Cumulative Voting Rights – Definition

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Cumulative Voting Rights Definition

Cumulative voting refers to a system of voting used by companies when electing the directors of a company. Cumulative voting allows a shareholder cast all their votes to a single candidate rather that share the votes across the number of directors vying for the position. In a typical voting system, a shareholder has the right to cast a vote for ach director, in cumulative voting however allows a shareholder to cast all  his votes for a single nominee regardless of the number of directors to be elected.

A Little More on What is Cumulative Voting

Cumulative voting is sometimes referred to as weighted or accumulation voting. This type of voting rights empowers investors to influence the appointment of a company’s directors. It is a proportional voting system that allows investor cast votes according to the number of shares they hold and for whoever they like. For instance, an investor with 50 shares in a company can cast 50 votes. In a normal voting system, the 50 votes can be spread across different nominees vying to become directors. However, in cumulative voting, an investor can decide to toss all the 50 votes for a single nominee, thereby influencing the nominee’s chance of winning the election.  For an investor that has 100 votes, he can decide to split the votes across his two choicest nominees.

Benefit for Minority Shareholders

Cumulative voting rights does not only influence the election of a particular nominee, it also benefit the minority shareholders of a company. Minority shareholders who choose to exercise their cumulative voting rights are at liberty to toss all their votes to a single candidate. For instance, if many minority shareholders support a candidate, when they cast all their votes for the candidate, such a candidate has a better advantage of being appointed.  Hence, the benefit of cumulative voting to minority shareholders is that it gives them the power to influence the outcome of an election to suit their desires.

Alternative to Cumulative Voting

Statutory voting is an alternative to cumulative voting, this type of voting system manadates shareholders to cast their votes for nominees in different positions, rather than direct their votes to a single nominee. Hence, if five positions are open in a company, an investor must split his votes for all the five positions that are open. Statutory voting is the opposite of cumulative voting that allows an investor to cast his entire votes for a single nominee vying for a vacant position in a company.

References for Cumulative Voting Rights

Academic Research on Cumulative Voting Rights

Cumulative voting: The value of minority shareholder voting rights, Bhagat, S., & Brickley, J. A. (1984). The Journal of Law and Economics, 27(2), 339-365. This paper is about cumulative voting. When the investors buy common stock shares, they get the voting right in the election of the BoD (Board of Directors) of the firm and on other big problems faced by the corporation. Mostly, the Board members are elected by straight voting in which every shareholder can cast vote as per the no. of shares held for every director position. If a group manages 51% votes, it is entitled to elect entire BoDs by casting all votes for the candidate to whom he wants. Some companies do not use straight voting. Rather, they elect the board members by cumulative voting, in which every share gives a right to the shareholder to vote the directors as many as they are. Even, he may cast all of his votes for one candidate. Or he has an option to distribute votes in more than one nominee.

The value of corporate voting rights and control: A cross-country analysis, Nenova, T. (2003). Journal of Financial Economics, 68(3), 325-351. The author takes a sample of the 1997 year, 661 dual-class companies in eighteen countries and calculates the ‘corporate voting rights’ value, particularly of the votes control block. He presents a consistent measure for all countries and adjusts the measure for dividends, takeover probability, liquidity differences in the classes of shares and block-holding costs. The control block votes value is different in all countries. It is nearly equal to 50% of South Korean firm market value and nearly 0 in Finland. It is a lower bound for real private advantages of the controlling shareholder. The investors’ protection, legal environment, provisions of corporate chart takeover rules and law enforcement elaborate sixty-eight percent of cross-country variation in the value of the control-block vote.

Managerial ownership of voting rights: A study of public corporations with dual classes of common stock, DeAngelo, H., & DeAngelo, L. (1985). Journal of Financial economics, 14(1), 33-69. Firms managers with common stock dual classes can select various vote quantities for a provided cash flow interest by selecting various quantities of the 2 securities. The authors go through the managerial stock holdings in forty-five dual-class firms. The findings are that vote ownership/se motivate for the holdings significantly in officers of that corporate and their families have 56.9 percent votes median and cashflows of 24 percent of the common stock. In many sample companies, there is significant involvement of families. The authors present 4 case studies in which the firms paid explicit acquisition premium for superior voting shares.

The market value of differential voting rights in closely held corporations, Lease, R. C., McConnell, J. J., & Mikkelson, W. H. (1984). Journal of Business, 443-467. This paper describes a price difference in share classes differentiated on the basis of voting rights only. The authors examine classes of 2 publicly traded shares. For every firm, they find the voting control in the hands of directors and principal officers. They observe price differences in the share classes despite that no firm has experienced a significant change in the distribution of voting rights ownership or has been a target of a publicly announced takeover effort. The evaluation of the share classes relative pricing over time and around significant corporate events cannot reveal the price differences source.

Cumulative Voting as a Remedy for Minority Vote Dilution: The Case of Alamogordo, New Mexico, Engstrom, R. L., Taebel, D. A., & Cole, R. L. (1988). JL & Pol., 5, 469. Several local legislative entities in the US are elected using at-large election systems. Every voter in a specific political jurisdiction, such as a county, city, district or school) can cast a vote for candidates as per the available legislative seats. The candidates who get the votes from a majority in the jurisdiction are awarded the seats. The language and racial minority groups from many such local units have complaints about at-large systems. The authors explain the cumulative voting as a solution for the minority vote dilution and discuss the New Mexican case of Alamogordo in detail.

Institutions as relational investors: A new look at cumulative voting, Gordon, J. N. (1994). Columbia Law Review, 94(1), 124-192. This study examines the performance of institutions as relational investors and presents an overview of the cumulative voting in a new and different perspective.

Equal protection in shareholder voting rights: The one common share, one vote controversy, Seligman, J. (1985). Geo. Wash. L. Rev., 54, 687. This is an overview of the voting rights of shareholders as stated in the Voting Rights Act. The author addresses the common controversy of ‘one share, one vote’ and gives suggestions on how to provide equal protection to the shareholders in their voting rights.

Voting in corporate law, Easterbrook, F. H., & Fischel, D. R. (1983). The Journal of Law and Economics, 26(2), 395-427. In this paper, the authors state the voting rights of shareholders mentioned in the Corporate Law. These are basically shareholders rights to cast vote on the corporate policy matters, e.g. decisions of BoD (Board of Directors), securities issuance, corporate actions, and changes in the operations of the corporate. They can mail their response to a 3rd party. The authors address all the related issues and provide suggestions for them.

Law and finance, Porta, R. L., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Journal of political economy, 106(6), 1113-1155. This article evaluates legal regulations about the protection of corporate creditors and shareholders, these regulations origin and their enforcement quality in forty-nine countries. The findings are that the countries of common law normally have the strongest, and countries of French civil law have weakest investors legal protections with the civil law of countries of Scandinavia located in the centre and Germany. The authors Laos observe that the concentration of shares ownership in the largest public firms has a negative relation to investors protections confirming the Hypothesis that diversified small shareholders have no importance in countries which cannot protect their rights.

Social conceptions of the corporation: Insights from the history of shareholder voting rights, Dunlavy, C. A. (2006). Wash. & Lee L. Rev., 63, 1347. The voting rights diversity is corporations nowadays shows that the owners distribute power among shareholders in a number of ways, but present corporations theories tell a little about it. This paper presents a historically grounded structure to analyse the political import of voting rights of shareholders. The history shows that the term of the 20th century ‘shareholder democracy’ turned the relations of vertical power which characterize American large companies by mid-century. This study explores some controversies about voting regulations in the 19th century. The authors suggest corporations social conceptions of competition are still present today as in the 19th century.

Shareholder Voting Rights: A Response to SEC Rule 19c-4 and to Professor Gilson, Lowenstein, L. (1989). Colum. L. Rev., 89, 979. This research has been carried out to highlight the shareholders voting rights. The SEC (Securities and Exchange Commission) introduced Rule 19c-4 in July 1988 that resolved the problem of ‘one share, one vote’. Then after 2 years, the New York SE offered to leave its long-standing regulation for listing common stocks with less than complete voting rights. Professor Gilson addressed the same issue and the author responds to his research with evidence and thorough discussion keeping in view the important points of this rule.

The Voting Rights Act: A Brief History, Davidson, C. (1992). Controversies in Minority Voting, 7. This paper describes the Voting Rights Act in details and explains its brief history. President Lyndon B. signed this act in 1965. Its major purpose is to remove legal barriers on the local as well as state levels which stopped African Americans from using their voting right as ensured under the fifteenth amendment to the United States Constitution.


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