Bridge over ocean
27 February 2018 Financial Analysts Journal

Classified Boards, Stability, and Strategic Risk Taking

  1. Olubunmi Faleye

Classified boards are the focus of recent shareholder activism aimed at improving U.S. corporate governance. Although critics argue that classified boards reduce directors’ effectiveness, proponents counter that they enhance corporate stability, board independence, and long-term strategic risk taking. Based on hand-collected data, this study found that stability was similar for both classified and nonclassified boards and that continuity rates for independent directors were comparable for both categories. The study found as well that companies with classified boards invested less in R&D and other company-specific capital assets. These findings were also true for companies with relatively complex operations that are often considered most likely to benefit from classified boards.

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