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CFA Level I · CFA Level I Exam · Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits

A staggered (classified) board, in which only a portion of directors is elected each year, is most likely viewed by shareholders as:

A staggered board is most likely viewed as an anti-takeover feature that can entrench incumbent directors. Because only some directors face election each year, shareholders or acquirers cannot replace the whole board at once. This reduces shareholder influence and does not guarantee independence.

  1. Aa mechanism that guarantees stronger independence from management.
  2. Ba feature that makes it easier to replace the whole board at once.
  3. Can anti-takeover feature that can entrench incumbent directors.Correct

Explanation

With staggered terms, an acquirer or dissatisfied shareholders cannot replace the entire board in one election, so it can protect incumbents and deter takeovers. It does not ensure independence and makes full replacement harder, not easier.

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