Why Do Managers Dismantle Staggered Boards?
51 Pages Posted: 15 Sep 2008
Staggered boards offer incumbent management considerable protection from hostile takeovers and proxy fights. However, in the last few years, managers of an increasing number of firms have voluntarily destaggered their boards, exposing themselves to the risk of being removed from office. This article investigates why managers decide to destagger their boards. I find statistically significant evidence that the likelihood of destaggering increases with shareholder pressure (in the form of precatory shareholder resolutions seeking destaggered boards) and with the amount of the chief executive officer's (CEO's) unvested (including out-of-the-money) options. I do not find evidence of a strong connection between the decision to destagger and firm performance, or other CEO characteristics, including other forms of compensation such as unrestricted equity. The study provides insight into the shareholders' informal power and influence over the board, and the role of equity and monetary compensation in aligning management's interests with those of the shareholders.
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