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Staggered Board of Directors
Practical Law Glossary Item 7-382-3831 (Approx. 3 pages)
Glossary
Staggered Board of Directors
A board which is comprised of directors that have different overlapping, multi-year terms, so that not all of the directors' terms expire in the same year. This setup is also referred to as a classified board of directors.
Often, a staggered board of directors is divided into three classes, where approximately one-third of the board of directors is elected each year and each individual director serves a three-year term.
The two major effects of a staggered board are:
- Anti-takeover defense. It increases the difficulty of takeovers, because a hostile bidder cannot replace an entire staggered board in a single proxy contest.
- Minimize impact of cumulative voting. Where a company employs cumulative voting, it increases the difficulty of minority shareholders to elect a director, because it takes a larger minority interest to elect one of a smaller number of directors.
The provision establishing the staggered board is usually found in a company's certificate of incorporation. However, under the Delaware General Corporation Law, the provision can also be included in a company's initial by-laws or in by-laws that have been adopted by the stockholders of the company. It is generally considered best practice for the charter to include the staggered board provision.
For more information on staggered boards and other methods used by business entities to defend against hostile takeovers, see Practice Notes, Defending Against Hostile Takeovers and Corporate Governance Practices: Commentary. For an example of a staggered board provision, see Standard Clause, Certificate of Incorporation: Staggered Board Provision.