Many jurisdictions require an Annual General Meeting at which a Board of Directors is elected, and unless otherwise indicated in company by-laws, every share is entitled to one vote toward the board of directors for each open seat on the board.

So if you hold 1000 shares, and there are two open seats on the Board, you’d be entitled to make 1000 votes for vacancy #1, and 1000 votes for vacancy #2. This means that in terms of voting dynamics, the one with the most shares (e.g., the 2000 shares to your 1000) will dictate each seat on the Board.

But there’s a way to avoid this type of control through what’s called “cumulative voting”. In a cumulative voting system, which would be dictated by the corporation’s bylaws, the number of votes a shareholder is entitled to can be used cumulatively across all Board vacancies. So in the example above, you would be entitled to place 2000 votes however you’d like between the two vacant seats–you could even rival another shareholder with 2000 shares if you put all 2000 of your votes into one seat.

This opens up some more strategic considerations for voters, as they try to get at least one person to represent their interests on the board.

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Author: Phil Weiss and Sahil Kanaya

 

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