Now that the Singapore Exchange (SGX) has opened up the issue of dual-class share listings, it seems inevitable that a significant portion of the market will be disappointed, whichever way the regulations head.
Those supportive of allowing dual-class structures point to the potential for SGX to beat out its rivals in attracting initial public offerings (IPOs), especially for high-profile tech companies, and to the various safeguards proposed that would help to address governance risks.
As DBS head of capital markets Tan Jeh Wuan put it: "This will add to the options available to international companies that are considering listing on the SGX."
But the critics are just as adamant that dual-class shares are bad news waiting to happen, citing doubts about the efficacy of the proposed safeguards and the risk of setting a precedent.
Aberdeen Asset Management Asia head of corporate governance David Smith said: "I understand why SGX proposed it. I don't necessarily follow that we as shareholders should support it."
The Listings Advisory Committee (LAC), an industry-dominated, independent body that advises SGX on unusual listing matters, has told the SGX that it is in favour of allowing dual-class share listings, subject to certain safeguards.
Those safeguards include a maximum 10-to-1 differential in voting power; no conversion to dual-class structures for already listed companies with a single class of shares; loss of multiple voting power when preferred-class shares are sold or when owner-managers cease their executive roles; only one vote per share when electing independent directors; and mandatory adherence to the Code of Corporate Governance's recommendations on board independence and composition.
SGX has said that it would gather more feedback; a public consultation process will take place if SGX decides to amend the listing rules.
The feedback is likely to reflect a divided public.
Allowing dual-class shares is a matter of keeping the market competitive and vibrant, the structure's proponents say.
Credit Suisse head of equity capital markets in South-east Asia Cheun-Hon Ho said: "It opens up the universe of prospective companies wanting to list on SGX, to company owners who would like to retain control while raising cash to fund growth, as well as provides investors with broader investment options while maintaining high standards of transparency and corporate governance."
RHTLaw Taylor Wessing's Ch'ng Li-Ling, who heads the law firm's corporate practice, said that there was a reasonable amount of interest among business owners for structures that allow greater control without having to account to shareholders for short-term results.
She said: "A lot of the small caps are owner-managed, so they do have very strong views on where they want to take their business. They have a certain vision for where they want their business to be. A lot of clients find that having to seek shareholder approval does hamper their plans in some way. The common refrain is 'I can't wait for shareholder approval; the business opportunity will be lost by then'."
DBS's Mr Tan said that the safeguards recommended by the LAC are a step in the right direction, although fine-tuning might be necessary upon implementation.
"As the dual-class share structure is new in this part of the world, SGX will need to see how the implementation of these safeguards work in practice and if necessary, tweak the rules to ensure that proper corporate governance is observed," he said.
PropertyGuru co-founder and chief executive Steve Melhuish told The Business Times that, while obstacles for listing tech companies, such as a lack of comparables and research, still had to be overcome in Singapore, accommodative rules would put SGX "on parity with other exchanges".
But not all are convinced that parity means allowing dual-class shares. In fact, Australia, Hong Kong and London's main board have all considered - and rejected - dual-class structures, National University of Singapore associate professor Mak Yuen Teen pointed out to The Business Times.
The corporate governance advocate also voiced concerns about the robustness of a system that relies on independent directors as safeguards, when such directors have had a spotty track record and it has been difficult to hold them accountable.
Aberdeen's Mr Smith was concerned that SGX may set a precedent for other exchanges to follow.
"Once SGX does it, everyone else will want to do it," he said, adding: "Every exchange of size will have this, and then when you ask, 'Who's more competitive?', well, no one, because everyone else has it.
"The people who will be worse off are the investors, because we have the same amount of companies, but worse governance."
He said that he believed neither in the need for dual-class shares - "If you're so fabulous at your job, why would we want to kick you off the board?" - nor in the ability of LAC's safeguards to protect minority investors.
"The perversity is that the more safeguards you put in place, the less attractive it is for an issuer," he said.
From an investor's standpoint, dual-class shares make it harder to invest in a company even if its business is good, Mr Smith said.
Institutional investors such as passive-fund managers also have no control over the investments they make and are therefore highly dependent on single-class structures to exert their influence.
"Investors will have to do a hell of a lot of research to understand why a company needs to have dual-class shares," he said.
This article was first published on Aug 31, 2016.
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