Straight Voting

A corporate voting system used to elect directors or to vote on important matters

Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets.

What is Straight Voting?

Straight voting, commonly known as statutory voting, is a corporate voting system that may be used to elect directors or to vote on important matters (e.g., voting on auditors, mergers and acquisitions opportunities, etc.). In the context of electing a director, each share is usually entitled to one vote per director seat.

 

Straight Voting

 

For example, if a shareholder owned 100 shares and three directors were up for election, the shareholder can cast up to 100 votes per director for a total of 300 votes. Note that each director can only be voted up to 100 – the shareholder cannot allocate more than the number of shares owned to each board member.

 

Example of Straight Voting

John is a shareholder in ABC Company. At the company’s annual general meeting (AGM), five directors are up for election. John owns 1,000 shares in ABC Company and each share entitles John to one vote. Under straight voting, John can vote 1,000 times for each of the five directors for a total of 5,000 votes.

Here is a possible scenario in which John can vote his shares in straight voting:

  • 1,000 votes for Director 1
  • 500 votes for Director 2
  • 300 votes for Director 3
  • 100 votes for Director 4
  • 50 votes for Director 5

 

Here is a possible scenario that would not be allowed for John in straight voting:

  • 1,500 votes for Director 1  (not allowed)
  • 1,050 votes for Director 2  (not allowed)
  • 300 votes for Director 3
  • 100 votes for Director 4
  • 50 votes for Director 5

 

Under straight voting, since John only owns 1,000 shares, the maximum he can vote for each director is 1,000 votes.

 

Disadvantage of Straight Voting

There is an inherent problem with straight voting: minority shareholder representation. That is, a majority shareholder with 100 shares will have a greater influence over who is elected than a minority shareholder with 50 shares, as the majority shareholder is able to vote up to 100 times per nominee, while the minority shareholder is only able to vote up to 50 times per nominee.

Due to the votes being allocated proportionally to each director up for election, the majority shareholder will always be able to outvote a minority shareholder. Therefore, under straight voting, minority shareholders have a lower chance of influencing who gets elected to the board. To address this problem, cumulative voting can be used as an alternative to straight voting.

 

Straight Voting vs. Cumulative Voting

The key difference between straight voting and cumulative voting lies in the fact that in cumulative voting, the shareholder can cast the total number of his votes for any candidate or in whatever proportion he or she desires. Therefore, cumulative voting as an alternative to straight voting allows more minority shareholder representation. With that being said, cumulative voting is seldom used by the majority of S&P 500 companies.

 

Example of Cumulative Voting

To effectively contrast cumulative voting to straight voting, assume the same fact pattern in the previous example of straight voting. For convenience, the example scenario is repeated below:

John is a shareholder in ABC Company. At the AGM, five directors are up for election. John owns 1,000 shares in ABC Company, and each share entitles John to one vote. Under cumulative voting, John can vote the total of 5,000 votes for any director he likes.

Here is a possible scenario in which John can vote his shares in cumulative voting:

  • 1,500 votes for Director 1
  • 1,050 votes for Director 2
  • 300 votes for Director 3
  • 100 votes for Director 4
  • 50 votes for Director 5

 

Recall that in the straight voting example, the scenario above was not possible because straight voting only allowed John up to 1,000 votes per director. With cumulative voting, John can vote the total of his votes (5,000) however he likes.

 

Related Readings

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional CFI resources below:

0 search results for ‘