Shareholders rights and protections are in “regression” in the UK as a result of efforts to reform the listings regime for companies, according to a group of international investors.

In the latest exchanges in a debate over the future of UK governance standards, the investors this week took aim at reforms recently announced by the Financial Conduct Authority (FCA) which would replace the “standard” and ”premium” listings with a single category.

However, the reforms would also allow for a more permissive regime for companies with dual class shares, a move criticised by the International Corporate Governance Network (ICGN).

In an open letter published this week, members of the ICGN write: “These proposals will expose investors to undue risk, with potentially significant implications for underlying beneficiaries including pensioners, insurance, and retail investors’ savings.

“At a time when the FCA is encouraging investors to play a greater and more responsible stewardship role in promoting the long-term success of companies through monitoring, voting and engagement, the imposition of weaker voting rights will have the opposite effect by inhibiting investor influence.”

The ICGN adds that the UK has a global reputation for governance but it challenges the “need to roll back” the UK’s standards to support growth in listings.

Dual-edged sword

The FCA proposals would ease the need for sunset clauses on dual class shares and relax restrictions on who can hold shares with preferential voting rights. Those rights could also be exercised on a broader range of topics.

Reforms from the FCA come in an effort to buoy UK listings, which have shrunk by around 40% since 2008. In the five years to 2020, the UK accounted for about 5% of new listings around the world.

This is not the first effort to boost the City. Last year, on the advice of the London Stock Exchange, the government cancelled new reporting responsibilities that would have seen companies make disclosures on audit and assurance policies, risk and resilience preparations, anti-fraud measures and distributable reserves. The U-turn was greeted by stiff criticism in some quarters.

The move brought into the open a growing debate over the burden of corporate governance measures and whether they are undermining the UK’s ability to compete. On one side are those that argue governance standards must evolve; on the other, campaign groups, such as the Capital Markets Industry Taskforce (or CMIT, established by the London Stock Exchange), that argues governance has gone too far and is in need of a “reset”.

The ICGN’s statement this week appears to place the body on the side of high standards. Its letter says: “While it is clear the changes proposed to the listings rules would help attract listings in the UK, the proposed reforms are likely to harm the UK’s reputation as a market with robust investor protection, high corporate governance standards, strong reporting regime and a stable economic environment.”