On Cumulative Voting System

A big problem among the listed companies of China is that the majority shareholders impair the interests of intermediate and minority shareholders. This is a problem that impedes the development of capital system of China and also causes some social problems. Therefore the new Company Law has learned experience from developed countries like US and Japan. It adopts cumulative voting system, majority shareholder voting limit system and challenge system of voting power to improve the voting system. There are four parts of this dissertation, dealing respectively with the occurrence and development of cumulative voting system, the relationship between cumulative voting system and relevant principles, the analysis on conditions and present legislation for introducing cumulative voting system into China and the analysis on operation proposals on cumulative voting system of China.Chapter I, the occurrence and development of cumulative voting system. In this chapter, the author explains the necessity of the cumulative voting system as well as the meaning of the system from the legal theory of company law. The evolution of the system in US, Taiwan and Japan is of great reference meaning to the legislation of China. This dissertation therefore analyzes the legislation of these countries and concludes the development tendency of the cumulative voting system. However, since there is quite hot dispute on whether to introduce the system into China among scholars. Concerning this, this dissertation makes a brief analysis on the advantages and disadvantages of the system and lists the opinions of scholars for and against the system and further illustrates the position of the author and the reasons. It demonstrates that it is of unique value to apply the system to the selection of directors and supervisors.Chapter II, theoretical value of cumulative voting system. In this chapter, the author analyzes the disadvantages of one share one vote principle and majority share deciding power principle. One share principle only realizes equality of shares formally but fails to address the material inequality among shareholders due to the amount of shares they hold. It is in breach of the material equality among shareholders and will impair interests of some shareholders, especially the intermediate and minority shareholders. This dissertation demonstrates that cumulative voting system can help avoid the disadvantage of one share one vote principle and can help achieve material equality theoretically.Majority share deciding power principle is a natural logic extension of one share one vote principle. It brings new problem while making up the disadvantage of one share one vote principle: it is vulnerable to cause the abuse of majority shareholder votes. Cumulative voting system can prevent the abuse of such votes which will manipulate the selection of directors and supervisors. Through cumulative voting system, minority shareholders may elect representatives of their interests and will to director board or supervisor board, so as to protect their own interests, which further demonstrates that the cumulative voting system is able to realize material equality among shareholders theoretically.Chapter III, the practical value of cumulative voting system. Though cumulative voting system can theoretically make up the disadvantages of one share one vote principle and majority share deciding power principle, the key reason that we introduce it into China is that it may have effect in practice. This chapter deals with the practical value of cumulative voting system.Firstly, this paper analyzes the problem that share holding status of China causes to company management: since many companies of China were transformed from state-owned enterprises, therefore the"one overwhelming share"problem in companies is very serious, which will easily allow majority shareholders to abuse power to impair the interests of company and minority and intermediate shareholders. The adoption of cumulative voting system enables minority shareholders that hold shares of state-owned capital controlling company share to enter board of directors. Under this circumstance, if the decision makers want to control the company through board of directors, the decisions that would impair the interests of other shareholders made by them will not be passed. This can not only protect the interest of minority shareholders, but also protect the interest of the company, which will eventually improve the management of companies.Part two of this chapter deals with the protection of cumulative voting system of intermediate and minority shareholders, which is the major value of the system. The protection of the system of intermediate and minority shareholders is mainly demonstrated in the following aspects: it allows the intermediate and minority shareholders to select their representatives in director board and supervisor board; it will encourage intermediate and minority shareholders to invest and thus further promote the development of stock and securities market. Moreover, since the system allows intermediate and minority shareholders to have their own representatives in director board, the intermediate and minority shareholders may participate in the management and operation of the company, which protects the interests of them indirectly.Chapter IV, the improvement of legislation of cumulative voting system of China. The author first illustrates the legislation status of cumulative voting system in China and then points out that although the system is prescribed in Company Law, there still exists some difficulty in practice: the shareholding status of"sole majority power"and lack of guarantee of relevant systems; the lack of clear provisions on details of the implementation of the system.The author puts forward proposals to improve cumulative voting system concerning the above problems: firstly, reduce the shareholding percentage of shareholders that have proposal right at shareholders'meeting; secondly, establish a pre-procedure for exertion of cumulative voting right; thirdly, guarantee that the system apply to the selection of directors and supervisors; fourthly, take measures to prevent the limit of cumulative voting.The establishment of cumulative voting system in Company Law is a product of the evolution of the system and also a necessity for improving company control structure and meeting the demands of securities market. This dissertation holds the opinion that it is important to boost the multi-subject reform of shareholding, clarify that cumulative voting system applies to the selection of directors and supervisors, enhance the effect of cumulative voting system, alter legal rules that are in conflict with the system and make detail rules for the implementation of the system. Only by this, can the positive effects of the system be achieved fully and the negative effects be reduced to the maximum extent.