Wednesday, January 24, 2007

More than half of all S&P500 firms move away from staggered boards

Alex Simpson catches an interesting article in the WSJ about how 55 percent of all S&P500 firms have ditched the anti-takeover practice of having "classified" or "staggered" boards of directors. (Alex links to the article here.) A staggered board of directors is a board whose members are like members of the U.S. Senate -- only a third are up for reelection every year, making it impossible for any shareholder or group of shareholders to take control of the company quickly (or, for practical purposes, at all). The explanations by Carol Bowie, vice president of research at Institutional Shareholder Services (a research and ratings firm that advices institutional investors on how to vote on shareholder proxies), seem plausible, but unsatisfying. Just because Enron has put S&P500 companies under a spotlight doesn't seem to me to be enough to make these companies' boards "unentrench" themselves. It seems more likely that this is some kind of signally mechanism to the market to allow these companies to lower their cost of capital. For example, the article quotes Staples proxy materials proposing to have shareholders vote to get rid of its classified board structure as necessary to "maintain and enhance the accountability" of its board members. Whenever someone votes to "enhance" their own accountability, it means something is up.

Interestingly, this trend is in line with proposals Harvard professor Allen Ferrell makes in the recently issued report of the Committee on Capital Markets Regulation. (Page 93-199, if you want to read the report itself.)

1 comment:

Ryan said...

I'm not sure what the difference between her claim and yours is. She says that investors have become increasingly worried about staggered boards because they think companies with staggered boards are trying to steal from investors. You're saying that it makes sense for companies that do not intend to steal from investors in the near future to demonstrate this by getting rid of staggered boards. Um, where's the confusion?