes to protect the company’s assets and corporate finance
  • Facilitate legal and ethical compliance – oversee the adoption of the laid-out corporate governance protocols and standards
  • Engage stakeholders on various aspects of the company before making any critical decisions on their behalf
  • Shape the company’s corporate vision and culture
  • Manage and solve conflicts of interest

What’s the Board of Trustees?

The Board of Trustees is a group of elected or appointed individuals who oversee the management of a nonprofit, charity organization, or private business but only serve in an advisory capacity. It’s the governing body tasked with protecting stakeholders’ interests at all management levels without being directly involved in the decision-making. 

Ideally, the Board of Trustees comprises vital persons involved in the day-to-day management of the organizations and appointed third parties. So, just like in the case of the Board of Directors, the Board of Trustees has inside and outside members. 

Note, however, that while Boards of Directors are widespread in public company setups, Boards of Trustees are common in nonprofits and private entities. That includes private universities, charity organizations, mutual savings banks, art museums, colleges, and hospitals. 

What is the board of trustees

The Structure of the Board of Trustees

First, it’s worth reiterating that the members of the Board of Trustees can be inside members (organization’s employees) or outside employees (non-employees), just as is the case of the Board of Directors. Also, the Board of Trustees’ structure comprises at least these four key players: 

  • Board chairperson/president: The board chairperson is the organization’s and the board’s central organizer, planner, and spokesperson. They develop the board’s agenda, convene meetings, and preside over them. They manage the board’s activities, act as the board ambassadors, and outline the direction the management should take on vital matters. 
  • Board vice chair: The trustee board vice chair is the second in command after the president. They assume the role of trustee board chair in their absence, especially during board meetings. 
  • General Secretary: The general secretary handles the general administrative functions of the board. That includes advising the human resource arm of the organization, taking minutes during board meetings, and maintaining board records. 
  • Honorary Treasurer: The Honorary Treasurer handles the organization’s financial matters. They interpret financial issues to the board, chair the finance committee, and oversee the budgeting process. 
  • Other Members: Depending on the type of organization, other members of the Board of Trustees may include special advisors, invited members, friends, parents (in the case of education organizations), and audit trustees. The board chairperson, vice chair, secretary, and honorary treasurer, however, form the executive committee of the Board of Trustees. 

Board of Trustees Roles and Responsibilities

The Board of Trustees generally performs these tasks:

  • Provide leadership to the organization’s directors
  • Approve strategic organization’s goals 
  • Prepare and attend board meetings 
  • Participate in the organization’s fundraising efforts
  • Liaise between the organization’s management and leadership with financiers/donors
  • Institute and review the organization’s mission statements and approve their amendments
  • Create a multiyear strategic (and realistic) plan for the organization they serve
  • Serve as ambassadors for the organizations they serve (promote its values and mission statement to stakeholders)
  • Oversee the overall management of the organization even though they aren’t directly involved in the decision-making

What are the Similarities Between the Board of Directors and the Board of Trustees?

The Board of Directors and the Board of Trustees undeniably have some notable differences that we shall explore later. But still, they’ve some similarities worth knowing, as shared below:

1. Board Structure

The Board of Directors and the Board of Trustees are comprised of inside and outside board members. Inside members usually are part of the staff, while outside members aren’t but are enjoined as third parties. 

Moreover, both have an executive committee comprising the board chair/president, board vice chair, secretary, and treasurer. In total, both boards feature at least five board members. 

2. Board Size

Though it’s not definite, most Board of Directors and the Board of Trustees have a membership size of 5-12. There should be at least five members, including the executive committee members (board chair, vice chair, secretary, and treasurer) and at least one nominated member. Some boards, however, have up to 30 members. It all depends on the organization’s size. 

board of trustees roles and responsibilities

3. Fiduciary Duties

Both the Board of Directors and the Board of Trustees owe these fiduciary duties to the organizations they serve: 

  • Duty of Care (carry out all of their responsibilities with the stakeholders’ interest at heart)
  • Duty of Obedience (act in compliance with the organization’s mission statement)
  • Duty of Loyalty (act in the best interest of the organization and not their interest)

4. Tasks 

It’s also worth noting that even though the individual duties and responsibilities may differ between the Board of Directors and the Board of Trustees, both boards are tasked with facilitating oversight of the organization, strategic planning, setting policies, and raising funds for the organization they serve. 

What are the Differences Between the Board of Directors and Board of Trustees?

Not only do the Board of Directors and the Board of Trustees have a few things in common, but they also differ in several ways, which include as follows: 

1. Nature of Organization 

The Board of Directors and the Board of Trustees are identified with different organizations. On the one hand, the Board of Trustees is a group of individuals appointed to oversee the operations of a nonprofit, charity organization, or private business. On the other hand, a Board of Directors is a group of persons elected by shareholders to oversee the operations of a public company and, in some rare cases, a private business. 

2. Scope

Ideally, a Board of Trustees only serves in an advisory capacity. They only offer advisory services to the top management and stakeholders but aren’t involved in the overall decision-making. That’s unlike the Board of Directors, which is responsible for making the most crucial company decisions on behalf of stakeholders. 

3. Primary Responsibility

The Board of Trustees’ primary responsibility is to oversee the organization’s charitable trust.  (a charitable trust is essentially established to distribute assets to charities). 

Therefore, a Board of Trustees is held to a loft fiduciary standard than the Board of Directors. They can easily be liable for negligence even if their decision-making is in good faith. They are expected to represent stakeholders’ interests, maintain donor loyalty, and uphold the institution’s reputation in all their dealings. 

Meanwhile, the Board of Directors is responsible for observing good governance. The members serve in the best interests of their organizations. Their primary responsibilities include establishing company policies, setting long-term goals and strategic plans, and observing ethical corporate practices.

While a trustee is responsible for simple negligence (even in good faith), the Board of Directors members are personally accountable for bad decisions, especially failed corporate governance

Even though the board of trustees may offer financial advice to the senior leadership, their primary role is to uphold the organization. In contrast, the board of directors oversees the company’s financial decision-making process to maximize profits. 

4. Appointment

Usually, a Board of Directors is elected by shareholders. The shareholders hold elections to determine who should represent their interests in the boardroom, and they can be company employees or outsiders. 

On the other hand, the Board of Trustees members are appointed by the founder, existing members, or the Court, according to experience and expertise. 

5. Compensation

Ordinarily, members of the Board of Trustees aren’t paid for the duties they perform for the board. Some, however, do, but it’s pretty uncommon. They don’t get compensation because they don’t serve the board for personal gain but offer their expertise for charity reasons. 

In contrast, members of the Board of Directors may receive compensation for carrying out their board duties. Outside directors receive a salary for attending board meetings and fulfilling their other obligations.

Inside directors may not, as they are already on the company’s payroll, and part of their duties include attending board meetings. They may, however, get bonuses and other special packages for the special seating. 

6. Financial Interest

Members of the Board of Trustees usually don’t have any financial interests in serving. They volunteer their service without expecting monetary compensation in return. In contrast, some members of the Board of Directors, especially outside directors, receive compensation for their service and contribution. They are financially motivated to serve on the board. 

7. Engagement and Representation 

The Board of Trustees typically engages donors (in the case of a charity or nonprofit) and the public when coming up with critical suggestions for the company. The Board of Directors, in contrast, represents the interests of stakeholders, more so investors. They are the ones they engage with the most and owe the Duty of Loyalty. 

The Wrap

As much as the Board of Directors and the Board of Trustees have a lot in common, they differ in the nature of the organizations they apply to, their scope, primary focus, appointment, and a few other elements shared above. 

Overall, the Board of Directors oversees the decision-making process and management of a public company or private business. On the other hand, the Board of Trustees oversees a nonprofit, private business, or charity in an advisory capacity. 

If you want some help understanding the BOD or BOT’s responsibility or have challenges implementing the best policies or adopting the correct corporate governance practices, we can help.

As the Center for Corporate Governance (CCG), we are a premier institution in corporate governance and leadership excellence in Sub-Saharan Africa. Our goal is to help companies tackle their corporate governance and leadership challenges. Our five-day corporate governance training, which you can check out on our website, addresses that and more

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