Staggered Board of Directors

A staggered board of directors or classified board is a practice governing the board of directors of a company, corporation, or other organization in which the members of the board of directors are elected little at each time instead of en masse (where all directors have one-year terms). Each group of directors falls within a specified "class"—e.g., Class I, Class II, etc.—hence the use of the term "classified" board.

In publicly held companies, staggered boards have the effect of making hostile takeover attempts more difficult. When a board is staggered, hostile bidders must win more than one proxy fight at successive shareholder meetings in order to exercise control of the target firm. Particularly in combination with a poison pill, a staggered board that cannot be dismantled or evaded is one of the most potent takeover defenses available to U.S. companies. ^[1]

Institutional shareholders are increasingly calling for an end to staggered boards of directors -- also called "declassifying" the boards. The Wall Street Journal reported in January of 2007 that 2006 marked a key switch in the trend toward declassification or annual votes on all directors: more than half (55%) of the S&P 500 companies have declassified boards, compared with 47% in 2005. ^[2]

Similar staggering of terms is used for that reason in the election of U.S. Senators, members of the Securities and Exchange Commission, and other public bodies. By design, it has the effect of limiting control of a representative body (a board of directors, the Senate, the SEC, etc.) by the body being represented (shareholders, voters, the President).

Synonym: classified board. "Under this provision, the board is divided into separate classes, usually three, with directors serving overlapping multiyear terms. Thus, apporximately one-third of all directos stand for election each year, and each director is reelected roughly once every three years." ^[3]

Notes and references

See also

• Economics
• Mergers and Acquisitions
• Microeconomics
• Takeover
• Industrial organization

This economics or finance-related article is a stub. You can help Wikipedia by expanding it. v • d • e