What is the Difference Between a Board of Trustees and Board of Directors?

This article will analyze the basic aspects of the activity of collegial bodies – board of directors and board of trustees, and compare the essence of their policies.

Corporate Governance overview

Corporate governance is a system of rules, practices, and processes by which the goals of the company are set, ways to achieve them are determined and the results of economic activity are monitored. The activity of any company depends not only on the correctly chosen strategy, competent management, the availability of valuable resources, and sales markets. The successful development of any business is impossible without access to investment capital. And here it is very important to understand that investors will not invest significant funds in a company that does not have an effective system of management and control over its activities. Thus, such bodies as the board of directors and board of trustees play an important role in the corporate management structure.

Board of directors in the corporate structure

The board of directors is a collegial governing body of a business company, which carries out the general management of its activities. The board has broad powers to act on behalf of the company, to represent its interests in court, in relations with third parties.

The board of directors also determines the priority areas of activity, approves long-term plans and main programs of activity, including the budget and investment program, determines the general principles and approaches to organizing the risk management system in the company.

The competence of the board of directors includes the definition of priority areas of the company and the adoption of the annual financial and economic plan. Exercising competence in this area, the board of directors must determine:

  • company development strategy;
  • annually approve the financial and economic plan;
  • approve internal control procedures (via board meeting software if relevant).

Board of Trustees in corporate management

The board of trustees is a legally competent and effective tool for attracting extra-budgetary finance and the most convenient way of material support for an educational institution. The board of trustees carries out public control of the compliance of the activities of the management bodies of the company with the main goals and objectives, other provisions of its charter, and also determines measures of support for the activities of the organization.

The responsibilities of the board of trustees can be formulated, for example, as follows:

  • providing comprehensive assistance in the implementation of programs;
  • overseeing the spending of funds;
  • implementation of the tasks strictly following the requirements of the charter and current legislation.

What is the difference?

The board of directors sometimes can be defined as a board of trustees, a board of governors, or an executive board. One of the features of the trustees is that it does not exercise the function of managing the company, but exercises supervision. It is one of the most flexible structures in corporate governance. The main difference is that the activity of the board of directors is related to non-profit organizations, while the activity of the board of trustees is directed at charity and foundations. The members of the board of trustees can regulate the work of the director, prepare general meetings, approve agreements, organize audits.

Members of the board of trustees are usually its founders and benefactors, whose donations form the basis of the fund’s financial activities. To ensure proper transparency of activities and improve the company’s image, representatives of the public who are famous in culture and art are often invited to the board of trustees.