Moving towards dual-class listings would be ill-advised
Should SGX allow DC companies to list here? As with many
contentious areas, it depends on who you ask. Like quarterly reporting for
example, ask those who have to do the actual work, namely the corporate sector,
and the reply would be that it is a waste of resources, adds to share price
volatility and so should be scrapped. Yet, ask shareholders and investors and
the view is very different - financial updates every three months are welcome
and deemed very necessary in decision-making.
Comments
Business Times
09 September 2016
When Britain voted to leave the European Union (EU) in the June referendum, shocked and unhappy "Remain" supporters reacted by proposing radical reform of the "one man, one vote" system which has been in force for centuries and which has served democratic nations well throughout history.
The rationale for considering such drastic change was that ignorant and foolish voters ought to be protected from their own folly, and that by vesting proportionately greater voting power in presumably smarter and savvier hands, future economic and social disaster would likely be averted. Thankfully, now that the dust has settled on "Brexit" and more level heads are in control, that clamour has died down and the country is preparing to fulfil the wishes of its voters and extricate itself from the EU.
Local investors are now presented with a not dissimilar proposal, one which seeks to grant higher voting power to a privileged few. Last week, a Singapore Exchange (SGX) independent listings committee has proposed that the exchange amend its listing rules to allow dual-class (DC) shares, whereby certain shareholders of a firm may hold a small proportion of their company's shares but wield greater voting power.
Such structures are common for companies whose owners or founding families wish to retain a bigger say in voting matters while owning a small portion of the capital - in the Ford company for example, the family controls 40 per cent of the voting power while owning only about 4 per cent of the company's total equity.
It is hoped that by opening the door to these listings, SGX would be able to attract big names such as Alibaba and Manchester United, which opted to list in the US where DC structures are allowed, instead of Hong Kong or Singapore, where they are currently not. Given that daily market volume on the SGX has dipped sharply this year and with retail interest in local stocks weak, the proposal is not without its merits.
A vigorous debate has therefore ensued in the media, one that essentially boils down to profit versus governance. Proponents believe that with proper safeguards to ensure shareholder rights are not compromised, the commercial benefits on offer make for a compelling case that should not be ignored. Moreover, since Hong Kong decided, after a review, not to allow DC listings, SGX should act swiftly to seize the opportunity.
Opponents, on the other hand, believe that it is impossible to build watertight safeguards and that when faced with grey areas, rulings will likely be made on commercial grounds, to the detriment of non-controlling majority shareholders.
Should SGX allow DC companies to list here? As with many contentious areas, it depends on who you ask. Like quarterly reporting for example, ask those who have to do the actual work, namely the corporate sector, and the reply would be that it is a waste of resources, adds to share price volatility and so should be scrapped. Yet, ask shareholders and investors and the view is very different - financial updates every three months are welcome and deemed very necessary in decision-making.
Similarly, the majority of the investment banking/corporate finance sector would favour DC shares here because of the money to be made while those who assess such matters from a governance standpoint would not. In the final analysis, it is the latter which should prevail - like voting in a national referendum or general election, tinkering with a system where votes carry the same weight and everyone is treated equally would be ill-advised.