What is 'Cumulative Voting'
Cumulative voting is the procedure of voting for a company's directors; each shareholder is entitled one vote per share multiplied by the number of directors to be elected. This is sometimes known as proportional voting. This is advantageous for individual investors, because they can apply all of their votes toward one candidate.
BREAKING DOWN 'Cumulative Voting'Cumulative voting is a voting system used by organizations that allow shareholders to vote proportionately to the number of shares they hold. This allows a shareholder with 100 shares to cast the equivalent of 100 votes towards any single issue. In cases where multiple candidates are being considered for multiple positions, such as board seats, each shareholder has the option of placing all of his votes toward one seat during elections, or towards one choice when voting on others matters, but he can also choose to split his votes across multiple options.
For example, if the aforementioned shareholder is participating in a vote for two open board seats, with Candidates A and B running for the first seat and Candidates C and D running for the second seat, he would possess a total of 200 votes. He could choose to participate only in the first seat vote, sending all 200 votes toward the candidate of his choice, Candidate A. He could also vote solely on the second seat, placing all 200 votes on Candidate C. If he wants to vote in both, he can split his votes equally, giving 100 to Candidate A and 100 to Candidate C, or he can direct his votes in an alternate proportion, such as 150 votes for Candidate A and 50 votes to Candidate C.
Benefit for Minority Shareholders
This process is said to be of benefit to minority shareholders by giving them the option to focus all of their attention on a single candidate or decision point. If multiple minority shareholders focus in a single direction together, they often have the power to enact a change or appointment in their desired direction.
Cumulative Voting Alternative
If an organization chooses an alternative to cumulative voting, it often uses statutory voting. In these cases, shareholders still receive a number of votes proportionate to the number of shares they hold, but they must direct their votes towards all positions or issues being voted upon.
For example, if there are three board seats open, and a shareholder has 100 shares, he has 100 votes for each of the open seats. This is in contrast to cumulative voting, where the shareholder could take all 300 votes and direct them toward a single seat.