Staggered elections

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In staggered elections, not all 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.

Staggered elections have the effect of limiting control of a representative body by the body being represented, but can also minimize the impact of cumulative voting.[1]

Many companies use staggered elections as a tool to prevent takeover attempts. Some legislative bodies (most commonly upper houses) use staggered elections, as do some public bodies, such as the Securities and Exchange Commission.

Application in business[edit]

A staggered board of directors or classified board is a prominent practice in US corporate law governing the board of directors of a company, corporation, or other organization, in which only a fraction (often one third) of the members of the board of directors is elected each time instead of en masse (where all directors have one-year terms). Each group of directors falls within a specified "class"—e.g., Class I, Class II, etc.—hence the use of the term "classified" board.[2]

In publicly held companies, staggered boards have the effect of making hostile takeover attempts more difficult. When a board is staggered, hostile bidders must win more than one proxy fight at successive shareholder meetings in order to exercise control of the target firm. Particularly in combination with a poison pill, a staggered board that cannot be dismantled or evaded is one of the most potent takeover defenses available to U.S. companies.[3]

In corporate cumulative voting systems, staggering has two basic effects: it makes it more difficult for minorities to elect directors, as the fewer directorships up for election requires a larger per cent of the equity to win; and it makes takeover attempts less likely to succeed as it is harder to vote in a majority of new directors.[4] Staggering may also however serve a more beneficial purpose, that is provide "institutional memory" — continuity in the board of directors — which may be significant for corporations with long-range projects and plans.[4]

Institutional shareholders are increasingly calling for an end to staggered boards of directors—also called "declassifying" the boards. The Wall Street Journal reported in January 2007 that 2006 marked a key switch in the trend toward declassification or annual votes on all directors: more than half (55%) of the S&P 500 companies have declassified boards, compared with 47% in 2005.[5]

Legislative bodies which use staggered elections[edit]

National[edit]

State[edit]

Australia[edit]

Three of Australia's five State Legislative Councils use staggered elections:

Local councils in Western Australia also have staggered elections.[6]

United States[edit]

27 of the State Senates in the United States have staggered elections:[7]

Local[edit]

See also[edit]

Notes[edit]

  1. ^ http://www.stroock.com/SiteFiles/Pub341.pdf
  2. ^ See Faleye,O., 2007, Classified Boards, Firm value, and Managerial Entrenchment, Journal of Financial Economics83, 501-529.
  3. ^ See Lucian Bebchuk, John C. Coates IV, and Guhan Subramanian, The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy, 54 Stan. L. Rev. 887 (2002).
  4. ^ a b Hillier, David; Ross, Stephen; Westerfield, Randolph; Jaffe, Jeffrey; Jordan, Bradford (2013). Corporate Finance (2nd European ed.). Berkshire: McGraw-Hill Education. pp. 34–35. ISBN 9780077139148. 
  5. ^ Jared A. Favole, "Big Firms Increasingly Declassify Boards", The Wall Street Journal, Jan. 10, 2007.
  6. ^ "Local Government Elections", Western Australian Electoral Commission.
  7. ^ "Length of terms of state senators", Ballotpedia, Accessed 24 August 2016.