Investors have recently learned that another state, Iowa, has adopted a law that mandates classified boards.

Earlier this year, state lawmakers approved an amendment to the Iowa Business Corporations Act (IBCA) that requires public companies with more than 2,000 shareholders to maintain staggered board terms until Dec. 31, 2014. The law, which took effect March 23, provided a 40-day period during which a company's board could unilaterally vote to opt out of the classification mandate.

It appears that this legislation was passed to help Casey's General Stores, an Iowa-incorporated firm that faced an unsuccessful proxy fight in 2010. Casey's, an S&P 600 small-cap firm, did not opt out of the law and since has adopted a staggered board structure. The company has strong state legislative connections. One Casey board member, Jeffrey M. Lamberti, is an attorney who served in the Iowa Legislature from 1995 to 2006, which included three years as president of the Iowa Senate. His father is Donald Lamberti, the company's founder.

The classified board law was adopted despite the opposition of some Iowa corporate lawyers. In a Feb. 16 memo, the Iowa State Bar Association's Business Law Section Council observed that the legislation "will dramatically reduce the odds" that companies like Casey's would face proxy fights, but warned that it "would eliminate the voice of shareholders [from deciding whether to adopt staggered board terms] and leave that decision solely to management."

The lawyers' group said the bill was "inconsistent with the overarching principles of the IBCA, as well as historical principles of corporate governance that provide shareholders a voice on all fundamental corporate governance issues . . . "

It appears that the Iowa law applies to just 13 public companies. One issuer, EMC Insurance Group has opted out, while three have not, according to ISS data.

In 2009, Indiana passed a classified board law that provided a limited opt-out period. Last year, Oklahoma passed a state law, reportedly at the request of Chesapeake Energy, that mandates staggered board terms and doesn't permit opt-outs until 2015. The Oklahoma law came as a surprise to some companies, such as ONEOK, which obtained shareholder approval in 2008 to declassify.

While there aren't many public companies incorporated in the three states, there is growing investor concern that issuers are increasingly enlisting lawmakers to help fend off proxy contests and majority-supported shareholder proposals that seek declassification.

When investors do have a chance to vote on this issue, they are overwhelmingly supportive of annual board elections for all directors. During the spring 2011 proxy season, shareholder-filed declassification proposals averaged 73.5 percent support, up more than 12 percentage points from 2010, and won majority support at 22 out of 23 large-cap firms, according to ISS data.

It remains to be seen how investors might respond to Iowa's classified board law. Casey's holds its 2011 meeting on Sept. 16, and its board might face significant opposition. Earlier this year, the American Federation of State, County, and Municipal Employees filed reincorporate-to-Delaware proposals at two Indiana firms, Ball Corp. and WellPoint.