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Also known as a staggered board, a classified board is a board of directors which has only a limited number of seats on the board up for election in any given calendar year. This approach allows for the ongoing rotation of members on the board, while still managing to retain some degree of continuity from one year to the next.
The concept of a classified board involves establishing the process whereby individuals are elected and serve for a specific amount of time on the board. Each seat on the board of directors is assigned a class that denotes how long the individual occupying that seat will serve. For example, someone who is elected to a Class I seat will serve for a twelve-month period, while someone who is elected to a Class III seat will serve for three consecutive years. The end result is that by staggering the seat elections, a few seats are up for election each year, while the majority remain to serve for at least one more year, giving the board a sense of stability and continuity.
One of the benefits of a classified board is that there is a regular injection of fresh concepts and ideas, since at least a few seats will come up for election each year. This helps to prevent the board from growing stale and out of touch with the constituency that make up the organization that the board governs. The approach also helps to minimize the potential for a select few in the organization from seizing and maintaining control of the board for long periods of time, a situation that can lead to a decline in the function and productivity of the organization.
At the same time, the classified board approach also makes it much harder for hostile takeovers to occur. When seen as an anti-takeover measure, staggering the board seats makes it harder for hostile bidders to secure the support necessary to take over the board and thus initiate the process of seizing control of the organization. This approach works equally well with corporations and non-profit entities that operate with an elected board of directors.
It is not unusual for the provisions that establish the classified board to also put limits on the number of successive terms that any one board member can serve. For example, the bylaws of the organization may allow an individual to serve two successive three-year terms, assuming the move has the support of the organization members. However, that individual would not be eligible to serve an additional three years in succession, or to run for a one-year seat. This approach is also considered to be a safeguard from the creation of a power base within the board of directors that could ultimately undermine the effectiveness of the board and the organization it governs.