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.