Staggered elections

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Not to be confused with rolling election.

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]

29 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.