You're an individual investor who holds common stock in a large blue chip company. You've received notice of a proposed change. Instead of using the existing statutory method, the proposal calls for the company's board of directors to be elected by the cumulative voting method. Will you vote for the change? Why or why not? Would you vote differently if you represented an institutional investor? Explain.
As an individual investor holding common stock in a large blue chip company, the decision to vote for or against the proposed change of electing the board of directors by the cumulative voting method would depend on several factors.
Firstly, let's understand what cumulative voting is. In a cumulative voting system, shareholders are given multiple votes which they can allocate as they wish across the available board of director positions. For example, if there are 5 board seats open and a shareholder has 100 shares, they can allocate all their votes to a single candidate or distribute them among multiple candidates.
Now, let's consider the potential reasons why you might vote for the change:
1. Improved representation: Cumulative voting can increase diversity and representation on the board by allowing minority shareholders to have a stronger voice. This method can ensure that smaller shareholders have a better chance to see their preferred candidates elected to the board.
2. Enhanced accountability: By allowing individual shareholders to concentrate their votes, cumulative voting can hold the board of directors more accountable. It can help prevent a majority shareholder from controlling the board entirely, potentially discouraging abuses of power.
On the other hand, let's consider reasons why you might vote against the change:
1. Stability and efficiency: The existing statutory method may have been functioning well for the company, providing stability and operational efficiency. A change to cumulative voting might introduce uncertainty or potential conflicts among shareholders.
2. Institutional investor perspective: Institutional investors, such as pension funds or mutual funds, often hold a large number of shares and may have more resources to engage with the company's management and board. They may argue that the cumulative voting method could create fragmentation and hinder effective governance.
Therefore, if you were representing an institutional investor, you might approach the voting decision differently. Institutional investors generally have larger holdings and often engage with company management to influence board decisions. They might prefer the existing statutory method to maintain a stable and predictable governance structure.
In conclusion, the decision to vote for or against the proposed change to elect the board of directors by cumulative voting method would depend on factors such as your assessment of increased representation and accountability versus potential instability and differing perspectives as an individual or institutional investor. It's important to gather as much information as possible, evaluate the potential impact on the company, and consider your investment strategy before making a decision.