What Does Staggered Board Mean?
A staggered board (also known as a classified board) is a governing board of directors of an organization in which approximately one third of the members are elected each term. The directors are organized into different groups and each group falls within a specified class.There are typically three classes of members. Board members’ terms expire at different times.
Divestopedia Explains Staggered Board
Practiced in U.S. corporate law, staggered boards are often used to prevent hostile takeovers. Potential acquirers are forced to wait longer to take control of the board. Director elections occur on an annual basis. At an election, shareholders are asked to vote to fill vacant positions. Terms are commonly one, three or five years.
There are two advantages to staggered boards: anti-takeover provisions and board continuity. In the event of a hostile takeover, staggered boards create several obstacles for a hostile takeover to be completed. For example, the hostile bidder must wait one year for the next annual meeting of shareholders before they can gain control. Hostile bidders must also win two seats on the board. Seat elections occur one year apart, creating an even bigger time gap before a hostile bidder can take control.
A staggered board provides continual leadership of an organization, making this a valuable asset. Hostile takeovers occur rarely, but the boards represent the shareholders' best interests.