What is Cumulative Voting?
Cumulative voting is a process that allows shareholders to cast all the votes at their disposal for a single candidate. This type of voting system is understood to provide minority shareholders with stronger voice and vote in matters that require the approval of a majority of the shareholders of a given corporation. The idea is that the process of cumulative votes makes it possible for all shareholders to more directly influence the outcome of an issue, such as the election of persons to open seats on the board of directors.
Cumulative voting is one of two commonly utilized voting systems. The other system, known as statutory or regular voting, requires that individual shareholders cannot use all their allotted votes to elect one candidate to an available seat on the board. Instead, the shareholder must use his or her allotted votes to vote for elections to each open seat under consideration. This means that statutory voting in a situation where there are three open seats on the board, the shareholder would have to cast a portion of his or her votes for a single candidate for each of the seats. This is in contrast to cumulative voting, which would allow the shareholder to cast all votes for one candidate to fill one seat.
The process of cumulative voting is thought to provide investors who control less votes to still exert a considerable amount of influence on the outcome of any given vote. In the case of electing persons to serve on the board of directors, a minority shareholder can choose to focus on one particular seat and cast all available votes for the candidate of his or her choice. If several minority shareholders choose to back the same candidate, there is an excellent chance that at least one of the new appointees will be a favorite with shareholders who possess fewer numbers of shares.
Not all corporations choose to allow cumulative voting to take place. Provisions contained within the bylaws and the issue of the shares of stock will usually specify how the votes connected with the shares may be utilized in a voting situation. A review of these documents can help a shareholder to understand what type of voting system is in use with a given corporation.
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