On Second Thought: Board of Directors -or- Board of Trustees, does it matter?

Is there a changing preference for the name of your nonprofit governing board?  In our experience it’s hard to say that there is a clear industry standard.  As we observe the practices of our clients, there are actually some that have both a governing board of trustees and a supporting board of directors.

By David S. Goettler, CEO

By David S. Goettler, CEO

When I first started in this field in the 1980s, there was a clear tendency for calling our board volunteers trustees.  I always preferred this distinction for the nonprofit leader.  In my mind, the trustee is charged not only with the effective oversight of the agency, but also with consideration of the organization’s higher purpose of providing a benefit to society.  In a way, the trustee is constantly reminded that the community bestowed its trust upon both the organization and the volunteer.

If the nonprofit organization where you work or volunteer is relatively young — organized and incorporated in the past 10 years — there is  a higher probability that the organization’s bylaws require that the organization be governed by a board of directors.

I more often relate a board of directors to a for-profit corporation.  There are very clear distinctions between corporations that are organized for shareholder profit and those that are organized for the benefit of our communities or society.  For one, members of large for-profit corporation boards are often compensated for their efforts.  Often, the chief executive will also serve as the chairman of the board of directors.  This must never occur with our nonprofit organizations.

But alas, few things remain forever unchanged.  Today, several states actually require the use of the term director.  Some legal scholars have argued for the change so as not to conflict with the fiduciary standards of a trustee under a state’s charitable trust laws.  Some state regulations hold the trustee of a trust to a higher standard of responsibility than a volunteer serving on a community nonprofit board.  (Too bad.)

I’m not sure exactly when nor why this shift in the use of terms actually took place.  Did it change because of our shifting generational sentiments?  Did it change because individual and corporate donors are now demanding greater operational efficiencies for our nonprofit organizations — just like a for-profit shareholder?  Whatever the reason, we must never lose sight of the nonprofit board’s responsibility to protect the trust bestowed upon them to work for society’s betterment.

(click here to download FRM Issue No. 60)

Want to see more?  Read The Goettler Series  Volume 7: The Role of Trustees in Development