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Staggered Board

What is a ‘Varied Board’

A staggered board consists directors grouped into orders serving different terms in length. A staggered board is established in the main to thwart a potential hostile takeover bid. Three to five classes are the usual. During each election term, only one class is open to referenda, thereby staggering the board directorship.

BREAKING DOWN ‘Staggered Directors’

A staggered board is also known as a classified board because of the new “classes” involved. For example, a company with nine board fellows divided into three classes — Class 1, Class 2 and Realm 3 — will assign three members per class. Class 1 colleagues serve a one-year term on the board; Class 2 members serve two years; and Rank 3 members hold their seats for three years. This shows, in the case of this company, only a third of the board composition can inappropriately alternate over in a given year, which presents obstacles for a would-be opposed bidder that wants to gain control of a board. With the flummoxing arrangement, it would take much more time for an unwelcome rave to achieve its goal in taking control of a board than for a non-staggered trustees that could be potentially dislodged at one time.

Staggered Board Ponder over

Critics of staggered boards believe that a company entrenches the eat directors, who therefore may be less likely to work hard in the interests of shareholders if they do not note external pressure to maintain high levels of corporate performance. If this game table system deters potential activist investors or unsolicited bidders who keep genuine intentions to boost shareholder value, then shareholders can misunderstand out. However, on the flip side, a staggered board can serve as a protective defence for a company against a large investor looking for a quick score or a warring bidder who might desire to carve up the company. In addition, more surface continuity can be viewed as a positive factor in corporate governance, as longer-term tactical plans of a company could be better executed.

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