Cresthill Corp.'s bylaws stipulate that its nine-member board is divided into three groups of three directors each, with only one group standing for election in any given year (each director serves a three-year term). Which of the following best describes this governance feature and its typical effect on shareholder rights?
- AIt is a classified (staggered) board, which makes it harder for shareholders to replace a majority of the board quickly and can entrench management
- BIt is a unitary board structure that increases board accountability by requiring annual election of all directors
- CIt is a form of cumulative voting that gives minority shareholders greater representation on the board
- DIt is a dual-class share structure that concentrates voting control with insiders
Show answer & explanationAnswer & explanation
Correct answer: A. It is a classified (staggered) board, which makes it harder for shareholders to replace a majority of the board quickly and can entrench management
A board in which directors are split into groups with staggered, multi-year terms so that only a fraction is up for election each year is called a classified (staggered) board. Because shareholders cannot replace a majority of directors in a single election, staggered boards are considered an anti-takeover/entrenchment device that weakens shareholder control relative to a unitary (annually elected) board.
Why the other options are wrong
- B. This describes the opposite structure (unitary board with annual elections for all seats).
- C. Cumulative voting relates to how votes are allocated per share, not to staggered terms.
- D. Dual-class structures relate to differential voting rights per share class, not board term structure.
Classified (Staggered) Board
A board structure in which directors are divided into classes with staggered multi-year terms, so only a subset is elected each year.
- Reduces shareholders' ability to replace the board quickly
- Considered an anti-takeover defense
- Contrasts with a unitary board where all directors face annual election
Memory trick: Staggered = Shielded — one group at a time, hard to overturn.