September 29, 2017

Antitakeover: Case Closed on Staggered Boards?

Whether staggered boards are good or bad for shareholder value has been hotly debated in corporate governance circles for a long time.  Now, a new study claims to have settled the debate.  Here’s an excerpt from the abstract:

We address the heated debate over the staggered board. One theory claims that a staggered board facilitates entrenchment of inefficient management and thus harms corporate value. Consequently, some institutional investors and shareholder rights advocates have argued for the elimination of the staggered board. The opposite theory is that staggered boards are value enhancing since they enable the board to focus on long-term goals. Both theories are supported by prior and conflicting studies and theoretical law review articles.

We show that neither theory has empirical support and on average, a staggered board has no significant effect on firm value. Prior studies did not include important explanatory variables in their analysis or account for the changing nature of the firm over time. When we correct for these issues in a sample of up to 2,961 firms from 1990 to 2013 we find that the effect of a staggered board on firm value becomes statistically insignificant after controlling for variables that affect both value and the incidence of a staggered board.

Well, I’m glad that’s settled.  Of course, it’s probably fair to say that this one’s already been settled on the battlefield – 90% of S&P 500 and 65% of S&P 1500 companies have eliminated staggered boards.

John Jenkins