What is 'Cumulative Voting'?

Cumulative voting is the procedure followed when electing a company's directors. Typically, each shareholder is entitled to one vote per share multiplied by the number of directors to be elected. This is sometimes known as proportional voting. Cumulative voting is advantageous for individual investors because they can apply all of their votes to 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 toward 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 their votes toward one seat during elections, or toward one choice when voting on other matters, but the shareholder can also choose to split his votes across multiple options.

For example, if a shareholder is participating in a vote for two open board seats for which candidates A and B are running for the first seat and candidates C and D are running for the second seat, the shareholder would possess a total of 200 votes. The shareholder could choose to participate only in the first seat vote, sending all 200 votes toward the candidate of his choice, candidate A. The shareholder could also vote solely on the second seat placing all 200 votes on candidate C. If the shareholder wishes to vote in both seats, the shareholder can split his votes equally giving 100 to candidate A and 100 to candidate C, or the shareholder can direct the 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 because they have 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 influence a change or appointment in their desired direction.

Alternative to Cumulative Voting

If an organization chooses an alternative to cumulative voting, it may institute statutory voting. In these cases, shareholders still receive some votes proportionate to the number of shares they hold, but they must direct their votes towards all positions or the issues under consideration.

For example, if there are three board seats open, and a shareholder has 100 shares, the shareholder 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.

RELATED TERMS
  1. Voting Right

    The right of a stockholder to vote on matters of corporate policy ...
  2. Contingent Voting Power

    A provision granting voting rights to preferred shareholders ...
  3. Voting Trust Certificate

    A voting trust certificate is a document issued by a corporation ...
  4. Control Stock

    1. Equity shares owned by major shareholders of a publicly traded ...
  5. Voting Poison Pill Plan

    An anti-takeover strategy in which the company being targeted ...
  6. Controlling Interest

    When one shareholder or a group acting in kind holds a high enough ...
Related Articles
  1. Investing

    Shareholders: Vote Your Proxy and Be Heard

    Voting shares, in person or via proxy ballot, is a right every shareholder should exercise. Here's why.
  2. Investing

    What Is Tenure Voting?

    This stockholder voting structure, one of three types, has advantages and disadvantages. Here’s a look at the pros and cons of all three.
  3. Managing Wealth

    Keeping Control of Your Business After the IPO

    Taking a company public doesn't mean founders must completely give up calling the shots. Before the IPO, consider these tactics to keep control after it.
  4. Small Business

    How Zuckerberg Will Control Facebook Forever (FB, GOOG)

    Zuckerberg has pledged his wealth for charity, which includes his Facebook stock ownership. Here's how he will still control the Facebook business forever.
  5. Investing

    Brexit: Are the Rich Getting Sick of the Poor - and vice-versa?

    The decision to leave the EU underscored the growing gap between the wealthy and everyone else.
  6. Investing

    Is the Presidential Election Really Hackable? (MSFT)

    Electronic voting booths need upgrades, but 3/4s of the country still votes on paper.
  7. Tech

    How Blockchain Technology Can Prevent Voter Fraud

    As a technology, blockchain is quickly becoming unrivaled. One of the biggest problems that blockchain’s decentralized muscle can solve is voter fraud.
  8. Investing

    Brexit: What You Need To Know

    A summary of what you need to know over the next 24-48 hours during the Brexit vote
  9. Tech

    Global Markets Continue to Dive Post Brexit

    From the triumphant "We're Out!" headline in the pro-Brexit Daily Mail, to the left-wing French newspaper Libération's "Thank you from the bottom of our hearts, England," it seemed no news outlet ...
RELATED FAQS
  1. How do a corporation's shareholders influence its Board of Directors?

    Find out how shareholders can influence the activity of the members of the board of directors and even change official corporate ... Read Answer >>
  2. Why would a company have multiple share classes, and what are super voting shares?

    Before investing in a company with multiple share classes, be sure to learn the difference between them. Read Answer >>
  3. Do convertible bonds have voting rights?

    Convertible bonds usually have no voting rights until they are converted. Even after conversion, they may not be granted ... Read Answer >>
  4. What is the difference between Class A shares and other common shares of company's ...

    Discover how a company can break down its common stock into multiple classes and how these classes differ from one another ... Read Answer >>
  5. What rights do all common shareholders have?

    Learn what rights all common shareholders have, and understand the remedies that can be taken if those rights are violated ... Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center