• May 2019
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Staggered Board

1. A staggered board is a board of directors whose members are grouped into different categories representing a certain percentage of the total number of board positions, and whose elections occur at different times. They may also be elected to serve terms of different lengths. And while each company can choose its own terms, it is common to have terms of one year, three years and five years. Longer terms are often given to more experienced directors to best take advantage of their expertise.

Opponents of staggered boards argue that the practice makes boards less accountable to shareholders. Instead, they believe, boards should be elected every year.

But there are two main benefits to staggered boards that may outweigh the potential drawbacks. First, they offer more continuity and stability. It is much easier to have one-third of a board change over each year, for instance, than to get an entirely new board at once.

Second, they make the company resistant to hostile takeovers. Private equity firms that buy controlling shares in an effort to install their own people on boards cannot do so all at once. They would need to wait a year or more to make board changes.

 

2. Diversity: A board of directors with a required seating arrangement of boy-girl-boy-girl. This encourages mingling of genders and better cooperation.

 

Example:

To encourage continuity and mitigate the effects of turnover, one company decided to model its board terms after the U.S. Senate, each board member would serve a six-year term, with one third of the board turning over every two years.