Cumulative and Non-Cumulative Voting Rights
Cumulative Voting
➦ Cumulative voting is a minority voting system used by organizations that allow shareholders to vote proportionately to the number of shares they hold.
➦ This process usually benefits minority shareholders by giving them the option to focus all of their attention on a single candidate or decision point.
➦ Cumulative voting allows shareholders to apply all votes to oneperson or to divide them up between candidates standing in the election of BOD which gives individual stockholders greater influence in shaping the board.In cumulative voting system there is accumulation of vote.
Noncumulative voting
➦ Noncumulative voting is a majority voting system in which a shareholder can only vote up to the number of shares she/he owns for a single candidate during the board elections.
➦ In non-cumulative voting system there is no accumulation of vote. The result is that a majority shareholder will elect the entire board of directors.
➦ For example, Suppose four people stand for the position of directors in the election and you hold 500 shares (with one vote per share), under the non-cumulative method you can vote a maximum of 500 shares for each one candidate.
➦ With cumulative voting, you are afforded the 2,000 votes (giving you 2,000 votes total—500 votes per each of the four candidates)from the start and you can choose to vote all 2,000 votes to first candidate, 1,000 each to second candidates, or otherwise divide your votes whichever way you wanted.
Difference between Cumulative and Non-Cumulative Voting Rights
|
Cumulative Voting Rights |
Non-Cumulative Voting Rights |
| Allows shareholders to concentrate all their votes on a single candidate or to distribute them among multiple candidates. | Each share gives its holder one vote per candidate, with no option to concentrate votes. |
| Shareholders can accumulate their votes on one or more candidates, potentially leading to a more significant impact on the outcome. | Shareholders can cast one vote per share for each candidate, without the option to aggregate votes. |
| Provides minority shareholders with more significant influence by allowing them to concentrate their votes on preferred candidates, potentially leading to their election. | Minority shareholders might have less influence as their votes can be diluted by majority shareholders who hold more shares. |
| Offers flexibility in voting strategy, enabling shareholders to support multiple candidates or focus all their votes on a preferred candidate. | Offers less flexibility as shareholders can only cast one vote per share per candidate, limiting strategic options. |
| Can lead to a more diverse board composition as minority shareholders can secure representation if they can aggregate enough votes. | Tends to favor majority shareholders and incumbents as they can easily secure their preferred candidates due to their higher shareholding. |
| Enhances shareholder empowerment by providing them with a mechanism to influence board elections more effectively, especially in situations where minority interests are at stake. | May limit shareholder empowerment, particularly for minority shareholders, as their ability to influence election outcomes is restricted. |
| May introduce complexity in the voting process due to the need for shareholders to understand and strategically utilize their cumulative voting rights. | Simpler to implement and understand as each share equates to one vote per candidate, without the need for vote aggregation. |
| Subject to specific legal regulations and requirements in some jurisdictions, which may vary in terms of implementation and applicability. | Generally aligns with standard voting practices and regulations without the need for additional complexities related to vote aggregation. |
➦ This table outlines the key differences between cumulative and non-cumulative voting rights, highlighting their respective characteristics, implications, and legal considerations.
References
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The difference between cumulative voting vs. straight voting – ElectionBuddy. (2022, February 18). ElectionBuddy. https://electionbuddy.com/blog/2022/02/18/the-difference-between-cumulative-voting-vs-straight-voting/
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I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.
I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,
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