H&R Block, amid proxy battle, to declassify board

The largest U.S. tax preparer intends to hold a special meeting before year-end to seek shareholder approval to end staggered elections, in which only a minority of the company's 11 directors are up for election each year.

H&R Block, based in Kansas City, Missouri, said the change would take effect with its 2008 annual meeting. Directors whose terms end later would be required to resign.

Chief Executive Mark Ernst said the change would enhance corporate governance, adding that the vote followed talks with several of the company's largest shareholders.

Governance experts say staggered board elections make it harder for unhappy shareholders to replace management because they can't overhaul an entire board at once.

Breeden is a hedge fund investor and former chairman of the U.S. Securities and Exchange Commission. He has been seeking board seats for himself and two associates at H&R Block's annual meeting on September 6.

His firm, Breeden Capital Management LLC of Greenwich, Connecticut, said it owns 1.84 percent of H&R Block's shares.

In a statement, Breeden said, "We are pleased that the company has elected to adopt a portion of our suggestion, and look forward to persuading the board to adopt the rest of our many suggestions, following our election to the board."

Breeden has complained about H&R Block's share price, calling on management to focus on tax preparation and exit underperforming businesses such as subprime mortgage lending.

Late Monday, Harris Associates LP, the Chicago-based parent of the Oakmark mutual funds, said it plans to vote its 6.76 percent stake in H&R Block in favor of Breeden's candidates.

H&R Block is selling its Option One Mortgage Corp. subprime unit to private equity firm Cerberus Capital Management. Last week, it said the sale, once expected to close by the end of October, might not close until year end.

Shares of H&R Block closed down 62 cents at $19.08 on the New York Stock Exchange. They have fallen 17 percent this year.

(Editing by John Wallace/Jeffrey Benkoe/Richard Chang)