Staggered Boards and Firm Value, Revisited
The Harvard Law School Forum on Corporate Governance and Financial Regulation 2014-03-07
Staggered boards have long played a central role in the debate on the proper relationship between boards of directors and shareholders. Advocates of shareholder empowerment view staggered boards as a quintessential corporate governance failure. Under this view, insulating directors from market discipline diminishes director accountability and encourages self-serving behaviors by incumbents such as shirking, empire building, and private benefits extraction. On the contrary, defendants of staggered boards view staggered boards as an instrument to preserve board stability and strengthen long-term commitments to value creation. This debate notwithstanding, the existing empirical literature to date has strongly supported the claim that board classification seems undesirable, finding that, in the cross-section, staggered boards are associated with lower firm value and negative abnormal returns at economically and statistically significant levels.