A board of trustees is a group of individuals either appointed or elected to manage and govern the assets of an endowment, charitable foundation, trust, or nonprofit organization. The board's utmost duty is to protect the organization's best interests through decisions made on its behalf.
Board of Trustees Vs. Board of Directors
To those familiar with corporations, the concept of a board of trustees may sound similar to a board of directors. Indeed, the two are quite similar in function, and sometimes the terms are used interchangeably despite having different legal meanings.
The differences are:
- A board of trustees is regulated by state law
- A trustee may be liable only for simple negligence in decision-making, while a board member is generally only personally liable for acts of willful misconduct or gross negligence
Composition of a Board of Trustees
Each organization decides to set up a board of trustees and includes specific requirements and procedures in its bylaws. An organization's bylaws include the number of trustees, the process for appointment or election, and the duration of terms.
Generally, trustees don't receive compensation for their service, but if they receive compensation, the structure of payment should be included in the bylaws. All such rules concerning the board of trustees must also be in full compliance with state laws that govern organizations.
A board of trustees is normally comprised of anywhere from three to 30 people, though state law may prescribe the minimum number and which positions, such as treasurer and chair, must be filled.
With larger boards, the members may be divided into subcommittees that focus on specific aspects of the organization and help spread out and separate power within the board itself.
Roles and Responsibilities of a Board of Trustees
One of the board of trustees' primary responsibilities is to uphold the fiduciary duty to protect all of the organization's assets and funds in trust. The overarching fiduciary duty includes the duties of care, obedience, and loyalty, which means that a trustee must place the organization's interests above their own when making decisions on behalf of the organization.
Trustees, then, must avoid conflicts of interest as much as possible and should disclose any information that could suggest self-dealing. For example, if the board is deciding whether a contract should be awarded to a particular vendor, none of the trustees should hold an interest in that vendor. Such intermingling of affairs would likely be an unacceptable conflict of interest even if other board members sign off on it.
While fulfilling its fiduciary duty, the board manages its affairs and makes decisions to protect the stakeholders' best interests. Such decisions may include how to invest assets, the choice of institutional manager, and the pursuit of specific investment options.
While day-to-day management of the organization is usually more the responsibility of staff, volunteers, and other management, the board of trustees focuses on larger and broader decisions that affect the organization. Such issues may include the organization's overall mission and direction and other strategic planning matters.
If you're setting up a new organization, a strong board of trustees is crucial to your success. The bylaws should be well defined regarding all aspects of the board to avoid future disagreements—and they must always exist following state law. You may wish to secure legal advice to ensure your bylaws are in the best interests of your organization.