TheCorporateCounsel.net

I recently came across a new study on classified boards, and I thought the results were a little surprising. Although these structures are more common among younger companies, it turns out that they remain fairly prevalent throughout corporate America.  Here’s an excerpt from a CLS Blue Sky Blog post by the authors of the study:

The conventional belief suggests that classified boards are disappearing from corporate America, particularly among well-established firms in the S&P 1500 Index. However, more recent findings indicate that young firms are increasingly likely to go public with a classified board and that, while the costs of having a classified board become significantly higher as firms mature, firms rarely opt to declassify their boards. We expand on these findings by examining a more comprehensive sample of firms over an extended period, uncovering new evidence of how and why the use of classified boards has evolved and its implications for shareholder value.

The study found that the prevalence of classified boards among S&P 1500 companies declined from 58% in the early 1990s to 31% in 2020, while the prevalence of classified boards outside the S&P 1500 rose from 42% to 52% over the same period. The study also found that as companies mature, they increasingly discard the classified board structure.

That wasn’t always the case. In the 1990s, the use of classified boards declined only slightly as firms matured, but that began to change during the first decade of this century, with the usage of staggered boards declining from 65% of the youngest firms to 46% among the most mature. That trend accelerated between 2011-2020 – while 73% of newly public companies had classified boards, only 33% of mature firms retained them.

– John Jenkins