Jonathan Macey is Sam Harris Professor of Corporate Law, Corporate Finance and Securities Law at Yale Law School and Professor in the Yale School of Management. This post is part of the Delaware law series; links to other posts in the series are available here.
Staggered terms for corporate directors, long a source of debate in corporate governance circles, have again moved from the wings to center stage thanks to a heated proxy contest launched by activist investor Elliott Investment Management L.P. for seats on the board of directors of oil giant Phillips 66. Funds managed by Elliott have a $2.5 billion stake in Phillips, giving it an ownership stake of about 5.7 percent of the company, and making it one of the company’s five biggest shareholders.
Phillips has gone to extraordinary lengths to use its staggered board to thwart shareholder democracy. Not content with a classified board of directors, with three director classes serving staggered three-year terms, it also is among the 9 percent of S&P 500 companies that require a supermajority shareholder vote to amend their charter so that they can join the mainstream of public companies and rid themselves of their classified board governance structure. This toxic combination of a staggered board and a supermajority-voting requirement to get rid of the staggered board has created a truly Orwellian problem for shareholders. Repeatedly in the recent past, in 2015, 2016, 2018, 2021, and 2023, shareholders have voted to amend the company’s charter to de-stagger the board. Most recently, in 2023, the proposal to jettison the staggered board received astonishing support, garnering 99 percent approval of the shares voting in that election. However, amending the corporate charter requires not merely the approval of the shares voting in a particular election, but approval of 80 percent of the outstanding shares. Unfortunately, even with 99 percent of shareholders approving, not enough shares voted to get the proposal past the required 80 percent threshold.
