Cumulative Voting: Everything You Need To Know
Cumulative voting is a type of voting used by a company's shareholders allowing vote distribution between candidates when voting for a company's directors. 5 min read
2. How Does Cumulative Voting Work?
3. Cumulative Voting vs Statutory Voting
4. Cumulative Voting Ballots
5. What Is Needed For Cumulative Voting To Happen?
6. Reasons To Consider Using Cumulative Voting
7. Problems With Cumulative Voting
8. For More Help With Cumulative Voting
What Is Cumulative Voting?
Cumulative voting is a type of voting system used by a company's shareholders that allows them to distribute their votes between candidates when voting for a company's directors. It is also known as proportional voting.
Shareholders get one vote per share that they hold, multiplied by the number of directors that need electing.
Where multiple candidates are running for a position, each shareholder can choose between voting for a single candidate or splitting their votes between multiple candidates.
How Does Cumulative Voting Work?
If a shareholder with 10 shares is participating in a vote for two open board seats, with Candidates 1 and 2 running for one seat, and Candidates 3 and 4 running for the second seat, they would receive 20 votes (10 x 2). The shareholder's options are as follows:
- Only vote for a candidate for the first seat, using all 20 votes for either Candidate 1.
- Do the same with the second seat, using all 20 votes for Candidate 3.
- Vote in both races and split their votes equally, giving 10 to Candidate 1 and 10 to Candidate 3.
- Split their votes in a different proportion, such as 15 votes for Candidate 1 and 5 votes for Candidate 3.
- Choose throwaway votes, sending 10 votes to Candidate 1 and not using the remaining votes.
- Submit a blank ballot.
Cumulative Voting vs Statutory Voting
If a corporation does not use cumulative voting, the more common alternative is statutory voting. Statutory voting also gives each shareholder one vote per share, but shareholders must divide their votes evenly among the issues or positions being voted on.
For example, a shareholder with 10 shares who is voting for two open seats must divide those 20 votes evenly, using 10 votes for a candidate in the first race and 10 for a candidate in the second race.
Some corporations may choose to assign a points system in which shareholders get points to use as votes on a ballot.
Several factors could affect the number of points allotted, including the shareholder's place in the company and the number of shares held.
There are no rules within a cumulative voting system that limit how many points each voter can have, and shareholders do not need to be assigned an equal number of points.
Cumulative Voting Ballots
On cumulative voting ballots, shareholders can show the number of votes they wish to give their chosen candidates.
On statutory voting ballots, shareholders are only able to choose a candidate. They cannot specify the number of votes; instead, votes will be divided evenly.
Here is an example of a cumulative voting ballot:
"Elect Three Board Seats. You own 20 shares, thus you have 120 points to use in voting (120 x 3).
- James Carter - 80
- Marlon Smith
- Roger Davis - 40
- Daniel Jones
- Cliff Johnson
Total Votes: James Carter 80 Roger Davis 40"
What Is Needed For Cumulative Voting To Happen?
Cumulative voting can happen if the following conditions are met:
- Cumulative voting is optional under Corporations Code §7615(a) , but the Davis-Stirling Act requires cumulative voting on ballots if permitted in an association's governing documents. ( Civ. Code §5115(c) )
- Membership must be given notice of their right to cumulate their votes so all members can exercise that right. ( Corp. Code §7615(b) )
- When ballots are mailed to the membership, notice to cumulate votes should be given in the voting instructions.
- If cumulative voting is required, it only applies to director elections and only when more than one director is being elected to the board. However, bylaws may require that more than two seats be open for cumulative voting to take effect.
- Accordingly, associations must check their documents when adopting election rules. If an association is under developer control, more than two positions must be open before cumulative voting applies. ( Calif. Code of Regulations §2792.19(b)(1) )
- If the governing documents require cumulative voting in the election of directors, it will also apply to membership removal of individual directors.
Reasons To Consider Using Cumulative Voting
Cumulative voting benefits minority shareholders by allowing them to focus all of their votes on a single candidate or decision point. If multiple minority shareholders work together, they can often cause a change or win an appointment they want, despite being outnumbered.
For example, suppose two shareholders each have 25 shares in a company and a third has 40 shares, and they are all voting on two seats. If the first two put all of their votes towards the same candidate in just one of the seat elections, they can guarantee that candidate is elected, regardless of how the third shareholder votes.
With the right formula, a shareholder can calculate how many of their votes would be needed to choose a specific number of candidates. The following formula is used to calculate the exact number of shares needed to choose a majority of directors.
X = (SN/D+1) + 1
- X is the number of shares needed to choose the number of directors
- S is the total number of shares
- N is the number of directors needed
- D is the total number of directors that will be chosen
Using formulas like this one, a shareholder can choose the right voting strategy to get the desired result. The following are some of the more common strategies associated with this method:
- Plumping – more than one vote allocated to the same candidate
- Spread-out voting – a shareholder giving the majority of their votes to a single candidate
Problems With Cumulative Voting
Cumulative voting can also be a negative thing. Using this voting method makes it easy for disruptive single candidates to get on the board of directors. This kind of voting system also makes it almost impossible to remove a director once elected. A small section of shareholders can block the move, even if most of the voters approve.
Removing a Director With Cumulative Voting
Once the recall of a director is approved, the removal can be blocked if the votes cast against the removal of a director would be enough to elect the director in a cumulative voting system.
The following formula can be used:
V = number of votes needed to block removal
D = total number of directors authorized in the bylaws
M = total number of members entitled to vote
For example, if there are 50 shareholders eligible to vote, and there are eight directors on the board, we would need 6 or more votes to block the recall. This is shown by the following formula:
For More Help With Cumulative Voting
If you need help with cumulative voting, you can post your question on UpCounsel's marketplace. Upcounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures and Airbnb.