Shareholder Voting

Two basic forms of voting exist for electing directors to a company's board. They are simple majority and cumulative voting. With simple majority voting, each director is elected individually. Each shareholder casts his votes for his selected candidate. If there are two candidates for a position, one of them must gain one vote more than one half of all the votes cast to win. Consequently, if one shareholder controls one more than one half of all the voting shares he can select his own candidate. Furthermore, that same process is repeated for each position on the board of directors. Finally, the entire board can be elected by merely controlling one more than one-half of all the votes available.

Clearly simple majority voting fails to give even substantial minority shareholders any representation in managing a company. The cumulative voting procedure is designed to offer substantial minority shareholders some representation reasonably consistent with their fractional ownership of the firm. Rather than voting for each individual position separately, cumulative voting allows for the accumulation of votes. This is accomplished by giving shareholders multiple votes. The number of votes conveyed to a shareholder is the number of shares he owns times the number of directors being elected. Then he may combine his votes and direct a large block toward the election of a fraction of the board closer to the fraction of the firm he owns. Thus if there are N directors to be elected, in a firm with S shares outstanding, one seat on the board is guaranteed if you own one share more than $\frac{S}{N+1}+1$. If a minority share holder wishes to elect a multiple number of representatives, R, the equation is:

(1)
\begin{align} V=\frac{RS}{N+1}+1 \end{align}
page revision: 2, last edited: 01 Nov 2007 20:24