Question

The Beasley Corporation has been experiencing declining earnings but has just announced a 50 percent salary increase for its top executives. A dissident group of stockholders wants to oust the existing board of directors. There are currently 17 directors and 38,000 shares of stock outstanding. Mr. Wright, the president of the company, has the full support of the existing board. The dissident stockholders control proxies for 18,801 shares. Mr. Wright is worried about losing his job.

a-1. Under cumulative voting procedures, how many directors can the dissident stockholders elect with the proxies they now hold? (Do not round intermediate calculations. Round your answer down to the nearest whole number.)

a-2. How many directors could they elect under majority rule with these proxies?

• One

• Two

• Three

• Four

• None

b. How many shares (or proxies) are needed to elect nine directors under cumulative voting? (Do not round intermediate calculations. Round your answer up to the nearest whole number.)

Answer 1

Solution a-1:

Given:

Increase in Salary of top Executives = 50 %

Current Number of Directors = 17 Directors

Dissident Stockholders control proxies i.e. Number of Shares Owned by Stockholders = 18,801 Shares

Number of Outstanding Shares = 38,000

"Company follows Cumulative Voting Procedure in Voting."

To Calculate:

Number of Directors that can be elected by the Dissident Stockholders with the proxies (Shares) they currently hold under Cumulative Voting Procedure.

Process: Calculations:

To Calculate the Number of Directors that can be Elected with the Minority Shares known under the Cumulative Voting Procedure, we use below mentioned Formula:

Formula:

Number of Directors can be elected by the Dissident Stockholders = ((Number of Shares Owned − 1) × (Current Number of Directors + 1)) / Number of Outstanding Shares

Here:

Number of Shares Owned = 18,801

Current Number of Directors = 17

Number of Outstanding Shares = 38,000

On putting these values in the formula, we get,

Number of Directors can be elected by the Dissident Stockholders = (18,801 -1) × (17 + 1) / 38,000

= (18,800) × (18) / 38,000

= 338,400/ 38,000

= 8.9052631579 ≈ 8 (Rounding answer down to the nearest whole number)

Number of Directors can be elected by the Dissident Stockholders under the Cumulative Voting Procedure = 8 Directors

Ans a-1: Number of Directors that can be elected by the Dissident Stockholders with the proxies (Shares) they currently hold (under cumulative voting procedure) = 8 Directors

Ans a-2: e. None

None of the Directors could be elected by Dissident Stockholders under majority rule with the current proxies.

Explanation:

Under Majority Rule the Dissident Stockholders could not elect any director because they lack majority as they possess less than 50 % of proxies i.e. 18, 001 shares. The majority of proxies are with the existing board of directors i.e. 19,999 shares (Total Shares – Shareholder’s Value = 38,000 - 18001 = 19,999) so, the Dissident Stockholders could not elect any Director as per Majority Rule with these proxies.

So, our answer option is “e. None”

Ans a-2: e. None

Solution b:

Given:

Current Number of Directors = 17 Directors

Number of Outstanding Shares = 38,000 Shares

Number of Directors Required = 9 Directors

To Calculate:

Number of Shares (or proxies) needed to elect 9 Directors

Process: Calculations:

Formula:

Number of Shares Needed to Elect 9 Directors = ((Number of Directors Required × Number of Outstanding Shares) / Current Number of Directors + 1) + 1

Here:

Number of Directors Required = 9

Number of Outstanding Shares = 38,000

Current Number of Directors = 17

On putting these values in the formula, we get,

Number of Shares Needed to Elect 9 Directors = (9 × 38,000 / 17 + 1) + 1

= (342,000 / 18) + 1

= 19,000 + 1 = 19,001

Number of Shares Needed to Elect 9 Directors = 19,001 Shares

Ans b: 19,001 shares (or proxies) are needed to elect 9 directors under cumulative voting.