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Chapter 5: Q3DQ (page 564)

What is the purpose of cumulative voting? Are there any disadvantages to management?

Short Answer

Expert verified

The cumulative voting is implemented for providing power to minority shareholders and this can be disadvantageous to the management as now they will have to ensure that the interests of all shareholders are met as even minority shareholders can overthrow the directors.

Step by step solution

01

Step 1:Purpose of cumulative voting

Cumulative voting is a method of voting that allows a proportional representation of shareholders.This voting system is implemented to ensure that even the minority shareholders have a say in the election of the company鈥檚 board of directors.

02

Step 2:The disadvantage of cumulative voting to management

The cumulative voting can be disadvantageous for the management as this voting method allows even the minority shareholders to elect a director. This will ensure that the management will have to ensure that the interests of all shareholders are satisfied and not only of large shareholders.

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