The term contingent voting power refers to a right granted to holders of preferred stock when the issuer fails to meet one of its obligations. Contingent voting power provides holders of preferred stock with an additional security feature.
Typically, voting rights are offered exclusively to holders of common stock, and holders of preferred shares do not have this right unless contingent voting power is offered to these investors. Issuers will include this feature to make their preferred stock more attractive, since it provides some protection to the holders of the security.
Voting rights are bestowed upon a holder only under certain conditions, typically when the issuer does not fulfill one of their obligations outlined in the shareholder agreement. The most common scenario involves the payment of dividends. For example, if a company fails to provide preferred shareholders with a scheduled dividend, they may have contingent voting power. In doing so, these shareholders may be able to unseat the company's existing board of directors, replacing them with members that will reinstate their dividend.