"A topic expected to draw attention during the current annual meeting season has to do with classified boards, which many investors believe reduce directors' accountability to shareholders. IRRC has identified a total of 56 resolutions related to classified boards, a jump from the 51 such resolutions in 2002. The average level of support for such resolutions in 2002 was 61 percent. On April 23, 2003, 85 percent of shareholders at Baker Hughes supported a resolution asking the company to repeal its classified board structure and elect all directors annually ..."
FYI, here is an actual resolution to repeal a classified board:
Goldman Sachs Proposal To request the elimination of the company’s classified board so that all directors would be elected annually. The company’s classified board has the following profile:
Advance notice requirement for the nomination of directors Three classes Three-year term Supermajority vote of 80 percent to repeal the provision
Arguments for: Supporters of proposals to declassify boards of directors say “staggered” boards encourage entrenchment and diminish director accountability to shareholders, because directors do not stand for reelection each year. Proponents of these proposals say that annual elections enable shareholders to have their views reflected currently and on a broader basis. Also, a classified board structure may hinder the ability of a bidder to acquire the company without management’s support, thus potentially limiting shareholder value.
Arguments against: Opponents say that staggered board terms promote continuity and stability in company policies and strategies. The board of directors and management of the company are in the best position to determine the proper board structure. Management disagrees with the proponent’s assertion that annual elections ensure that all directors are accountable to shareholders each year. The company says that a substantial portion of all directors’ compensation is equity based, in the form of restricted stock units and stock options, providing a continuing incentive to the directors to promote the company’s long-term success.
Considering our classified board structure at IDCC, the maximum strength officer indemnifications (at great cost to the company i.e. shareholders), our incorporation in PA (not the most friendly state to shareholders), the obscene ISO grants, and repeated proposals for ISO pool increases, HOW can we shareholders be assured that our directors are truly executing on their fiduciary responsibility to shareholders?
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