July 11, 2011
Mandatory Staggered Boards in Oklahoma
Today’s Wall Street Journal has an interesting article about a new addition to the Oklahoma general corporation law, added last year at the behest of Chesapeake Energy Corp. The new law requires (yes, requires) that public corporations incorporated in Oklahoma have staggered boards. (A staggered board, for those of you not up on corporate law, is one where directors serve two or three year terms and only a portion of the board is elected each year.) Chesapeake was under pressure from some of its shareholders to require annual election of directors; this was apparently its response.
The provision was added to a long bill that adopted a new uniform partnership act, and it apparently caught other Oklahoma companies by surprise. According to the Journal, Oneok Inc., Oklahoma’s biggest public company by sales, recently called the governor to complain. Another corporation, OGE Energy, just switched to annual elections last year; it will now have to go back to a staggered board.
Here’s the full text of the new Oklahoma provision:
2. a. Any domestic corporation with both:
(1) a class of voting stock listed or traded on a national securities exchange or registered under Section 12(g) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78a et seq., as amended, and
(2) one thousand (1,000) or more shareholders of record,
shall have a board of directors that is divided into two or three classes, as set forth in the certificate of incorporation or bylaws of such corporation, the term of office of each such class to expire as provided in paragraph 1 of this subsection. If such a domestic corporation does not have a certificate of incorporation or bylaw dividing its board of directors pursuant to this paragraph, the board shall automatically be divided into three classes consisting of a number of directors as nearly equal in number as possible, with the directors of such corporation placed sequentially one at a time into each class beginning with the first class, alphabetically by last name.
People have debated the merits of staggered boards for some time now, but I don’t think that’s the most important issue here. The real issue is whether a state legislature should mandate a single rule for all businesses or let the owners of those businesses decide for themselves. I don’t think the government should intervene in either direction. It will be interesting to see how the proponents of mandatory annual elections will react to this one; they certainly can’t argue with a straight face that the state government should not intervene.