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.