For years, activist investors and corporate governance advocates have fought to eliminate classified boards at public companies. Classified (or staggered) boards, which only allow a portion of directors to be replaced at each annual meeting, are sometimes seen as a mechanism to insulate directors from shareholder accountability. At oil refiner Phillips 66, these concerns have come to the fore as the company’s charter requires an 80 percent supermajority of outstanding shares to declassify its board – a threshold that is difficult to meet in today’s dispersed ownership landscape and with a largely passive shareholder base, like the one at Phillips 66.

The seasoned activist firm Elliott Management has faced this roadblock before and has found itself at an impasse at Phillips 66. But this time, Elliott has devised an innovative workaround: a shareholder proposal requiring directors to issue letters of resignation in advance of each annual meeting, effectively declassifying the board without formally amending the charter. If successful, this maneuver would force the board to operate as though it were declassified, enabling shareholders to hold directors accountable on an annual basis.

The Classified Board Debacle

Elliott’s proposal, submitted as a non-binding resolution for consideration at the 2025 Annual Meeting, calls on Phillips 66 to adopt an “annual election policy” requiring each incumbent director – including those whose terms are not set to expire – to submit a letter of resignation before each annual meeting. This would effectively override the classified structure by ensuring that all directors are subject to re-election every year, unless a director refuses to comply.

Interestingly, Phillips 66 seems to agree with the need to declassify its board. This year the company informed shareholders that it intends to put forward a management proposal to declassify the board at the 2025 Annual Meeting. In its preliminary proxy materials, filed on March 26, 2025, the company wrote that it “again intends to seek shareholder approval of a management proposal to approve the declassification of the Board at the 2025 Annual Meeting, a proposalthat the Company has previously put forth five times over the past decade.”

Five times. This reality should strike shareholders: Phillips 66 has made this exact commitment multiple times before – in 2015, 2016, 2018, 2021, and 2023 – only for the classified structure to remain intact.

In 2023, an overwhelming 99 percent of stockholders present at the company’s annual shareholder meeting voted in favor of declassification, representing 73.1 percent of shares outstanding – just 7 percent shy of the 80 percent  required to declassify the board. Once again, the supermajority rule kept the structure in place.

This pattern suggests that Phillips 66’s board is using these repeated proposals as a distraction tactic while failing to deliver tangible governance reform that shareholders seem to support. If the desire to declassify is genuine, one would think the board would accept the remedy that Elliott has proposed.

Implications for Other Companies

From a governance perspective, this proposal is both novel and revealing – and could have major implications for other companies. The classified board structure at Phillips 66 has long been a point of contention, yet management has regularly deferred to the supermajority requirement as an immovable constraint. This pattern is common across corporations.

While classified boards have declined in the S&P 1500 in recent years, they remain prevalent, with roughly one in three S&P 1500 companies and nearly half of non-S&P 1500 companies maintaining the structure. If broadly adopted, Elliott’s approach could push many of these companies to reassess their governance policies instead of relying on procedural barriers.

This encounter is a textbook case of the PSI model (problem × solution × intervention) that I have written about elsewhere in my research on shareholder activism. Activists target companies where they perceive a clear problem, a viable solution, and an intervention pathway that allows them to enact change. At Phillips 66, the problem is well-documented. Elliott’s solution – requiring directors to preemptively submit resignations – effectively neutralizes the classified structure’s protective effect. And while the formal intervention pathway remains blocked by the 80 percent voting threshold, Elliott’s workaround circumvents this roadblock by leveraging an existing governance mechanism in a way that allows shareholders to exert greater influence without directly challenging the company’s charter.

This proposal also raises broader questions about how companies and investors approach governance reform. Institutional investors and proxy advisers should pay particular attention to Elliott’s strategy, as it provides a novel way to enhance board accountability in these situations. If successful, this approach could serve as a precedent for activists seeking to overcome structural barriers at other companies.

Shareholders of Phillips 66 now face an important decision. Elliott’s proposal does not demand an immediate or formal declassification, but rather introduces a process that would align board elections with shareholder preferences, as was the case in 2023 and will likely be the case again this year. Whatever the outcome, this innovative approach offers a unique contribution to the evolving landscape of corporate governance and shareholder influence.

This post comes to us from Professor Mark DesJardine at Dartmouth College’s Tuck School of Business.