|
The Issue: Should a company allow for the creation of staggerd board elections or what is commonly referred to as a Classified Board?
Recommendation: Generally speaking, classified boards entrench management and the board of directors by making it nearly impossible to remove all of the directors in a single election. Shareholders should consider voting against such proposals submitted by the company.
The Issue: Should shareholders sponsor a resolution calling for the company to eliminate classified board elections?
Recommendation: Generally speaking, such resolutions should be supported since the elimination of such election procedures make directors more accountable to shareholders.
A classified board describes a situation where the membersof the board are elected for staggered terms. The most common method is to elect one-third of the board each year for three-year terms. Company executives and boards have created staggered board elections as a means for deterring hostile takeovers of their companies. When an unwanted suitor attempts to take over a company by means of electing its own slate of directors, an outright takeover of the board (assuming that the slate wins) is delayed until all three classes of directors are elected by the opposition.
Obviously, companies think this is a good thing and argue that it's in the best interests of shareholders. However, many institutional investors think otherwise. They are of the belief that it is up to shareholders what is best for their company. If a company is poorly run and management entrenches itself using staggered board elections along with other anti-takeover devices (see: Poison Pills), using staggered boards is a bad thing.
We believe the accountability afforded by the annual election of the entire board is very beneficial to stockholders and it would take an extraordinary set of circumstance to develop for us to support classified boards. The system as it currently exists protects management to the detriment of shareholders. A staggered or classified board only reinforces this system.
We genreally recoommend against staggered or classified board when proposed by management. As most companies today have staggered boards in place, when a shareholder propposal is submitted calling for the elimination of staggered board elections, we generally support such proposals.
|
