What Is a Board of Trustees and Its Responsibilities?
By Indeed Editorial Team
Published May 3, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
A board of trustees may help a company organize its finances, maintain stakeholder interests and create operational values or guidelines. Understanding the duties of a board of trustees may help determine if your business could benefit from assembling one. In this article, we discuss what a board of trustees is, what obligations it fulfills and how a board of trustees can help a business achieve its goals.
What is a board of trustees?
A board of trustees is an elected or appointed group of management employees that act as a governing body for a company. Most board of trustees members are those already involved with management or elected based on experience with the company at large. Some board of trustee members may be friends or family members of the founders of the company. Alternatively, trustee members could be employees that have dedicated years of service to the company on an extraordinary level.
Overall, the members of a board of trustees may be an even mix between internal and external workers. Boards of trustees can be large or small, possibly with anywhere from three to 30 members, which a board president may divide into subsections or subcommittees. This is more common with entities such as associations or banks. It ensures that board members can give greater attention and details to specific target areas of an entity and provide a segregation of power.
What does a board of trustees do?
The board of trustees typically manages the organization, overseeing business decisions and how they'll affect the company. Organizations that have a board of trustees may include:
Typically, an organization's bylaws outline the selection process for the board of trustee members and their job responsibilities.
Board of trustees vs. board of directors
A board of directors differs from a board of trustees, although some may use the two terms interchangeably. A board of directors usually works with a public company or nonprofit organization, while a board of trustees represents a private business. Sometimes, members of a board of directors are unpaid and work as volunteers, while a board of trustees typically comprises paid employees. Duties of a board of directors include hiring and recruiting the CEO, while the CEO typically employs a board of trustees.
A board of directors typically monitors the CEO's progress and often offers guidance to the organization's leader. A board of directors may handle the appointment and promotion process for new members based on their performance. In contrast, a board of trustees may not always hold the power to promote members, although they can voice suggestions. A board of directors is also responsible for managing the brand of an organization. A board of trustees, while acting in the interest of the business at large, may not always have the power to decide concerning the brand of the organization. This responsibility may fall to other departments, depending on the business' nature.
Related: The Role of the Board of Directors
Board of trustees responsibilities with examples
Some of the board of trustees' responsibilities include:
A board of trustees performs specific legal duties regarding their organization. By law, a board of trustees must adhere to the following duty requirements:
Duty of Care
The duty of care requires that all board of trustees members carry out their duties in good assurance, with only the best in mind for the stakeholders of the company. Board members must be careful in everything they do concerning their work as board members. They fulfill the Duty of Care requirement by meeting the following expectations:
Attending all meetings
Preparing for all meetings
Reviewing any daily financial reports
Using intuitive and sound judgment when making decisions
Ensuring they have or ask for all information needed for decision making
Fulfilling all requirements regarding state, federal and other needs
Being responsible for any day-to-day duties as a board member
Related: 9 Great Business Jobs To Consider
Duty of Loyalty
The Duty of Loyalty requires that all members of the board act in the interests of the organization rather than their own, or another organization. They fulfill the Duty of Loyalty requirement by meeting the following expectations:
Ensuring that they bear no conflict of interest
Using the organization's opportunities for corporate, not personal, gain
Duty of Obedience
The Duty of Obedience ensures that board members act according to the company's mission. A company expects board members to uphold company policy and functions. They fulfill the Duty of Obedience by meeting the following requirements:
Ensuring compliance to company standards
Examining all legal documents given by the company
Ensuring all decisions made are within the law and the mission of the company
A board of trustees takes responsibility for holding funds "in trust." This means that the board of trustees can use any funds related to the organization for the stakeholders' best interests. Two ways they do this are through the following examples:
Endowments of a university
A board of trustees often oversees university endowments ,or a specifically designated portion of funds and assets. The board of trustees, in this function, ensures that they use the endowments of a university with the best interest of the present stakeholders in mind. A board of trustees may invest endowment assets into various projects and manage the endowments themselves. Alternatively, a board of trustees may trust the university endowments to a manager. The board of trustees have entire financial responsibility of the endowment's investments.
Shared savings banks
Another example of trust funds being under the care of a board of trustees is in mutual savings banks. Often, mutual savings banks employ a board of trustees who ensure that the bank protects the funds of borrowers, depositors and community members. A board of trustees ensures that customer investments and deposits and transferred safely. They ensure depositors receive interest and that customers receive principal on request.
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