Cumulative voting is a type of voting which is used by a company’s shareholders which allows vote distribution between candidates when voting for a company’s directors.
What is cumulative voting?
It’s a type of voting system used by a company’s shareholders which allows them to distribute their votes between the various candidates when voting for a company’s directors. It’s known as proportional voting. Shareholders will get one vote per share they hold, multiplied by the numbers of directors which need to be elected.
If multiple candidates are running, each shareholder can choose between voting for a single candidate, or splitting their vote between numerous candidates.
How does cumulative voting actually work?
If a shareholder has 10 shares and is participating in a vote for 2 board seats, with candidate 1 and 2 running for a single seat, and then candidate 3 and 4 running for another seat, they would get 20 votes. The shareholder’s options are the following:
- Vote for a candidate for the first seat, and use all 20 votes for candidate 1
- Use all 20 votes for candidate 3
- Vote in both races, and split the votes equally between 2 candidates
- Split the votes in a different proportion; i.e. 15 votes for 1 candidate, and 5 votes for another candidate
- Choose throwaway votes, give 10 votes to Candidate 1, and not use the remaining votes
- Submit a blank ballot
Cumulative Voting versus Statutory voting
If a corporation isn’t using cumulative voting, the most common strategy is statutory voting. This gives each shareholders one vote per share. The issue is, the shareholders have to divide their votes evenly among the issues and positions that are being voted on.
Some companies use a point system in which a shareholder gets points to use as votes on a ballot. Many factors can affect the number of points allowed, including the shareholder’s position in the company and the numbers of shares the shareholder holds. There’s no rules within a cumulative voting system, which limits how many points each voter is allowed to have. Shareholders don’t need to be assigned an equal number of points.
Cumulative Voting Ballots
When it comes to cumulative voting ballots, shareholders are allowed to show the number of votes they want to give their candidate. On a statutory voting ballot, shareholders are only able to choose their candidate. They can’t specify the # of votes. Instead, the votes are dividied evenly.
What’s needed for cumulative voting to occur?
This voting system can happen if the following conditions are met:
- This is optional under Corporations Code §7615(a) , but the Act requires cumulative voting on ballots is allowed in an association’s documents.
- Membership has to given notice of their right to cumulate their votes so all members can exercise this right.
- When ballots are mailed, notice should be given in the instructions.
- If cumulative voting is required, it only applies to director elections and only if more than 1 director is being elected to the board. The bylaws of the company might require that more than 2 seats be open for voting to take effect.
- Associations have to check their documents when adopting election rules. If an association is under developer control, more than two positions have to be open before cumulative voting applies.
Why you should consider cumulative voting
This benefits minority shareholders by letting them focus all of their votes on a single candidate or decision. If multiple minority shareholders exist, they can cause cause a change, or win an appointment they want, despite being outnumbered by other shareholders.
Cumulative voting is also a negative thing. When you use this method, it makes it easy for single candidates to get on the board of directors. It also makes it ALMOST impossible to remove a director – once elected. Once the recall of a director is approved, a removal can be blocked if the votes against the removal of the director are enough to elect the direct in a cumulative voting system.