What’s supermajority voting? And why is it losing popularity?
In a surprising twist, Tesla itself put forward a proposal at its 2022 AGM requesting the removal of a supermajority voting system- but is ultimately rejected.
What is supermajority voting?
In an annual general meeting (AGM), each proposal needs a certain level of support from shareholders in order to pass.
Shareholders do not get equal voting rights. Unlike a general election where each person gets one vote, in a AGM, each share gets a vote. If one person owns 100 shares, they get 100 votes but if someone owns 10, they only get 10.
The most common requirement is a simple majority vote which is 50%. This means 50% of the shares that are voting at the AGM need to vote in favour, and support the proposal, in order for it to pass.
However, a supermajority vote requires a higher percentage of shareholder approval. The most commonly used percentage is three-fifths (60%), two-thirds (67%) or three-quarters (75%).
Super important?
A supermajority threshold is usually required when voting on things to do with the company’s fundamental policies or practices.
According to the Companies Act 2006 (the primary source of UK company law), ‘A company may amend its articles by special resolution.’ This means that in order for a company to change its bylaws, it requires greater than a simple majority support.
For example, a supermajority vote is required to change the name of the company or changing a private company to a public company.
But some are not majorly keen on this form of voting.
Not everyone is in favour
Supermajority voting requirements can protect companies from rogue shareholders, but they can also stand in the way of productive, meaningful change, which is why some people take issue with them.
Take Tesla as an example:
In 2020, shareholders asked Tesla to eliminate supermajority voting — and Tesla opposed this. Now, for two years in a row, Tesla has asked shareholders to vote in favour of removing the supermajority system.
Tesla also stated that it wants to reduce its director terms from three years to two. However, in order for this change to be implemented, Tesla had to run it through a supermajority vote. You can probably guess what happened next.
The proposal to eliminate supermajority voting was rejected due to its failure to meet the required 67% threshold.
Since supermajority requirements weren’t removed, this meant Tesla also couldn’t change its director terms. Oh the irony.
A major issue
Tesla and its shareholders are not the only ones who are working to get rid of this kind of voting system.
In 2021, Kellogg’s shareholders argued that a simple majority should be enough for corporate action and that it may give shareholders a greater voice and impact in matters affecting the company.
In 2022, shareholders of the global chemical company Linde and ConocoPhillips proposed that it be removed- and the votes received 52% and 99% support respectively.
What do you think- should major company decisions require super-or-simple majority support?
If you have access to Tumelo, head over to your account and get voting! If not, ask your employer or pension provider for Tumelo and join others in reclaiming your shareholder rights 💪
