Controversy surrounding the introduction of dual-class shares for premium listings in the UK continues. One expert has opened a new front, writing that “irremovable directors”—something dual-class shares could create should they go ahead— “are a terrible idea”.

Ewan McGaughey, a researcher at King’s College London and University of Cambridge, draws on lessons from history to make his argument, pointing out directors are not “irremovable” in UK law for good reason: it was a contributing factor to the Great Depression. Writing for the University of Oxford law school blog, he says the loss of shareholder rights to “remove directors at will” and “skewed” voting rights “were key steps in the ‘weakening of control’ over the ‘direction of enterprise’ before the Wall Street Crash”.

The UK is considering the introduction of dual-class shares after the government-commissioned Hill Review recommended pushing ahead with them to persuade tech entrepreneurs to list in London. Founders seek extra voting rights because they fear their corporate vision being “derailed”, or having their companies taken over before it can “come to fruition”, wrote Lord Hill.

But McGaughey is unconvinced. He makes a further argument that in fact dual-class shares fall short of delivering the “innovation” that is often claimed comes with chief executives that have greater voting rights.

“The big myth is that dual-class shares create innovative companies,” writes McGaughey. “Companies like Apple, Tesla or Amazon all have ordinary shares and their leading directors are minorities, but retain control because they perform.” Their innovation “has not been affected by share structure”.

He adds: “Making directors irremovable, for any length of time, will damage British innovation and damage corporate governance. Dual-class shares might be fine for small companies but they are a distraction for our leading enterprises.”

Share structure and corporate governance

Dual-class shares have made UK headlines in other ways. Deliveroo listed with extra voting rights, though not a premium listing, for chief executive Will Shu in April, but the event quickly turned sour with shares closing on their first day around 26% down on their opening value. One banker was quoted by the Financial Times saying it was the “worst IPO in London’s history”. Short sellers were blamed by many, as was poor pricing, but yet more pointed to the company’s dual-class share structure failing to reassure institutional investors.

The dual-class share proposal has fuelled much discussion. McGaughey points to a recent debate on the issue hosted by King’s College London, Edinburgh University and Cambridge University and posted to YouTube.

There has also been international attention. Academics in Sweden looked closely at the safeguards proposed by Lord Hill that would support dual-class shares. These include sunset clauses ending dual-class structures after five years, transfer restrictions, a maximum voting ratio of 20:1, and restrictions on the use of voting rights to ensure founders can continue in place or block takeovers.

According to Erik Lidman and Rolf Skog: “Our conclusion is that several of the conditions suggested in the review might not only hinder dual-class share structures from being useful for companies that wish to utilise such structures but would, in several cases, be detrimental to the corporate governance mechanisms that would otherwise counteract several of the problems that DCS structures can give rise to, most prominently the market for corporate control.”

However, criticism may be too late. The Financial Conduct Authority, a market regulator, is currently consulting on proposals that would see a “targeted form” of dual-class share structures go ahead to “encourage innovative, founder-led companies onto public markets sooner”. The consultation closes on 14 September, with new rules expected by the end of the year.