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Board of trustees

Definition

What is a board of trustees?

A board of trustees, often referred to as a trustee board, is a group of individuals appointed, nominated, or elected in the company or organizations responsible for governing endowment, charitable trust, non-profit organization, or charitable foundation.

Typically, the board of trustees upholds the best interests of stakeholders in different management decisions.

The board of trustees can also be found in private organizations such as universities, university endowments, art museums, hospitals, associations, mutual saving banks, and local government. 

Each organization decides to have a set of board of trustees, as regulated by state law. The number of trustees, the process of appointment, structure of payment, and length of service depend on the organization’s bylaw. 

In essence, the board of trustees is the “overseer” of an organization. Organizations have a mix of internal and external boards of trustees and are usually appointed or elected based on their competence and experience.

board of trustees
What is a board of trustees?

What does a board of trustees do?

The service of the board of trustees can be paid or unpaid. They play a significant role in organizations. Trust, foundation, and endowment are things to consider in forming a board of trustees.

Expertise in finance or legal background is typically required to become a trustee. The number of trustees usually ranges from three to 30 people. 

Anything that concerns the board of trustees must be in compliance with the state laws which govern particular organizations. 

In most cases, the board of trustees’ duty is to protect the “in-trust” funds, assets, or property and to uphold the fiduciary duty. This includes the duties of care, loyalty, good faith, confidentiality, prudence, and disclosure. 

Consequently, the board of trustees must place the organization’s interest above decision-making. Thus, any information should be disclosed that could suggest self-dealing                                                      

Additionally, the role of trustees may also fall under managing assets such as investment decisions, managing taxes, distributions of funds or assets, and receiving charitable contributions. 

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

The board of trustees and board of directors are sometimes used interchangeably. Similarly, the board of trustees and the board of directors share the same roles in non-profit. 

Both perform the same functions, including fundraising, strategic planning, supervising various charitable projects, and imposing certain policies. 

However, the board of trustees consists of different titles and roles based on the seniority, including the chairperson, vice-chairperson, secretary, treasurer, and general board member. 

However, the board of trustees is considered distinct from a board of directors because of charitable trust laws. The board of directors is more focused on managing the corporation’s affairs, such as managing and controlling assets and other business matters. 

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

What is the importance of a diversified board of trustees?

A report by McKinsey & Company “Why Diversity Matter Report” finds that companies with racial and ethnic diversity are 35% more likely to have above-average financial returns than less-diverse companies. 

It is important to note for companies or organizations to have a diversified board of trustees, which will provide different and unique perspectives that will help achieve the company’s goals and objectives. 

A diversified board of trustees helps to get good exposure to stakeholders and shareholders, which now demands greater representations in terms of gender, racial and ethnic aspects. 

With the diversified board of trustees, the company’s performance will continue to foster as it promotes an all-inclusive and modernized organizational culture.

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