Dual-class shares could bring benefits to investors

It is encouraging to read that the Singapore Exchange (SGX) will explore measures to mitigate the unique investment risks of companies with dual-class share (DCS) structures (SGX introducing dual-class shares; Jan 20).

An astute point made in the article is that a DCS structure allows certain classes of shareholders, such as company founders, to have majority voting rights.

This feature might actually work in favour of minority investors when the company is so successful that it becomes the target of hostile takeover and management buyout attempts. Company founders could defeat those attempts with their majority voting rights so as to preserve valuable trade secrets, specialised skills and management expertise - at risk of being dissipated by a change in company ownership - that are imperative for the business' continued success and, hence, in continuing to deliver handsome returns to shareholders, including minority investors.

On the other side of the equation, minority investors have legitimate worries that DCS structures could expose them to expropriation by an underperforming executive team that cannot be voted out.

Concerning this, there is comfort in investment research that suggests companies with DCS structures are run by robust and high reputation executive teams - think Mr Warren Buffet and Berkshire Hathaway, and Mr Larry Page and Google - with superior integrity and management expertise, who have vested interest in ensuring the business' long-term success.

Hopefully, SGX's move to allow DCS listings could be reframed and appreciated as helping to attract high-quality companies, further enhancing Singapore's status as a listing hub and providing investors here with access to a bigger pie in the investment universe.

Woon Wee Min

A version of this article appeared in the print edition of The Straits Times on January 23, 2018, with the headline 'Dual-class shares could bring benefits to investors'. Print Edition | Subscribe