What is Straight Voting?

Under the straight voting scheme shareholders elect directors by a majority vote. Each share of stock has one vote. 

Each share is entitled to vote for each member of the board being elected. Say, for example, that three board members are running for election. 

A shareholder that holds ten shares will be able to vote ten times for each candidate. Basically, this works exactly like the political voting rules when electing governing officials. 

The problem with this situation is that a shareholder that has a majority of the shares (or some combination of shareholders) will be able to elect every member of the board. 

While this outcome may be intuitive, many shareholders will be reluctant to invest their money in a corporation (i.e., by buying shares) without some assurance that their interests will be represented on the board of directors.

The most common way of deviating from the straightforward model is through cumulative voting.  

What is Cumulative Voting?

Cumulative voting combats the dominance of a majority shareholder in straight voting. 

In cumulative voting a shareholder has a total number of votes equal to the # of shares x the # of director positions. 

The shareholder can cast these votes all for one director position or spread them out. 

Allowing the shareholder to concentrate his or her voting power often ensures that the shareholder will be able to elect or have a strong influence in electing that one director. 

It is easy to see how this situation can reinforce minority shareholder rights to board representation. 

While this seems very simply at first glance, arranging for cumulative voting what ensures a minority shareholder will be able to elect a board member is more difficult. 

Luckily there is a simply mathematical formula that demonstrates exactly how many votes a shareholder will need in order to elect a director. 

The reason that I say votes instead of shares is that some types of stock have no vote or more than one vote per share. 

However, in the situation of common stock that has one vote per share, this calculation holds true. 

The formula is: (S x X) / (D+1), where S = the number of shares voting in the election (i.e., total number of votes), X = number of directors you want to elect, D= number of directors up for election. 

To elect the desired number of shareholders, you must have more than this number. Illustration: 

So, if you have 500 shares voting in the election, 10 directors are up for election, and you want to elect 3 directors. 

(500 x 3) / ((10+1) = 136.36, so you will need to own 137 shares to make certain that you can elect three of the ten directors.

Related Topics

• Corporate Governance Law (Intro)
• What is Business Governance?
• Berle-Means Thesis 
• Corporate Governance Rating Definition
• Who are the members of a corporation?
• Corporate Charter
• Shareholder Register
• Common Stock
• Preferred Stock
• Par Value
• Authorized Shares
• Issued Shares of Stock
• Unissued Shares of Stock
• Outstanding Shares
• Institutional Shares
• Dual Class Shares
• What is a closely-held corporation?
• Close Corporation Plan Definition
• What is a Private Company vs a Public Company?
• What is the role and purpose of the corporation?
• What is the Agency theory of corporate governance?
• Shareholder-Centric Perspective
• Shareholder Value
• What is the Stakeholder theory of corporate governance?
  
• What is the role & rights of Shareholders in the corporation?
  
• Shareholder Democracy Definition
• Quorum Definition
• Information Circular
• Straight and Cumulative Voting
• Statutory (Straight)
  
• Cumulative Voting
• Plurality Voting
• Class Voting Shareholders
• Changing the Voting Rules
• Supermajority (Voting)
• Shareholder Sponsored Proposal 
• What are the variations on attributes of Ownership structure?
• Stock Split
• What are the fiduciary duties owed by shareholders?
• When is a shareholder personally liable for corporate obligations?
• Appraisal Rights
• Dissenter's Rights
• Say on Pay Rights
• How can shareholder enforce their rights (direct and derivative actions)?
• Amotion
• What is the process for bringing a Derivative action?
• What are corporate vote Proxies?
• Proxy Statement
• Proxy Fight or Contest Definition & Explanation 
• What is Shareholder Activism and the significance of Institutional Investors?
• Activist Investor
• Overview of Board of Directors
• Board Decision Making
• Advisory Board (Observer Directors)
• What is the role of the Board of Directors?
• Board of Trustees
• Board of Governors
• What is the composition of the board of directors?
• Chairman of the Board
• CEO as Chairman of the Board
• Inside Director
  
• Outside Director
• Outside Director or Non-Executive Director Definition
• Independent Outside Director
• Budget Committee
• Audit Committee
• Compensation Committee
• Nomination Committee (Corporate Board)
• What standards govern the actions of the board of directors?
• Duty of Candor Definition
• Duty of Care (Board of Directors)
• Duty of Loyalty (Directors) 
• Self-Dealing
• Board Evaluation Definition
• What is the Business Judgment Rule?
• What is D&O insurance?
• Codetermination (Foreign)
• What is the role of Managers of the corporation?
• What standards govern manager actions?
• Chief Executive Officer (CEO)
• Chief Financial Officer
• Chief Information Officer (CIO)
• Chief Investment Officer (CIO)
• Chief Legal Officer
• Chief Operating Officer
• Chief Risk Officer
• Chief Security Officer
• Chief Technology Officer (CTO)
• What are the primary state and federal corporate governance laws?
• What is the role of the state in corporate governance?
• What is the role of Securities Laws in corporate governance?
• What is the role of the Foreign Corrupt Practices Act in corporate governance?
• What is the Sarbanes-Oxley Act (SOX) effect on corporate governance?
• Sarbanes-Oxley Act (SOX)
• What is the Dodd-Frank Wall Street Reform and Consumer Protection Act effect on corporate governance?
• Corporate Monitors
• What industry organization standards affect corporate governance?
• How do proxy advisory firms affect corporate governance?
• What is the role of ethics in corporate governance?
• What are the major causes of corporate governance issues?
• What are the access to information issues?
• What are decision-making structure issues?
• What are the power struggle or competition issues?
• Holding Company
• What are hostile takeovers and defenses to hostile takeovers?
• Williams Act
• Staggered Board
• Shark Repellent Defenses?
• Poison Pill Defenses?
• Flip Over Poison Pill Definition
• Flip In Poison Pill Definition
  
• Voting Poison Pill Plan
• Delay-Tactic Defenses?
• Legal Lockup Defenses?
• White Knight and Pac Man Defenses?
• Jonestown Defense
• Lady Macbeth Strategy
• Macaroni Defense
• Yellow Knight
• Back-end Plan Definition
• Backflip Takeover Definition
• Dead Hand Provision Definition
• Kamikaze Defense
• Operating Company Property Company Model
• Whitemail
• Scorched Earth Policy Definition
• Revlon Rule
• What are benefit-alignment issues?
• Cadbury Rules Definition