A staggered board composition stays true to its name. It ensures elections for different board seats occur in different periods. Here's how it works.
What Is a Staggered Board?
A staggered board comprises directors with different overlapping terms, so not all board members’ services expire in the same year. A staggered board may also be referred to as a classified board, because it consists of various classes of directors with different board terms.
For example, a staggered board with 15 directors can be divided into three groups of five members. During the board election period, only one category has open seats for new members, which staggers the number of board positions available in each election period.
Unlike traditional boards, where all members may serve the same period, each class of directors in a staggered board has a different term limit.
A staggered board is a powerful anti-takeover approach. It prevents hostile or opportunistic takeovers by ensuring only a fraction (usually one-third) of the board of directors is up for election during each shareholder meeting. This prevents a hostile investor from obtaining the majority of board seats.
Preventing a hostile takeover is the primary purpose of a staggered board, but not the only one. Sometimes, organizations create a staggered board to meet particular needs. For instance, a firm may have a classified board to enable experienced directors to serve the board longer. Others use a staggered board structure to assign different levels of responsibility to each class of board members and enhance board continuity.
Staggered Board Roles and Responsibilities
A staggered board has the following primary roles, which don’t really differ from serving on a traditional board of directors:
1. Make Policies for the Organization
A staggered board defines the focus and differentiates responsibilities among the board, the management, and staff. The board develops the policies and leaves implementation to the organization’s management.
The policies should be well-written for the board to function effectively. They should also be reviewed regularly (usually annually) to ensure they are relevant over time.
2. Make Strategic Decisions
This role involves making intelligent decisions concerning the organization’s mission, vision, and strategies. This may include assessing risks and establishing a mitigation plan to help the organization head in the right direction.
As decision-makers in a firm, staggered board members have a fiduciary duty to represent and protect the organization’s and shareholders’ best interests. That said, staggered boards can delegate non-governance decisions to the management and staff.
3. Provide Oversight in the Organization
Oversight is one of the main functions of any corporate board. But staggered boards should remember to oversee the firm, not manage it. Nevertheless, the oversight role makes them legally responsible for everything within the organization.
There’s an overarching expectation for staggered boards to engage actively in the following oversight roles:
- Oversee strategic planning and operational execution to achieve the organization’s goals, focusing on long-term, sustainable value.
- Oversee goal-setting, establish appropriate metrics to measure the progress, and adjust strategies to keep the organization on track to achieving the goals.
The oversight role also ensures the firm’s activities follow all legal and ethical standards. In matters of finance, a staggered board ensures funds and resources are used responsibly. It makes sure proper controls are implemented for incoming and outgoing funds. Moreover, the board reviews the company’s financial statements, which could be through an audit committee.
4. Choosing and Monitoring the Chief Executive
The board vets and chooses a qualified candidate for the CEO position to run the daily management activities of the organization. Then, the staggered board collaborates with the chief executive to ensure the organization is growing and meets its short- and long-term goals.
Within a specified period (usually annually), the board evaluates the CEO’s performance to establish if the person is still the right fit for the position.
Staggered Board Software
Staggered boards must meet to get things done, whether they serve financial institutions, universities, nonprofits, corporations, governmental bodies, or health care organizations. A dedicated board portal allows organizations to create better workflows, enables boards to work faster, and provides a secure, unified platform for directors.
Most importantly, board management software allows board directors to collaborate in real time and increase effectiveness. According to OnBoard’s 2021 Board Effectiveness Survey, 66% of boards that use board software say it enables members to collaborate more efficiently, and 47% note spending more time discussing real issues facing the board.
OnBoard is a board intelligence platform that leverages artificial intelligence to analyze data, actions, and insights. It enables staggered boards to work smarter, be more focused, and achieve goals faster. OnBoard contains several powerful features for boards, including:
- Secure, unified document storage platform: OnBoard was designed with security as the No. 1 priority. Its heavily encrypted document storage platform ensures board materials are always safe against data breaches and unauthorized access. Store, organize, and distribute board books, records, and meeting documents on a single platform accessible by all board members from anywhere at any time.
- Real-time board collaboration: Board directors must collaborate for the board to move forward and for the organization to achieve its goals. Directors can vote on the platform and converse using OnBoard’s built-in secure messenger. Administrators can share real-time updates with Announcements, and create sharable annotations on documents.
- Smart meeting tools: Meetings are the pinnacle of board effectiveness. OnBoard integrates with Zoom so directors can meet face-to-face on our secure platform—no switching between meeting apps and no learning curves. Board members can attend meetings at any time with a few clicks.
- Simple technology for all board members: You don’t need formal training to use OnBoard. We believe the best board portal simplifies processes instead of complicating them.
Ready to see how OnBoard is a game-changer for staggered boards? Request a FREE trial of OnBoard to experience the perks of simplified, smart board meetings, communication, and governance.
Frequently Asked Questions
What Is the Benefit of a Staggered Board?
A staggered board prevents hostile takeovers by controlling the number of board seats available during elections. It also helps maintain experience and continuity by avoiding all board seats turning over at once.
How Do You Stagger a Board?
Classify the board, so the organization only opens up a small fraction of board seats per election. Each group should hold the election in different years, so it's impossible to replace all board members at once in a particular election period.
About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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