Question

You want a seat on the board of directors of Zeph, Inc. The company has 195,000 shares of stock outstanding and the stock sells for $84 per share. There are currently 3 seats up for election. If the company uses cumulative voting, how much will it cost you to guarantee that you will be elected to the board?

Answer 1

If the company uses cumulative voting, the board of directors are all elected at once.

You will need 1/(N+ 1) percent of the stock (plus one share) to guarantee election, where N is the number of seats up for election.

So, the percentage of the company’s stock you need will be:

Percent of stock needed = 1 / (N+ 1)

Percent of stock needed = 1 / (3 + 1)

Percent of stock needed = .25 or 25%

So, the number of shares you need to purchase is:

Number of shares to purchase = (195000 × .25) + 1

Number of shares to purchase = 48751

So, total cost = number of share to purchase*price = 48751*84 = $4095084

It will cost around $4095084 to guarantee the seat on board.