Definition: The Staggered Board is the board comprising of three equal classes of the board of directors who are elected on an annual basis. In other words, the staggered board is the governance practice in which certain members, generally one-third of the total board of directors are elected each year, rather than all at once.
The major advantage of a staggered board over the traditionally elected board is that it helps in preventing the hostile takeover. When any hostile bidder attempts to acquire any company with the staggered board has to wait for at least one year, until the next annual meeting of shareholders takes place, before he can enjoy control over the target firm.
The other obstacle for the bidder is that he can win only two or three seats on the staggered board and has to wait for the time till the election for those seats occurs. Even though the hostile bidder wins one seat on the board; the other board members may defend their company from the takeover by implementing any poison pill strategy to terminate the intention of a bidder in the midway.
Thus, the staggered board is an anti-takeover tactic that a company uses in order to protect itself from the undesirable bidders. But however, this arrangement of the board of directors might reduce the shareholder returns significantly. As most of the times, the bidder’s offer premium to the shareholders for their shares and thus, the latter earn more money in return for their shares after a hostile bid than what they would have been earning before the takeover. Hence, the takeover is sometimes good to have an increased returns.
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