The Iowa Business Corporation Act’s Staggered Board Requirement for Public Corporations: A Hostile Takeover of Iowa Corporate Law?

Abstract

In corporation law, a "staggered" board of directors is one that is divided into two or three groups, with directors in each group serving staggered multi-year terms. Proponents argue that staggered boards promote continuity, stability, and independence on the part of corporate leadership. Critics contend that staggered boards reduce director accountability, promote management entrenchment, and may reduce shareholder value. State legislatures have recently emerged as an important arena in the battle over staggered boards. In this arena, the trend is to require staggered boards for public corporations, whether shareholders want them or not. This paper explains that these new staggered board laws are designed to help local, public corporations resist unwanted takeover bids — an understandable goal for legislators who want to keep home-grown public corporations headquartered in their states. But as the paper also explains, the new laws come with a high pricetag: they circumvent traditional principles of corporate governance and shareholder primacy, and they may also mask conflicts of interest on the part of corporate managers who lobby for their passage.

Keywords: corporation, board, directors, leadership, staggered, unitary

JEL Classification: K22, G39, M19