Cumulative Voting

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Cumulative voting is a system often used in corporations to provide minority shareholders with a vote in the matters at hand. This voting system allows shareholders to cast all of their votes to a single candidate, or split the votes up between different candidates. This enables the shareholders to have a voice on specific issues, including the election of board members. To explore this concept, consider the following cumulative voting definition.

Definition of Cumulative Voting

Noun

  1. A system of voting in a corporation where shareholders can distribute their votes between the candidates on the ballot.

Origin

1535 Latin cumulatus, past participle of cumulare

Cumulative vs. Statutory Voting

In statutory voting, each corporate shareholder is entitled to one vote per share owned, the total number of votes being distributed evenly among the issues or candidates. For example, a shareholder with 50 shares could cast 50 votes for each of six available board positions, but could not cast 20 votes for five of the available board positions, and 200 for the sixth position.

In cumulative voting, each shareholder is entitled to one vote per share times the number of available directors positions, and the votes may be distributed however the shareholder likes. For instance, a shareholder holding 50 shares when three directors are to be elected would be entitled to a total of 150 votes that could be applied toward a single candidate, or divided however the shareholder desires.

Example of Cumulative Voting

Rob owns 60 shares in the company and Jim owns 40 shares. During the electing of the board of directors, Rob has a total of 180 votes, 60 shares for each of the three candidates. Jim has a total of 120 votes, 40 shares for the three candidates. Each man can distribute the total number of votes he holds between the open seats on ballot. To ensure the person of Rob’s choice is elected, he casts at least 61 of his votes for a single candidate.

Point System

Some corporations assign a point system, in which points assigned to individual shareholders are used as votes on the ballot. The point system allots a certain number of points to each voter depending on certain factors. For example, a company might assign shareholders a specific number of points depending on the amount of shares they hold. It is up to each company to determine how points are assigned. For instance, if Rob has 60 shares in the company, the company may assign him 60 points for each candidate on the ballot.

There are no requirements within the cumulative voting system that specifies how many points each voter can have, as it is up to the corporation whether to use a point system, and how those points are assigned. Additionally, there is no requirement for shareholders to be assigned an equal amount of points. Some shareholders may hold more points due to their position in the company or the amount of shares they own.

Determining How to Distribute Votes

With the right formula, a shareholder can calculate how many votes would be needed to elect a specific number of candidates and determine how many of those candidates a person can elect.

The formula X = (SN/D+1) + 1 is used to determine the exact number of shares needed to elect a majority of directors. In this formula:

  • X  represents the number of shares needed to elect the amount of directors
  • S  represents the total number of shares
  • N  represents the number of directors needed
  • D  represents the total number of directors that will be elected

Voting Strategies

Shareholders may employ a number of voting strategies when participating in cumulative voting systems. The two most common are “plumping,” and “spread-out voting.”

  • Plumping – more than one vote allocated to the same candidate
  • Spread-out voting – the designation of the majority of a shareholder’s votes to a single candidate

Ballots

Ballots used in the cumulative voting system differ from those in statutory elections in that statutory ballots only allow the voter to mark his preferred candidates, and his available votes are automatically divided equally among those preferred candidates. This allows each person to give all winning candidates some support. Cumulative ballots allow the voter to indicate how many of his available votes to assign each desired candidate.

Example Cumulative Voting Ballot

The company in question assigns points depending on the amount of shares the person holds multiplied by the number of candidates or issues on the ballot. In this election, the shareholder has 120 total votes because he holds 30 shares in the company, and there are four candidates on the ballot. The voter indicates, on his cumulative voting ballot, how many points or votes he would like to assign his desired candidates:

Elect three board seats.You own 30 shares, thus you have 120 points to use in voting.
(30 shares x 4 candidates = 120)
80 John Doe
Jack Hill
Bob Smith
40 Jim Johnson
Total Votes80 John Doe40 Jim Johnson

 

Related Legal Terms and Issues

  • Board of Directors – A body of members who are elected or appointed to oversee activities that takes place within a corporation or organization.
  • Corporate Shares – The amount of a company’s capital divided among a group of people, which gives holders a portion of the company’s profits.
  • Shareholder – A person who has a share or owns a part of a company.