how does cumulative voting work in a public company for directorships?

December 26, 2006 4:31 PM

cumulative voting: so a small number of shares could affect a proposal by stacking the votes?

i'm intriuged by (what seems to me) to be the allowing in some companies to have cumulative voting- so if the voting was for three new directors, and I bought enough stock (for arguments sake, 33 percent) I could cumulatively vote them all for one person and make that person win?

and how does this play out in proxy battles?

posted by Izzmeister to law & government (3 comments total)

Before any answers come in, my interest only here , please reflect on this:

If 3 are to be elected and 3 or more are running, can the voter vote all the shares for one? And not for each, er.."Position"?

I have my own issue along a similar path is all. I'll be quiet now, thanks.
posted by Freedomboy at 5:26 PM on December 26, 2006

Activist investor can use cumulative voting to gain board seats and, thus, a platform to express their desires for the direction of the company. At the moment, I can't think of specific examples. But think of Carl Icahn's use of board seats with Blockbuster and Kirk Kerkorian's role on GM's board--it's easier for an activist investor to play that kind of role if she can gain a board seat through cumulative voting.

Here's a good explanation of the practice.

The elimination of cumulative voting is a step a company will sometimes take if it is fearful of a hostile takeover. Of course, various laws apply in different states and countries. For example, in some states cumulative voting is the default unless a company's articles of incorporation opt-out, but in Delaware it is not the default and company needs to opt-in.
posted by mullacc at 6:29 PM on December 26, 2006

Freedomboy, if we are talking about the US, then you'll probably want to look to Delaware law since it's a preferred jurisdiction for incorporation. Section 214 of which provides that shareholders of a cumulative voting company get a number of votes equal to the number of shares held multiplied by the number of directors to be elected. So, if there are 9 directors and you hold 100 shares, you get 900 votes, and you can vote all 900 for one person. (Sidenote, if the board is classified then not all 9 will come up for election in the same year).
posted by subtle-t at 10:19 PM on December 26, 2006