A leading academic has criticised the current approach to beefed up voting rights for shares in premium listed companies claiming dual-class shares have become  “dual class stock lite”.

Bobby Reddy, an assistant professor of law at Cambridge University and former partner at the law firm Latham & Watkins, writes in a new paper that changes introduced in 2021 allowing dual-class shares under strict conditions—including a five-year sunset clause—will likely fail to reverse the declining number of firms listed in London or high-profile tech companies.

“A half-hearted approach to dual-class stock on the premium tier,” Reddy writes, “led not to an opening of the doors to dual-class stock but, instead, ‘dual-class stock-lite’, which permits issuers to employ a form of multiple voting rights structure but with conditions attached that are, overall, so severe and unparalleled by other exchanges that permit dual-class stock, that it is unlikely that it will move the needle on attracting founders of new economy companies to the market.”

Reddy’s paper takes a deep dive into the conditions attached to dual-class shares for premium listing finding each to be a block.

London has seen a steep decline in the number of listed companies. In 2015, the figure stood at 2,454, which has shrunk to dismal 1,926.

London has also had to stand by as big tech companies sought listings on other markets that allow dual-class shares, including the US. Some markets—among them Hong Kong and Singapore—have in recent years moved to permit dual-class listing, principally to attract big tech companies and their founders, who veer towards retaining full control over their firms.

When the Financial Conduct Authority (FCA) announced it was considering dual shares two years ago, there was much opposition, particularly from investment groups, such as the International Corporate Governance Network, who have argued for a strict “one-share-one-vote” approach to the power embodied in share ownership.

But regulators appear to share Reddy’s view. In a consultation paper issued this month, the FCA proposes not only doing away with the “standard” and “premium” segments of the market to be replaced by a single category, but also easing the dual-class listing rules to tempt more listings.

Potential applicants for listing in London, the FCA writes, viewed the 2021 dual-class share rules as “too restrictive”. A single listing category without changes to those rules, it adds, would be “insufficiently appealing”.

Proposals to relax dual-class share rules include allowing the voting rights on all issues, not just a change of control or to protect a founder; extending sunset clauses from five to ten years; and removing the limits on “voting ratios”.

Other rules, such as restrictions on transfer of enhanced voting rights and only directors being allowed to hold dual-class shares, will remain in place.

The FCA considers the sunset clause as the key protection against rogue founder chief executives. According to the consultation paper: “We continue to consider a time-related sunset provision to be the most effective safeguard against the entrenchment of enhanced voting rights and the permanent exposure to moral hazard by minority shareholders.”

Some consider the changes a backwards step. The Engagement Appeal (TEA), a body that campaigns for improved investor engagement with retail shareholders, believes the relaxation of dual-class share rules could “end up harming” investor trust and confidence in public markets.

“In our view,” TEA says in a statement, “the proposed changes will disenfranchise investors, as compared to the existing listing regime, rather than empower them.”

Not so Bobby Reddy. In an often brutal assessment of the 2021 reforms, he says current moves suggest the FCA has acknowledged a “loosening of the rules” is necessary “if the LSE is to change its reputation as a dinosaur amongst global stock exchanges”.

There remains a background debate about the value of dual-class shares in principle. But proponents and regulators have moved on to discuss how they will work best for London’s recovery. It seems certain there will be further movement on the rules, though it is possible the City may need more than dual-class shares to make a difference.