What is a staggered board?

What is a staggered board? It’s a type of board structure designed to provide stability and continuity at the corporate governance level. 

In modern governance, the structure of a company’s board of directors plays a pivotal role in steering the organisation’s strategic direction. 

Different companies will structure their boards differently to achieve the best results, and adopting the staggered board is one such approach.

A staggered board divides its directors into “classes” – each serving a different time length across staggered terms. 

Usually, the more senior directors will serve longer terms. 

Staggered boards are designed so that only some directors are up for re-election at any given time. This has the advantage of ensuring there is always continuity across different election cycles since only some faces will be new. It also reduces the likelihood of hostile takeovers, which usually need a rapid and large-scale leadership change to succeed. 

Generally yes. The terms exist side by side in many governance circles and refer to much the same board setup. If your company pursues this approach, directors and other stakeholders will likely understand either to mean the same thing.

The operation of a staggered board involves dividing directors into classes; it could be as low as two or as much as five. Each class will be up for election/ re-election at different times. It’s an approach you might sometimes see in politics – like the US Senate. 

Let’s take a board with three classes as an easy example. Each class serves a three-year term, but only one class is up for election each year. In other words, at least two thirds of the board will stay the same after any election. 

In cases where the more senior directors serve longer terms, Class 1 may be up for election every year, Class 2 every three years, and Class 3 (the most senior) every five years. 

These rules will depend on the company.

• It ensures continuity after every election. 
• It delays or outright eliminates the risk of hostile takeovers. 
• It vastly reduces the logistics challenge of training and onboarding many new directors simultaneously. There will always be a healthy cohort of veterans to oversee any work needed in this area. 
• It feeds a culture of long-term planning and outlook.

Much of the criticism comes from the shareholders’ point of view – who effectively only have a say on the future of a third (or less) of directors at any one time. 

It means shareholder criticism will be less likely to be listened to. In their place, the board may be more concerned with itself or its relationship with management.

You need to analyse your company’s governance thoroughly to be sure of an answer. 

• How much does your board depend on fresh, new experience? If it’s a lot, a staggered board might not be for you (yet). 
• How concerned are you about a hostile takeover or activism? A staggered board might be for you if it’s a lot.
• You should also consider how much your company spends on onboarding, how easy it is to find relevant talent at the board level, and how confident you are in your current board.