#### Cumulative Voting in 340 Words, with Math

September 14th, 2007

Cumulative voting is one of those theoretical legal concepts I’ve generally tried to avoid- it involves math, the archnemesis of attorneys everywhere.

Math matters, though, and so does cumulative voting. It can give small shareholders a voice on a company’s Board of Directors, or even swing the balance of power in certain situations.

In as few words as possible, then, here is what you need to know about cumulative voting:

What it means. Cumulative voting means that instead of voting shares for each director on a slate, shareholders can throw all of their potential votes behind one candidate. In other words, if there are 3 directors and I own 1 share, instead of voting my one share for each director, I can put all 3 behind a single candidate.

Not all states have it. Delaware allows it, but corporations must specifically provide the right in Certificate of Incorporation. In California, cumulative voting is an “inalienable” right of shareholders of private companies- it can’t be written out of the Articles of Incorporation or bylaws. Public California companies listed on NASDAQ, the NYSE or ASE are allowed to eliminate it. Other states vary.

It must be actively exercised. In California a shareholder must notify the corporation before voting of his/her intent to vote cumulatively, and then the entire election runs cumulatively.

How it is calculated. This is the math part. The formula for calculating how many votes are needed to elect a director is:

$N= {(X-1) * (D+1) \over S}$

where

X = the number of shares needed to elect a given number of directors
S = the total number of shares represented at the meeting
D = the total number of directors to be elected

Even simpler is this online calculator.

Cumulative voting can be an important right for minority shareholders. Even if it doesn’t allow a shareholder group to control the Board, it can provide visibility into Board discussions and that can sometimes make all the difference. Wikipedia has a longer explanation with history, for those interested in reading further.

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