Board of Trustees - Explained

What is a Board of Trustees

Updated at April 5th, 2023

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Back To: BUSINESS ENTITIES, CORPORATE GOVERNANCE, & OWNERSHIP

What is a Board of Trustees?

Board of Trustees is a group of individuals that oversee the affairs of an organization. Board of trustees is often appointed or elected to supervise the management of an organization. Board of Trustees can be found in a business, an organization, a non-profit firm, a government agency or any corporate firm. Members of the board of trustees have the responsibility of governing the affairs of an organization, including its finances. Usually, members of the board of trustees are not paid, but they strive to make decisions in the best interest of the stakeholders of a firm.

How Does a Board of Trustees Work?

Individuals who make it into a company's board of trustees are either appointed or elected based on their expertise and experience in managerial roles. For most firms and organizations, the board of trustees comprises both internal and external people in order to have a blend of ideas, perspectives, and experience regarding the company's matters. The internal individuals in a board of trustees are those who have previously held managerial positions and have been involved in the decisions making of the organization. In many cases, the board of trustees and board of directors are used interchangeably, this is because both boards perform similar roles and one can be used in the place of the other. More explicitly. Private organizations or establishments use the board of trustees more while government-owned or public agencies use the board of directors. Both the board of trustees and board of directors make crucial decisions in an organization, the board often comprises of top executives and individuals with outstanding skills. There are different committees set up in a board of trustees to handle different needs and core areas of an organization. Depending on the target needs of an organization, membership of a board of trustees can be from three and above.

University Endowments

University endowments use the board of trustees structure in order to effectively manage the assets held in-trust. In university endowments, the board of trustees has the responsibility to manage and protect the portfolio of assets, popularly called endowments. Decisions made by the board of trustees on how best to manage the assets are in the best interest of the trust. In most cases, the board can make the decision to invest the endowments so as to get returns on the portfolio.

Mutual Savings Banks

The mutual savings bank is another prominent entity that uses the board of trustees to manage the assets, funds, and properties kept by depositors. Individuals make deposits which can be funds or assets into a mutual savings bank, in trust that the management of the bank would manage and protect their funds. The bank through the board of trustees protects the deposits of their customers. The board of trustees makes all investment decisions pertaining to the funds or assets and how they are securely managed. When investments yield returns, these returns are paid to the depositors as interest.

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