SGX is closer to allowing dual-class shares

The Singapore Exchange at 2 Shenton Way.
The Singapore Exchange at 2 Shenton Way.PHOTO: ST FILE

The Singapore Exchange is one step closer to allowing dual-class share structures following a vote in their favour by the Listings Advisory Committee (LAC).

A dual-class share structure could help attract high-quality companies that may not otherwise consider Singapore as a listing venue and to deepen Singapore's capital market, the LAC said in its annual report.

It said dual-class shares would be permitted only if listing applicants have a compelling reason to adopt such a structure.

A dual-class share structure gives controlling shareholders voting power or other related rights disproportionate to their stockholding. Ordinary shares typically carry one vote each, while shares in dual-class structures can confer different voting rights. Google, Alibaba and Facebook are some companies with these dual-class structures.

These structures allow parties, such as company founders and controlling shareholders, to "have voting control without the corresponding financial investment risk", the LAC said.

It also said companies already listed on a one-share-one-vote structure should not be allowed to convert into a dual-class set-up because existing shareholders did not invest in the company with knowledge of the risks associated with such structures.

AGAINST THE PROPOSAL

I can think of no major market that has opened its doors to dual-class shares in the last 10 years or longer. A number have reviewed and rejected it.

CORPORATE GOVERNANCE EXPERT MAK YUEN TEEN, urging SGX to think hard on the proposal.

The multiple-voting shares of an owner-manager who ceases his executive role at a company should automatically convert to single-vote shares. Multiple-voting shares should also have only one vote per share when it comes to voting on the election of independent directors.

The LAC, which consists of industry professionals who advise the SGX on unusual listing matters, agreed with an SGX proposal to require clear disclosure of shareholder rights by dual-class share companies.

SGX chief executive Loh Boon Chye said: "SGX will study the LAC's advice and engage stakeholders to gather views... Any amendment to the listing rules to allow dual-class shares will only occur after a public consultation process."

But the proposal is drawing flak from corporate governance expert Mak Yuen Teen, who calls dual shares "double trouble".

"I can think of no major market that has opened its doors to dual-class shares in the last 10 years or longer," said Associate Proffessor Mak. "A number have reviewed and rejected it. In the United States, there is contingency fee class action available to minority shareholders if dual-class shares are abused. In Singapore, there is no such option.

"Further, even if independent directors are voted on a one- share-one-vote basis, that's putting a lot on their shoulders.

"We very rarely hold independent directors to account when they do not discharge their duties effectively, so why would they be effective safeguards?"

He urged the SGX to think hard about the proposal, adding: "We could face an international backlash, and give the perception that we are willing to do anything to attract listings."

A version of this article appeared in the print edition of The Straits Times on August 30, 2016, with the headline 'SGX is closer to allowing dual-class shares'. Print Edition | Subscribe