Indiana Public Companies Required to Stagger Boards of Directors
Unless Action Taken by July 31, 2009

On May 12, 2009, Governor Daniels signed into law Senate Enrolled Act 450, which, among other changes to Indiana corporate law, changes how publicly-held corporations incorporated in Indiana must structure their boards of directors. As of July 1, 2009, corporations incorporated in Indiana that have a class of voting shares registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 must stagger the terms of their board members into two or three groups, elected for two or three year terms, respectively, unless they take action by July 31, 2009 to opt out of this requirement.

To opt-out of having mandatory staggered board terms, a public corporation has until July 31, 2009 to adopt a bylaw expressly electing not to be governed by this requirement. Inaction (whether the organization's current bylaws provide for some form of a classified board or are silent as to staggered terms) will cause board members' terms to be staggered, either pursuant to a provision for classification of the board into groups that is adopted by the board of directors or in accordance with a statutory default board classification rule. The statutory default classification rule specifies that directors of a public corporation that has not opted out by July 31, 2009, and that has not, by board action, adopted some other permissible board classification structure, shall be divided alphabetically by last name into three groups for election purposes and elected for three year terms.

Importantly, an election before July 31, 2009, by the board of directors of a public corporation not to be governed by the law's new rule as to staggering of the terms of directors may be rescinded by a subsequent board action unless the original articles of incorporation contain a provision expressly electing not to be governed by this default provision.

A public corporation that already has adopted a classified board of directors in accordance with prior Indiana law need not take any action in response to this law; the new law does not impose the alphabetically-grouped three-class system of board classification on corporations that have adopted some other permissible board classification system. On the other hand, any Indiana-chartered public corporation that does not currently have a classified board of directors that is structured and staggered in accordance with Indiana law must act by July 31, 2009, in order to avoid changing its board structure.

For further information, or to discuss the implications of this new law, please contact Stephen Hackman or Richard Thrapp of Ice Miller's Business Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.