Earlier this week, the Singapore Exchange’s Listings Advisory Committee (“LAC”), an independent body comprising bankers, lawyers and chief executives, recommended permitting dual-class share structures. This development follows lengthy debates in recent years by many stock exchanges around the world on this issue, including by the Hong Kong Stock Exchange in the context of Alibaba’s proposed Hong Kong IPO. Other high-profile listed companies with dual-class shares/voting rights include Facebook, Google, LinkedIn and MasterCard.
According to reports, the LAC has recommended that dual-class share structures should be permitted for new applicants only (as is the case in the United States) and only in cases where an applicant has a “compelling reason” to adopt such a structure. The LAC has also suggested that the voting ratio between the two classes of shares not be more than 10:1. In other words, while a Class A share (usually reserved for founders) may carry a maximum of ten votes, an ordinary Class B share issued to all other shareholders, including public/ retail shareholders would carry just one vote.
Other than the limits described above, some of the key safeguards that we understand have been recommended by the LAC include:
The Singapore Exchange will now study the LAC’s recommendations and engage in a public consultation. It remains to be seen whether the Singapore Exchange will seek to define and/or limit the types of company which may list with a dual-class structure or whether it will provide guidance on how a company may demonstrate “compelling reasons” to adopt such a structure. While sources appear to indicate that examples of a “compelling reason” may include situations in which certain key individuals (typically founders) play an indispensable role in the operations of a company, the investor community may seek stricter standards. For example, the U.S. proxy advisory firm, Institutional Shareholder Services, tends to recommend that shareholders vote against proposals to create dual-class share structures unless there are very persuasive/significant reasons (or “a compelling rationale”) for doing so, such as the company’s auditor concluding that there is substantial doubt about the company’s ability to continue as a going concern absent the creation of a dual-class share structure. It is noteworthy that the LAC has not proposed to limit the structure to any particular sector based on its statements to date.
Permitting share structures where the “one share, one vote” concept is not rigidly applied provides greater flexibility but at the same time the rules must achieve the correct balance of investor protection.