Cumulative Voting Can Have Undesired Results
Maybe your boards like cumulative voting because it strikes them as fair. Perhaps they haven’t even thought about it and just continue the practice because “we always have.” Or maybe they’re thinking about adopting it now. If any of your clients are in one of these scenarios, they need to know the full picture about cumulative voting.
“Cumulative voting is basically created to give minority shareholders — who don’t have the majority of the shares — a certain amount of strength,” says Andrew Brucker, a partner who focuses on cooperatives and condo associations with the New York law firm Armstrong Teasdale. But how does it work?
With cumulative voting, an owner can vote the number of shares multiplied by the number of vacancies. If an owner has 10 shares and three seats on the board are up for vote, the owner would have 30 votes.
“The owner can take those votes and vote them any way he or she wants,” Brucker says. “If you really prefer one candidate, you can vote all 30 for that person.” If an owner likes two candidates, the votes can be split, equally or not.
“Someone who really wants to put one particular person on the board can vote for that person and not waste votes distributing them across other candidates,” Brucker says.
Cumulative voting is illegal or at least disfavored in some states, but others allow it. In Arizona, for example, cumulative voting was banned in 2005 except for grandfathered associations. Florida allows it only where authorized in the governing documents. California and New York, on the other hand, clearly allow cumulative voting, subject to certain requirements.
To learn how cumulative voting can have unintended and unwanted consequences, read our new article Elections: Is Cumulative Voting Right for Your Clients?