Question

Suppose a firm has 15.7 million shares of common stock outstanding and eight candidates are up for election to four seats on the board of directors.

a. If the firm uses cumulative voting to elect its board, what is the minimum number of votes needed to ensure election of one member to the board?  

b. If the firm uses straight voting to elect its board, what is the minimum number of votes needed to ensure election of one member to the board?

Answer 1

a.If the firm uses cumulative voting , minimum number of votes needed to ensure election of one member to the board:

(S*N)/(C+1)

S= Number of shares outstanding=15.7 million

N=Number of seats on the board of directors=4

C=Number of candidates for election=8

Minimum number of votes needed=(15.7*4)/(8+1)=6.977778 million =6,977,778 votes

In cumulative voting every shareholder has number of votes=(number of share held)*(Number of director position)

Shareholder can cast these in favor of one candidate or can spread these votes on more than one candidates

b.If the firm uses straight voting,a shareholder will have number of votes equal to number of shares held. He  can cast his votes in favor of each member being elected.

In straight voting, a candidate to get elected will need to get majority votes ie more than 50% of shares outstanding

In this case ,he will need (15.7/2) Million +1 votes=7,850,001 votes