Guideline
We prefer the annual election of all directors. We will generally not support proposals that provide for staggered terms for board members.
When a proposal to adopt staggered terms for directors has been approved by a vote of shareholders, we will generally support the directors who are standing for staggered terms in those instances in which a vote for such directors is viewed to be in the financial interest of the shareholders and in conformity with the guidelines for the election of directors. We do not believe it is appropriate to vote against such directors simply as an indication of disagreement with the manner in which directors are elected.
Discussion
In a classified or staggered board, directors are typically elected in two or more classes, serving terms greater than one year. Using an example of a three-year staggered board, at each annual meeting, one third of the board members or nominees would be eligible for shareholder ratification for a three-year period.
Proponents of classified boards argue that by staggering the election of directors, a certain level of continuity and skill is maintained. It is worth noting that this continuity can also be maintained with a policy of annual elections, if the directors are careful to address the issues of competence and succession.
We see many disadvantages with a classified system. Staggered terms for board members make it more difficult for shareholders to make fundamental changes to the composition and behaviour of boards, by making it extremely difficult for any challenge to, or change in, board control. In circumstances of deteriorating corporate performance, this difficulty could result in a permanent impairment of long-term shareholder value.
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