Trending September 2023 # Complete Guide To Cumulative Voting With Example # Suggested October 2023 # Top 18 Popular | Uyenanhthammy.com

Trending September 2023 # Complete Guide To Cumulative Voting With Example # Suggested October 2023 # Top 18 Popular

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What is Cumulative Voting?

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Purpose of Cumulative Voting

Shareholders generally must vote on numerous crucial matters of the company, including the selection of corporate board members. Typically, shareholders have the right to cast one vote per share they own when a specific matter is up for voting. Consequently, the minority shareholders tend to have a limited say in selecting the corporate board members in case of a straight voting method. In contrast, the majority shareholders have more votes owing to their higher shareholding; thus, their opinions get preference. However, many people believe that this setup suppresses the opinion of minority shareholders, which is considered a problem, and this is where cumulative voting comes into play to save the day.

Most S&P 500 companies don’t employ the cumulative voting system. Hewlett-Packard used the cumulative voting system in the past. But in 2023, Hewlett-Packard rejected the system stating that it is incompatible and conflicting with the majority vote standard for the election of directors. The system’s fundamental purpose posed a problem as it enabled a minority of shareholders to elect directors who lacked the support of the majority shareholders.

Example of Cumulative Voting

Let us assume that John is one of the minority shareholders of a company and has 100 shares. The company is currently having an election for five directors. Under the straight voting system, John can allocate a maximum of 100 votes for each candidate totaling 500 votes (100 votes for each of the five candidates). On the other hand, under the cumulative voting system, John can allocate a maximum of 500 votes to a single candidate or 250 each to two candidates or divide the votes whichever way he wants. Effectively, John can allocate five times the votes to a single candidate than what he can do in the case of a straight voting system. This is how it provides more power to the minority shareholders.

Impact of Cumulative Voting Advantages

It is useful in empowering minority shareholders.

Under this, several minority shareholders join forces to have a good shot at electing their desired candidates.

It helps prevent the majority shareholders’ selection of the same type of candidates.

This can lead to uncertainty within the organization.

It is less useful without any proper communication channels in the organization.

A small section of shareholders can work in cohorts to misuse the system, making removing a director once elected almost impossible.

Key Takeaways

Some of the key takeaways of the article are:

It is used in the election of the board of directors.

The entitlement of votes can be determined as the product of the number of shares owned and the number of directors to be elected.

In cumulative voting, the shareholders can cast all their votes for one candidate or split the votes among multiple candidates.

Most S&P 500 companies don’t use the cumulative voting system for electing their board of directors.

Conclusion

So, it can be seen that organizations can use cumulative voting to protect the interest of minority shareholders in selecting the board of directors. If the minority shareholders use the voting system effectively, they can have higher chances of electing their preferred candidate.

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