What is cumulative voting?

What is cumulative voting? It’s a method of balancing representation in elections. It’s also an important topic in corporate governance education. 

Cumulative voting can be used in national or local elections, but it’s popular in corporate governance because it appeals to shareholders and usually leads to more diversity of opinion at the top. 

Here’s how it works:

Cumulative voting is a method used in elections. It allows shareholders to allocate their votes for board members with great flexibility. Often, this means they will concentrate their votes on fewer candidates to enhance the chance of electing preferred individuals.

Cumulative voting applies to all matters of corporate governance. It’s common in elections to fill board seats, but it can also be used to decide other issues, whether it’s a “simple yes-no” vote or a decision with multiple options. 

In general:

• Every shareholder gets a number of votes equal to the number of shares they have, multiplied by the number of positions available. 
• Shareholders are free to use those votes for as many or as few candidates/options as they like. 
• For example, if a shareholder has 100 shares in a vote to fill three board seats, they will have 300 votes. 
  • They can use all 300 votes to back one candidate or
  • They can split their 300 votes across two or three candidates, ensuring they have a say in the race for each board seat.

The most commonly cited advantage is that it gives minority shareholders a greater voice. With more flexibility, they can often coordinate their votes and have a bigger impact on decisions than with other systems. 

This can generally lead to more balanced decision-making, improved shareholder engagement, and a wider range of perspectives and experiences at election time.

It’s a more complex process than other systems – for example, those that simply allocate one vote per share. For that reason, cumulative voting could be more confusing to stakeholders if those in charge don’t explain it properly. 

Non-minority shareholders might also grumble about the system for the simple reason that their influence could be lessened.

Above all else, communication and transparency. 

Boards must not only set the rules for such a vote in the company’s bylaws but also communicate those rules to shareholders and ensure they know how it works.

Many consider cumulative voting a valuable tool in pursuing fair and representative corporate governance. Giving shareholders the option to concentrate or spread their votes opens the door to more diverse board compositions that can drive better company performance.