Risk & Compliance

Qualcomm Seeks End to Staggered Board

The measure is being combined with another resolution calling for the elimination of cumulative voting for directors.
Stephen TaubJanuary 20, 2005

Qualcomm Inc. is changing its governance practices…sort of. The San Diego-based telecom equipment maker announced that at its March 8 annual meeting, the company will ask shareholders to “declassify” its board of directors.

Should the resolution succeed, all board members will come up for re-election every year instead of every three years on a rolling, or staggered, basis. Corporate governance specialists believe that companies without a staggered system have more-responsive directors; theoretically, the entire board can be thrown out en masse by an outsider who launches a proxy fight. For the same reason, lack of a staggered board also makes a company more vulnerable to a hostile takeover.

Even if the measure succeeds, however, the new arrangement will not take full effect until 2007, when the last of the current directors stand for re-election.

Typical of a recent trend, however, the resolution to declassify the company’s board — which gives smaller shareholders more power — is being combined with another calling for the elimination of cumulative voting — a resolution that would have just the opposite effect.

Currently permitted at Qualcomm, cumulative voting gives minority shareholders more power by allowing them to cast all their votes for a single candidate. Under regular or “statutory” voting, shareholders must vote for a different candidate for each available seat.

“Cumulative voting gives minority shareholders more potential influence in board elections,” said a report issued last year by the Investor Responsibility Research Center. “Its effect is increased with a declassified board, since the more directors there are up for election, the greater the number of votes a shareholder may cast for one director.”

Of the 2,000 most widely held U.S. corporations, only 9 percent now allow cumulative voting — less than half the number that permitted the practice in 1990. On the other hand, last year 56 companies agreed to declassify their boards, according to Institutional Shareholder Services.