What it means
Many financial processes involve ranking or choosing, and ties are bound to occur. Two bidders in an auction may offer the same price, two orders may arrive at the same price, or a board vote may split evenly.
Without a rule, the process would stall, so well-run organisations decide in advance how ties will be settled. In markets, the usual tie-breaker for orders is time priority.
If two orders to buy are at the same price, the one placed first is filled first. Some markets use other rules such as proportional allocation, which shares the available quantity among the tied orders according to their size.
In corporate governance, boards and committees often specify that the chair has a casting vote, which is an extra vote used only to break a tie. Alternatively, a motion that is tied may simply fail.
Constitutions and shareholder agreements should state the rule clearly, because a deadlock can block important decisions. Ties also arise in procurement and rankings.
If two suppliers submit bids with the same total price, the buyer may break the tie by quality scores, delivery time or past performance. In league tables, which rank banks by deals advised, tied firms may share a rank.
For a manager, the lesson is to anticipate ties and write a tie-breaking rule into policies and contracts. A simple rule agreed in advance prevents disputes and delays, and it saves goodwill between the parties.
It is far easier to agree on a fair method before anyone knows who will benefit. In some competitions and rankings, a tie is allowed to stand, and the parties share the position.
In others, such as auctions with a single prize, a tie must be resolved, and the method might be a coin toss, a drawing of lots or a second round of bidding. The choice should be fair, transparent and written down.
In practice
Real-world examples.
Example
Two buyers place orders for the same shares at $40.00, and the first order arrives a fraction of a second earlier. The exchange fills the first order before the second under its time priority rule, which rewards the trader who showed the price first. The second buyer must wait for more shares to become available.
Example
A company's board has four directors, and a vote on a dividend splits two to two. The articles of association give the chair a casting vote, and she votes in favour. The dividend is approved.
Example
A hospital receives two bids for a new scanner, both at $750,000, from suppliers that meet every technical requirement. The procurement policy says ties are decided by the lower cost of maintenance over five years. The supplier with the cheaper maintenance contract wins the order, and the hospital records the reason in its tender file. The losing supplier is told how the decision was reached.
Case study
Seen in the real world.
Ironbridge Holdings is an illustrative, fictional company owned equally by two founding families, each of which appoints two directors. The shareholder agreement said nothing about what should happen if the board was evenly divided.
When the board split two to two on a decision to take on $5,000,000 of new debt, the company could not act, and the lender's offer expired. Both families blamed each other, and the dispute dragged on for months while the company's bank grew concerned about its governance.
In this illustrative story, the families eventually agreed to add an independent director and a rule that tied votes would be referred to a mediator. The finance director said that writing the rule had cost very little, while the earlier deadlock had cost the company a financing opportunity. The board now reviews its decision rules every year as part of its governance checklist.
Watch out
Common mistakes.
- Assuming that ties will not happen, and leaving contracts and policies silent on how to settle them.
- Using a tie-breaker that favours one party, which invites later challenges. Neutral rules such as time of submission or random selection are easier to defend.
- Confusing a tie with a deadlock, when a tie is one result of a vote and a deadlock is a long-lasting inability to decide. A single tie can be solved by a casting vote, but a deadlock may need mediation or even a change in ownership.
Questions
People also ask.
What is a casting vote?
An additional vote given to a chair, used only when the other votes are equal. It must be authorised by the company's constitution, and it is not available automatically in every organisation.
How do exchanges deal with tied orders?
They usually fill the order that arrived first, though some use other rules such as sharing the quantity in proportion to order sizes.
Can a tie be avoided?
Yes, by having an odd number of voters, scoring methods that give finer results or a clear rule specified in advance. It cannot always be avoided completely, so a tie-breaker is still sensible.
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