Staggered Board
What Is a Staggered Board?
A staggered board is a board that comprises of directors gathered into classes who serve terms of various lengths. A staggered board is ordinarily settled to deter a potential hostile takeover bid. An ordinary staggered board has three to five classes of positions on the board, each carrying terms of service that differ long, taking into consideration a faltering of elections.
How a Staggered Board Works
A staggered board is otherwise called a classified board due to the various classes included. During every election term, just a single class of positions are available to new individuals, in this way stunning the number of openings accessible inside the board directorship at any one time. For instance, a company with nine board individuals separated into three classes — Class 1, Class 2 and Class 3 — will assign three individuals for each class. Class 1 individuals serve a one-year term on the board, Class 2 individuals serve two years, and Class 3 individuals hold their seats for a very long time.
This means that main 33% of the board sythesis can turn over at whatever year, subsequently introducing a considerable hindrance for any eventual hostile bidders that could look to gain control of the board. As a result of the staggered arrangement of open positions, it would require considerably more investment for an unwanted party to accomplish its goal in assuming command over a staggered board than for a non-staggered board — one that might actually be ousted at one time.
Despite the fact that staggered boards might possibly forestall hostile takeovers and activist mediations, the reality is that aggressive activities, for example, these are genuinely rare events.
Benefits and Disadvantages of a Staggered Board
Pundits of staggered boards accept that such arrangements might run the risk of digging in people inside the board of directors — people who might be more averse to buckle down in the interests of shareholders without the presence of outer pressure to keep up with high levels of corporate performance. Assuming this board system deflects potential activist investors or unsolicited bidders who have genuine goals to help shareholder value, then, at that point, shareholders can pass up a major opportunity.
Be that as it may, on the flip side, a staggered board can act as a protective shield for a company against a large investor searching for a quick score or a hostile bidder who could want to cut up the company promptly after assuming command. Likewise, the board continuity normally associated with a staggered board approach can be seen as a positive factor in corporate governance, as it fits the execution of a company's long term strategic plans.
A 2016 Harvard study has shown that the implementation of staggered boards has been on the lessening in recent years, with 60% of S&P 1500 companies and 80% of S&P 500 companies reporting that they hold annual elections for all directors. One of the contributing factors to this decline is the Shareholder Rights Project, an organization based out of Harvard Law School. Also, studies have shown that companies with staggered boards have measurably flaunted lower shareholder returns than those without, assisting the contention that staggered boards are regularly not to the greatest advantage of shareholders.
Highlights
- In a staggered board approach, a company just opens up a portion of their director positions to election at any one time.
- Due to their negative impact on shareholders, staggered boards have recently been on the decline.
- Staggered boards ordinarily comprise of "classes" of positions, each holding elections in various years.
- A staggered board of directors is a system that commonly expects to forestall hostile takeovers.
- Despite the fact that staggered boards are helpful in forestalling hostile takeovers, they are additionally viewed as disadvantageous to shareholders.
