What is board declassification?
Declassification — a corporate governance term, referring to a board of directors in which all directors stand for reelection in the same year. Conversely, a classified board, in which directors serve “staggered” terms, is one in which only some directors are up for reelection in any given year.
How do you stagger a board of directors terms?
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.
Why would investors want a board to be declassified?
From the investors perspective, the same job stability which works to prevent hostile takeovers insulates the board from a proxy vote by shareholders which can result in the termination of stagnate members. Declassification thereby assists in preventing governing entrenchment.
What are the classification of board members?
There are usually three board members per class. Class 1 members serve a one-year term on the board, Class 2 members serve two years, and Class 3 members hold their seats for three years.
Is CSR part of corporate governance?
Corporate social responsibility (CSR) refers to strategies that companies put into action as part of corporate governance that are designed to ensure the company’s operations are ethical and beneficial for society.
What do you mean by staggered board?
A staggered board is a board that consists of directors grouped into classes who serve terms of different lengths. A typical staggered board has three to five classes of positions on the board, each carrying terms of service that vary in length, allowing for a staggering of elections.
Why are staggered boards bad?
A staggered board is also known as a classified board because of the different classes involved. This means that only a third of the board composition can turn over in any given year, thus presenting a formidable obstacle for any would-be hostile bidders that might seek to gain control of the board.
What are the staggered terms?
Staggered elections are elections where only some of the places in an elected body are up for election at the same time. For example, United States Senators have a six-year term, but they are not all elected at the same time. Rather, elections are held every two years for one-third of Senate seats.
How common are classified boards?
According to a recent Equilar study, more than 40% of boards were classified.
What is the agency problem of corporate governance?
An agency problem is a conflict of interest inherent in any relationship where one party is expected to act in another’s best interests. In corporate finance, an agency problem usually refers to a conflict of interest between a company’s management and the company’s stockholders.
What is staggered board?
How long does a classified board of directors last?
A classified board of directors is one in which directors serve varying term lengths, often three years, based on a particular class (Kim, 2016). Accordingly, members on this type of board are reelected at different times (Kim, 2016).
Why is it important to declassify Board of directors?
From the investors perspective, the same job stability which works to prevent hostile takeovers insulates the board from a proxy vote by shareholders which can result in the termination of stagnate members. Declassification thereby assists in preventing governing entrenchment.
How does declassification affect the value of a company?
Declassification thereby assists in preventing governing entrenchment. Furthermore, Bebchuk and Cohen (2009) found classified boards results in a “significant” reduction in firm value; this reduction was even more pronounced in corporations with classified boards with no amendment option by shareholders.
Can a head of an agency delay automatic declassification?
Yes. After consultation with the Director of the Information Security Oversight Office, an agency head may delay automatic declassification for up to 3 years from the date of discovery of classified records that were inadvertently not reviewed prior to the effective date of automatic declassification.