Brief Fact Summary. Winous Co. (D) has separate classifications for each of its three directors, Humphrys (P) alleges that this system deliberately nullifies the effectiveness of cumulative voting.
Synopsis of Rule of Law. Minority representation on a company’s board of directors is not guaranteed by a statute that prohibits restrictions on the exercise of cumulative voting rights.
Issue. Does a statute that disallows restrictions on the practice of cumulative voting rights also ensure that minority stockholders are represented on corporation’s board of directors?
Held. (Bell, J.) No. Minority representation on a company’s board of directors is not guaranteed by a statute that prohibits restrictions on the exercise of cumulative voting rights. The bar association of this state first recognized the power wielded by cumulative voting to restrain oppressive majorities. Cases in other jurisdictions have found cumulative voting may not be negated, but cannot be interpreted as protecting minority representation. Since legislature has chosen to permit directorship classification even though it diminishes the effectiveness of cumulative voting, the court will not prohibit directorship classification. The appellate court erred in finding the classification scheme a breach of statute, but the scheme would be void today due to a code revision that prohibits the creation of classes with fewer than three directors. Reversed.
In determining that intention, a court should consider the language used and the apparent purpose to be accomplished, and then such a construction should be adopted which permits the statute and its various parts to be construed as a whole and gives effect to the paramount object to be attained.View Full Point of Law
Discussion. Cumulative voting allows the minority shareholders to establish a semblance of representation in a corporation’s board of directors. They permit a shareholder to cast his total number of votes (shares he owns X number of slots to be filled) for one director rather than one vote per share for each vacancy. The formula for election follows, S is the total number of shares voting, D is the number of slots to be filled, and N the number of directors the minority hopes to be able to elect. D + 1 + 1 = number of shares minority shareholders need in order to elect a director.
ajority is needed in a director’s meeting to meet the requisite quorum according to common-law rule.