An organization’s Board of Trustees oversees financial decisions and issues. This is usually in connection with non-profit organizations operating under different laws than corporations or other business forms. An organization’s bylaws typically outline the scope and reach of the Board of Trustees’ authority.
What is a Board of Trustees?
How a Board of Trustees Works
An organization’s board of trustees is typically composed of key management personnel.
Depending on their expertise and experience in areas pertaining to the management of the organization, other individuals may be appointed or elected. It is common for the board to have both internal and external trustees.
In some organizations, a board of trustees acts as a board of directors. Private organizations are more likely to have a board of trustees. Associations, universities, university endowments, and art museums have boards of trustees.
Boards of trustees are often interchangeable with boards of directors, boards of governors, and boards of regents. For example, public corporations and mutual funds may be subject to industry regulations regarding board oversight and responsibilities.
Trustees may be tasked with managing a specific portion of an organization in some cases.
Boards of trustees are typically governed by the bylaws of an organization, which outline regulatory obligations and entity direction. The number of members on a board of trustees can range from three to thirty. There are usually subcommittees on boards, which are helpful for managing specific areas of an organization while also providing some power separation.
Funds, assets, or property belonging to others are often held “in-trust” by the board of trustees who have a fiduciary duty to protect them. University endowments and mutual savings banks are two entities that use a board of trustees structure.
What Does the Board of Trustees Do?
The Board of Trustees may have broad discretion to perform a variety of tasks and assignments regarding the finances of the non-profit organization.
Depending on the bylaws, these can include tasks such as:
- Managing the assets of the organization
- Maintaining the organization’s property
- Establishing spending guidelines and budgets
- Ensure that charitable projects adhere to the company’s policies
- Setting public policies that are aligned with the organization’s goals and objectives
Each organization will have its own description and division of the board’s responsibilities. Boards of Trustees also have a general obligation to invest and manage the organization’s funds prudently and reasonably.
What Is the Average Term of a Trustee on a Board?
Each non-profit may have different requirements. Board members usually serve for one to three years. The bylaws should contain instructions for when and how members of the board are to be changed.
How Should the Board of Trustees Handle a Conflict of Interest?
A Board of Trustees must act reasonably and avoid decisions that are contrary to the organization’s goals.
Board conflicts can have a variety of consequences, including:
- An individual’s removal
- Damages for losses caused by negligence or other violations
- Bylaws rewritten
Accordingly, every remedy may be prescribed differently in each situation, depending on the organization’s nature and the legal issue.
A special board of trustees may be responsible for overseeing and managing a university endowment’s portfolio of assets.
Trustees have a fiduciary responsibility to manage the funds in the best interests of all stakeholders. A variety of institutional managers can manage the endowment assets with the help of the endowment assets.
Alternatively, it may choose to work with a single institutional manager in a separate account structure or manage the assets. Regardless of the structure of an endowment portfolio, the board of trustees is responsible for making all investment decisions on behalf of the endowment.
Mutual Savings Banks
Bank management considers and protects the interests of depositors, borrowers, and members of the communities in which mutual savings banks operate. Customers’ deposits are secured and invested safely, interest is paid to depositors, and the principal is available to them upon request.
In Layman’s Terms, What Is a Board of Directors?
An organization’s board of directors provides strategic direction and oversight at regular intervals, often monthly or quarterly. A public company must have a board of directors to represent its shareholders, and the board must be composed of both insiders and outsiders.
A board of directors can govern private and non-profit organizations. A board’s bylaws will determine the structure and powers of the board, including how the board is elected and how often it meets.
How Does a Board of Directors Function?
To ensure the organization’s success, the board of directors has a collective responsibility.
A board of directors has the following top 5 responsibilities:
The Strategic Direction and Planning of an Organization
In addition to developing and reviewing the organization’s mission and purpose statements, the board may also be responsible for articulating the organization’s goals, means, and primary constituents. Participation in an overall strategic planning process and monitoring management decisions are essential for boards.
Oversee Finances and Protect Assets
As with boards of trustees, boards of directors must protect and manage the organization’s assets responsibly, including fulfilling their fiduciary duties. Establish a budget with the chief financial officer, ensure appropriate controls are in place for incoming and outgoing funds and review the organization’s financial statements.
Participate in Committees or Working Groups
As the bulk of the board’s work is done through committees and task forces, board members should be willing to take on special assignments. Governance, finance, executive, and audit committees are examples of committees. It is also possible for boards to form ad hoc committees or working groups to accomplish specific goals.
Choosing, Supporting, and Reviewing the Chief Executive’s Performance
In order to run the day-to-day management activities of the organization, the board has the responsibility of vetting and selecting qualified candidates. Upon appointment, the board works collaboratively with the chief executive to meet the organization’s short- and long-term goals. The board of directors is also responsible for evaluating the performance of the CEO.
Recruitment and Evaluation of Board Members
The board of directors is responsible for recruiting, nominating, and appointing new board members with the right skills, knowledge, and experience. In addition, they will evaluate their performance annually to identify gaps and develop a strategic plan.
What Is the Difference Between Trustees and Directors?
In contrast to board directors, trustees are regulated by charitable trust acts and therefore held to a higher standard. For example, a trustee may be held personally liable for a poor investment decision or simple negligence. On the other hand, the director would only be responsible for a reckless investment or gross negligence.
Boards of Directors and Boards of Trustees Have What in Common?
The boards of both organizations serve as advisors and monitor their organizations’ practices and financial decisions. There are usually 3 to 31 professionals working in these groups.
Typically, both positions are appointed or elected.
Do I Need a Lawyer for Help With Board of Trustee Legal Issues?
For any non-profit organization to succeed, dealing with a Board of Trustees is essential. You may wish to hire a business attorney in your area if you need assistance with any legal issues involving a board of trustees. If necessary, your attorney can assist you in filing a lawsuit and provide you with valuable legal advice.
Need a Business Law Lawyer in your Area?
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia