Quorum rules and shareholder voting

Abstract

We analyze how a minimum quorum affects shareholder voting in meetings. We show that a quorum creates an incentive for coalition formation of shareholders supporting the resolution. It works as a coordination device for possibly small shareholders allied in a winning voting coalition. It also generates an equilibrium in which the resolution is not adopted due to lack of quorum. The shareholder structure is central to the determination of the outcome of the vote. A resolution supported by the dominant shareholder is always adopted if his ownership reaches the quorum. However, allied blockholders can successfully approve a resolution opposed by the dominant owner. As a consequence, it is more effective for an active shareholder to propose and pass a resolution than to oppose a board resolution. Finally, we find that the dominant shareholder de facto controls the meeting when his share by far exceeds the second largest share.