One of the UK’s most high-profile governance organisations has thrown its weight behind reforms that aim to loosen rules on the use of dual-class shares in London-listed companies.
The Chartered Governance Institute UK & Ireland (CGIUKI), a professional body for company secretaries, says new listing rules under consideration by regulators may be the “antidote” to short-termism in the London market and could “attract” tech listings.
The view was delivered in an article published this week and comes amid an intensifying debate about the impending changes. Two weeks ago, the International Corporate Governance Network (ICGN) called on rule makers at the Financial Conduct Authority to suspend the reforms.
Better for tech?
Writing in CityAM, Daniel Valentine, head of communications at the CGIUKI, says dual-class shares will help bolster tech companies that must manage distant time horizons to profitability (he notes that Uber and Twitter took 12 years).
Valentine adds shareholders are willing to settle for weaker voting rights in return for highly skilled executives, though he concedes there is a body of “governance purists” who “hate” dual-class shares and remain loyal to “one share, one vote”.
“In reality,” Valentine writes, “many investors neither have the appetite nor the skills to contribute to corporate decision-making. They simply want the company to pick the right leaders and the right strategy.
“Dual-class stock can help with both of these by separating ownership from control.
“We encourage investors and policymakers to consider this element of the FCA proposal seriously. The London market has become notoriously short-termist and dual-class stock may be exactly the antidote that London needs.”
ICGN faces criticism
There has been a backlash against the ICGN since it published an open letter, along with other influential members of the investment community, calling for the FCA to hold off on rule changes.
The changes would see the removal of sunset clauses on new dual-class shares and the end of shareholder votes on some key transactions.
Other voices have been rallying behind the reforms. Former Bank of America Merrill Lynch investment banker Craig Coben wrote in the Financial Times last month that the reforms would help “rehabilitate” the City, following an “IPO drought” and a number of significant delistings.
The London Stock Exchange has said the absence of reforms has left the markets “unduly constrained”.
A statement issued by LSE said: “We believe aspects of the regulatory regime are not working as well as they should, or are hindering activity in our markets.”
An announcement by the FCA is expected soon, but after this week’s UK general election.