Voting Systems: Statutory Voting and Cumulative Voting

Under the statutory voting system, directors are elected one at a time. Each director is voted on one at a time. Therefore, a shareholder may give any one candidate, as a maximum, only a number of votes equal to the number of shares owned. Statutory voting favors majority shareholders.

Under cumulative voting system, total number of votes each shareholder may cast = (# of shares owned) x (# of directors to be elected). With cumulative voting, a shareholder may give all the votes he/she holds to a single candidate. Cumulative voting favors minority shareholders.

Example

• A company has two shareholders: “A” (owns 50 shares); “B” (owns 249 shares). There are 5 directors to be elected and 7 candidates running (T, U, V, W, X, Y, Z). “A” wants candidate Z to be on the board. B wants candidates T, U, V, W, and Y.
• Using statutory voting: “A” has 50 votes and “B” has 249 votes. Since each director is voted on one at a time “B” will be able to vote in all his candidates and “A” will not be able to vote in his candidate.
• Using cumulative voting:

“A” has 50 x 5 = 250 votes (all for Z)

“B” has 249 x 5 = 1,245 votes (÷ 5 = 249 for T, U, V, W, and Y)

• Therefore, Z wins the most votes. “B” cannot arrange votes to block Z.