Classified Boards

Abstract
This paper examines the controversial governance mechanism of classified boards. Classified board advocates believe that multiple year terms give directors a longer-term horizon. Shareholder activists push for declassifications of boards because they argue that agency problems are likely to arise. In a longitudinal study of six years of KLD, RiskMetrics and Compustat data, we test the influence of classified boards on social performance dimensions. We find that classified boards are negatively associated with social performance strengths in the areas of community and diversity, indicating that they are not proactive in these areas. However, classified boards are negatively associated with social performance concerns on five out of six dimensions, providing evidence that while these boards are not proactive in stakeholder management, neither are they harmful nor neglectful towards stakeholders. The overall findings suggest that classified boards may be associated with a stakeholder management philosophy of “do no harm.”
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