Investors have taken aim at proposals to relax the UK listing rules for dual-class shares, arguing they will hamper efforts by independent shareholders to hold boards to account, and are unlikely to increase the number of companies choosing to make an IPO.

Caroline Escott, a senior investment manager with Railpen, one of the country’s most high profile pension funds, and chair of the Investor Coalition for Equal Votes (ICEV), argues in the FT against dual-class shares.

Escott claims dual-class shares undermine accountability and their benefits “recede rapidly”. ICEV members want to see the retention of “sunset clauses” (which end the dual-class structure after a certain time), a regulatory measure that could be removed under current proposals by watchdogs.

Escott writes in the Financial Times: “For institutional investors with a fiduciary duty to invest in the best interests of our clients, dual-class share structures significantly dilute our ability to exercise our obligations.

“This makes it harder to encourage better long-term performance and risk management at portfolio companies, potentially leading to worse outcomes for members.”

The dual-class share proposals are among a raft of new measures put forward by the Financial Conduct Authority last year, aimed at helping boost the number of companies listing in London. Consultation on the proposals ended last week.

The changes, if given a green light, would include replacing the “standard” and “premium” stock exchange listings with a single category.

But the new rules would also relax the need for a sunset clause and ease restrictions on who can hold shares with greater voting power.

The International Corporate Governance Network (ICGN) has repeated its opposition to the changes, which, it argues, are “likely to harm the UK’s reputation as a market with robust investor protection, high corporate governance standards and a stable policy environment, thereby potentially reducing the attractiveness of UK-listed companies.”

The extra factors

The ICGN says the competitiveness of London as a market is more closely linked to issues such as liquidity, sophisticated investors, and the presence of comparable companies: these are more likely to influence corporate leaders over where to list. Tax, and the speed of the IPO process are also issues. “The FCA does not address these factors,” the ICGN says in a response to the regulator’s consultation.

Earlier this month, the FCA said it had received “extensive feedback” on the proposals. When the watchdog launched the proposals, it admitted they came with risks. “The proposals could entail an increased possibility of failures, but the changes set out would better reflect the risk appetite the economy needs to achieve growth.”

The London Stock Exchange has struggled to attract listings in recent years. The FCA consultation paper says they have shrunk by about 40% since 2008.

Dual-class shares also illustrate how corporate governance has become a key component in a debate about how to the make London markets and the UK broadly more competitive.

In a recent report, the Investor Forum, a club for fund managers, said recent dialogue with boardroom leaders had seen agreement that the “focus on reporting is distracting market participants, both companies and investors”. It goes on to suggest a different method may be required to the current “compliance-driven approach”.

There is enormous concern about the UK’s competitiveness which, in some quarters, has become a campaign to change tack on governance, dual-class shares included. A conclusion is yet to be reached.