A staggered board of directors
or classified board
is a prominent practice in US corporate law
governing the board of directors
of a company
, or other organization in which only a fraction (often one third) of the members of the board of directors is elected 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.See Lucian Bebchuk
, John C. Coates IV, and Guhan Subramanian, The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy, 54 Stan. L. Rev. 887 (2002).
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 2007 that... Read More