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 a process sometimes known as proportional voting. Cumulative voting is advantageous for individual investors because they can apply all of their votes to one candidate.
- Cumulative voting is used when electing a new director or board of directors.
- Each shareholder typically has one vote per share, multiplied by the number of directors to be elected.
- The shareholder can vote proportionally to the number of shares they hold.
- The shareholder can split the votes among multiple candidates or apply them to just one candidate.
Understanding 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.
Suppose multiple candidates are being considered for multiple positions, such as board seats. In that case, 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. However, the shareholder can also choose to split his votes across multiple options.
Benefits for Minority Shareholders
This process is said to benefit minority shareholders because they can 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.
Real World Example of Cumulative Voting
For example, if a shareholder participates 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 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. Alternatively, the shareholder can direct the votes in an alternate proportion, such as 150 votes for candidate A and 50 votes to candidate C.