Curious about the classified board structure? Read on to learn how varying term lengths promote healthy board governance.
A classified board consists of directors who serve varying term lengths. This type of board is established to ensure continuity of the board, fend off hostile takeovers, and promote good corporate governance.
Classified boards are beneficial for long-term strategy because they prevent all board members from facing re-election at any one time. With promises of greater stability, decreased complexity, and better focus on long-term strategies, many organizations prefer the classified board structure.
To effectively carry out their designated roles and responsibilities, classified boards often use board meeting management software to promote collaboration, streamline communication, and uncover critical insights.
What is a Classified Board?
A classified board is a structure for a company’s board of directors, where directors serve different term lengths. The term length typically varies between one and eight years, depending on their specific classification.
Often, a classified board includes three to five positions, with the longer terms awarded to senior board members, such as the board chair. Each position carries different terms of service, which vary in length and allow for staggering elections.
This makes a classified board a type of staggered board to promote good governance within an organization and prevent hostile takeovers.
Classified Board Roles and Responsibilities
Board of directors are critical to the success of an organization, as they’re responsible for the growth or demise of an organization. It’s important to note that a board of directors differs from a board of trustees. The board of trustees governs foundations, endowments, and charitable trusts, while the board of directors governs nonprofit organizations.
The board of directors focuses its duties on 3 main areas: accountability, governance, and strategic direction with the help of an advisory council.
1. Accountability
The board is legally responsible for providing accountability and oversight for the organization. It must ensure compliance with all ethical and legal standards and the organization appropriately manages its resources and assets.
2. Governance
Board governance is the framework that controls the board’s structure, decision-making, and operations. It includes systems, rules, and processes to help board members understand their specific duties and responsibilities, and how to best work with the management.
3. Strategic Direction
The board of directors informs the organization’s growth pattern. This is achieved through strategic planning on an ongoing basis for both long-term and short-term goals.
If the classified board includes members with strategic experience in a broader range of industries, it can help the organization address potential threats and opportunities.
Apart from acting as a fiduciary for shareholders, additional board responsibilities include:
- Supporting executives and their teams
- Hiring and firing senior executives
- Creating dividend policies
- Establishing executive compensation
- Maintaining the organization’s resources
- Setting general company goals
- Ensuring the organization is well-equipped with management tools, such as a board portal
An organization’s bylaws determine the responsibilities, structure, and power given to the board. The bylaws also determine the number of board members, the member’s election process, and meeting frequency.
Efficiently track and document board decisions with our Meeting Minutes Template
Classified Board Management Software
Board meetings should be seamless, effective, and informed. Increasingly, organizations turn to cloud-based board management software to streamline board governance.
The digital shift in board management has been influenced by the rise of cloud solutions and communication applications for remote management.
Preparing for a board meeting has become easier with an innovative board management solution. OnBoard’s board management software streamlines communication and uncovers vital insights to help boards make sound business decisions.
What are the Most Valuable Features of a Board Management Solution?
Board management solutions should provide classified boards with ease of service, functionality, and convenience. Below are some features you should expect to see in a best-in-class board management solution.
- Video Integration allows CEOs and board directors to communicate face-to-face without switching between apps, such as Skype and Zoom.
- Encryption and two-step authentication ensure strict file security.
- Role-based permissions eliminate the risk of third-party access without authorization, where a cloud-based platform ensures security and redundancy.
- A central meeting hub to make scheduling easier and reliable.
- Agenda creation to allow every board member to be on the same page with a unified template containing files and planned events.
- The platform automates meeting minutes in a hassle-free method, making it easy to focus on the meeting itself.
- Voting and polling to establish every member’s support in decision-making or problem-solving.
- Task management to track, organize, and manage individually-assigned tasks.
- News and announcements keep everyone up-to-date with the latest developments in the organization.
- Document center to store important files and give access to other board members.
Ultimately, board management solutions help organizations stay organized and conduct effective board meetings.
Frequently Asked Questions
What is a Classified Board System?
Depending on the various board positions, a classified board is divided into multiple ‘class’ types. During each election period, only one class of positions is open to new members, staggering the number of available openings within board directorship.
For example, a company with 12 board members may be divided into classes, such as: Class 1, Class 2, Class 3, and Class 4. The classes will serve from years one, two, three, and four, limiting the number of board members for re-election in a given year.
What are the Advantages of a Classified Board?
A classified board is better positioned to prevent proxy contests from activist investors or a group of stockholders who try to pressure the board on a particular set of actions.
Another benefit of a classified board is the structure promotes the board’s stability, fostering a long-term strategic vision for the organization and a level of continuity in board management.
OnBoard: Run Your Board Meetings in a Simple and Secure Way
OnBoard provides board leaders with an elegant solution to uncover critical business insights, enhance governance and communication, and improve decision-making. We work with organizations of every size and scope, including nonprofits, venture capitalist and portfolio companies, government, higher education, health care, and financial institutions.
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About The Author
- Josh Palmer serves as OnBoard's Head of Content. An experienced content creator, his previous roles have spanned numerous industries including B2C and B2B home improvement, healthcare, and software-as-a-service (SaaS). An Indianapolis native and graduate of Indiana University, Palmer currently resides in Fishers, Ind.
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