In cumulative voting, what can shareholders do?

In cumulative voting, shareholders are empowered to enhance their voting power by multiplying the number of shares they hold by the total number of directors to be elected. This method allows shareholders to allocate their votes in a way that can concentrate support behind certain candidates, thereby increasing the likelihood that their preferred candidates will be elected to the board of directors.

For instance, if a shareholder owns 10 shares and there are 3 directors to be elected, that shareholder would have 30 votes to distribute as they choose among the candidates. They could choose to put all 30 votes on one candidate, divide them among multiple candidates, or distribute them in any manner that reflects their preferences. This flexibility can be a crucial component for minority shareholders to ensure representation on the board.

The concept of cumulative voting operates within the framework allowed by state law, which is why shareholders can vote cumulatively only if it is permitted in their jurisdiction. Furthermore, the ability to trade shares for extra voting rights is not a recognized feature of cumulative voting; such an arrangement is not typical under corporate governance practices. Thus, the correct answer effectively captures the essence of cumulative voting and its benefits for shareholders.