Question

Midland Petroleum is holding a stockholders’ meeting next month. Ms. Ramsey is the president of the company and has the support of the existing board of directors. All 12 members of the board are up for reelection. Mr. Clark is a dissident stockholder. He controls proxies for 44,001 shares. Ms. Ramsey and her friends on the board control 54,001 shares. Other stockholders, whose loyalties are unknown, will be voting the remaining 24,998 shares. The company uses cumulative voting.

a. How many directors can Mr. Clark be sure of electing? (Do not round intermediate calculations. Round down your answer to the nearest whole number.)

b. How many directors can Ms. Ramsey and her friends be sure of electing? (Do not round intermediate calculations. Round down your answer to the nearest whole number.)

c-1. How many directors could Mr. Clark elect if he obtains all the proxies for the uncommitted votes? (Do not round intermediate calculations. Round down your answer to the nearest whole number.)

c-2. Will he control the board?

• Yes

• No

d. If nine directors were to be elected, and Ms. Ramsey and her friends had 70,001 shares and Mr. Clark had 50,001 shares plus half the uncommitted votes, how many directors could Mr. Clark elect? Assume the same number of total shares as the original question. (Do not round intermediate calculations. Round down your answer to the nearest whole number.)

Answer 1

Before we get into the parts of the question,

Number of directors that can be elected by a person = (Shares owned by the person − 1) × (Total number of directors to be elected + 1) /Total number of shares outstanding for the firm

Total number of shares outstanding for the firm = 44,001 + 54,001 + 24,998 = 123,000

Part (a)

Number of Directors Mr. Clark can be sure of electing = (44,001 - 1) x (12 + 1) / 123,000 = 4.65 = 4 (the maximum integral value possible)

Part (b)

Number of Directors Ms. Ramsey and her friends can be sure of electing = (54,001 - 1) x (12 + 1) / 123,000 = 5.71 = 5

Part (c) - 1

Number of Directors Mr. Clark can now be sure of electing = (44,001 + 24,998 - 1) x (12 + 1) / 123,000 = 7.29 = 7

Part (c) - 2

7 out of 12 members means he has majority i.e. > 50% representation in the Board.

Hence, Yes, Mr. Clarke will control the board.

Part (d)

If total number of shares remain same, then the number of uncommitted shares now = 123,000 - (70,001 + 50,001) = 2,998

Hence, Number of Directors Mr. Clark can now elect = (50,001 + 2,998 / 2 - 1) x (9 + 1) / 123,000 = 4.19 = 4