KBR (NYS: KBR) directors have finally supported board declassification, recommending in the company's preliminary proxy statement that its shareholders vote for the change to its certificate of incorporation. However, if you hit the rewind button, you'll see that KBR sued the first person who attempted to propose this shareholder-friendly change at the company's annual meeting last year.
That person, shareholder activist John Chevedden, faced legal action from KBR last year on proof-of-ownership issues. He's still appealing a U.S. District Court decision made against him last year.
Classified boards are unfriendly to shareholders because they divide directors into different "classes" for election on a staggered basis. These classes have different term lengths. Simply put, shareholders lack the ability to replace an entire board in any given year under a classified board policy. Another potential problem is long-serving directors becoming complacent or too cozy with management.
Last year eBay (NAS: EBAY) did the right thing when it moved to declassify its board. Fortunately, more companies are coming around to the idea that this policy works out better for managements and directors than for shareholders.
This year more companies are responding to shareholders' desire for declassified boards. For example, Western Union (NYS: WU) has decided to include a management-backed proposal in favor of a declassified board this year.
Juniper Networks (NYS: JNPR) has also agreed to adopt declassification, causing the New York City Pension Funds and Comptroller John C. Liu to withdraw a related shareholder proposal.
All told, 42 large-cap companies are making such moves, according to Harvard Law School's Shareholder Rights Project, which has been championing the cause. Other major companies that have bowed to shareholder calls for the practice include blue-chip behemoths like McDonald's (NYS: MCD) .
Obviously the trend is positive for corporate governance-minded activists like Chevedden, although some victories are hard-won, given the litigious battle scars suffered to get there. Shareholders everywhere should be grateful to see the declassification movement gaining ground -- and grateful to those who have taken some knocks to help move the cause forward.
At the time thisarticle was published Alyce Lomax does not own shares of any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of eBay, McDonald's, and Western Union, as well as writing puts on eBay and writing a covered straddle position in Western Union. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.