Question

The corporation’s shareholders are dissatisfied with these management decisions and a group is organizing to replace the board members with a vote at the next annual meeting. Assume there are 100,000 voting shares and elections for the 5 board positions are managed using cumulative voting. If there are only two voting groups, one supporting the board and one against, how many votes do the dissenters require to entirely replace the board? How would this change with a straight vote? Explain the trade-offs with these voting practices.

Answer 1

1. The dissenters require 2/3 rd of total voting shares to replace the board entirely. i.e.., 66667

2. In the case of straight voting the shareholders can caste their vote only to the extent of maximum 20000 voting shares per a respective director position. The director securing the highest number of voting shares will be nominated for the respective director position.

Trade-off between the voting practices :-

In cumulative voting, the shareholder can cast the total number of his votes for any a director position in whatever proportion...

whereas

Straight voting, commonly known as statutory voting, is a corporate voting system used to elect directors . In the context of electing a director, each share is entitled to one vote per director position.

For example, if a shareholder owned 100 shares and three directors were up for election, the shareholder can cast up to 100 votes per director for a total of 300 votes. Note that each director can only be voted up to 100 – the shareholder cannot allocate more than the number of shares owned to each board member.

The differentiating point between straight voting and cumulative voting lies in the fact that in cumulative voting, the shareholder can cast the total number of his votes for any candidate or in whatever proportion he or she desires. Therefore, cumulative voting as an alternative to straight voting allows more minority shareholder representation.