Keen to regain its initial public offerings crown, Hong Kong is mulling over the possibility of relaxing its 26-year-old rule of "one share, one vote" for all shareholders.
The city's bourse currently does not allow companies to issue two types of shares: Those held by management have more voting power, though ordinary shareholders are providing the bulk of capital.
If the change comes to pass, it could pave the way for China's largest e-commerce company Alibaba to seek a listing in Hong Kong to raise a potential HK$100 billion (S$16 billion), making it the world's biggest IPO deal since Facebook.
Beyond that, the city will likely become more attractive to the mainland's emerging Internet enterprises, which want to retain control with a minority equity ownership.
But while the possibility of relaxing the rule brings cheer to investment bankers, lawyers and accountants, activists and investors say it will leave ordinary shareholders vulnerable.
For instance, they may not be consulted on major merger and acquisition decisions, said Mr Wynn Wang, who runs a boutique investing company.
Management lock-in prevents corrective changes being made by outside owners, wrote corporate governance advocate David Webb. "Ordinary shareholders will not be protected against management."
The possibility of "different shareholding structures" was discussed by the Hong Kong Stock Exchange's (HKEx) listing committee last week, said a spokesman. Progress was made which may lead to a public consultation exercise, he added.
Alibaba's listing plans here collapsed in September after Hong Kong regulators said no to its request for an exemption.
Founder Jack Ma and his top aides want control over who sits on the board, though they hold just 10 per cent of equity. Alibaba threatened to go to the United States, which allows dual-class structures.
In a hint that Hong Kong is amenable to change, HKEx chief Charles Li later said "non-standard shareholding structures" should be considered for "innovative companies". "Losing one or two listing candidates is not a big deal for Hong Kong; but losing a generation of companies from China's new economy is," he said.
Financial Secretary John Tsang said he is open-minded about the change, adding it is up to the market to decide.
Alibaba, pronouncing Hong Kong as its "favourite" place for a listing, announced it is putting its IPO plans on ice.
Hong Kong's possible move comes as it slips in global rankings for IPO deals transacted. It was No. 1 from 2009 to 2011 but fell to No. 4 last year. Tops was the New York bourse.
Technology firms favour dual-class structures and believe founders should be allowed to execute their vision even as they seek funding. Mr Ma has said he was afraid of becoming Apple's Steve Jobs, who in 1985 was ousted by the board of the company he founded.
But dissenters note that the US protects its small investors better by mandating stricter corporate disclosure standards.
Even supporters of a potential change say safeguards need to be in place. Said Mr Ian Long, head of China equity capital markets at Deutsche Bank: "It is a good thing, but we will need to put in place safeguards for minority shareholders."
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