Dual-share structure can work in Hong Kong, says US lawyer
Dual-share structures for listed companies that are bolstered by safeguards could work in Hong Kong, a senior US-based lawyer said, but the city's regulator is not convinced.
Terry O'Malley, global co-chief executive of legal firm DLP Piper, said a two-tier shareholding structure is popular in the US among some media, space and technology companies. The system came with investor protections in the US, where class action lawsuits are allowed and a company or its directors can be sued, he said.
Dual-share structures have come under the spotlight in the city after Hong Kong Exchanges and Clearing lost the potential listing of Alibaba Group. It is understood that the mainland e-commerce giant had wanted to list under a structure that allowed its founder and senior executives to nominate most of the board members, despite their holding minority stakes. The Securities Futures Commission signalled its opposition to such a move amid concerns for the rights of minority shareholders.
While O'Malley noted that Hong Kong's legal system does not allow class actions, he said the city could still consider other types of protection for minority shareholders.
"It could require both classes of shareholders to vote for approval of some major transactions or for major issues such as changing of the board structure," he said. "Alternatively, it could also allow the regulator to have the power to prevent one class of shareholders to abuse of the control that may hurt the benefit of other shareholders."
Alibaba is thought to be considering a listing in the US, where its favoured model could be accommodated.
In the wake of Alibaba's aborted IPO - said to be worth as much as US$15 billion - the Hong Kong stock exchange announced a plan for a consultation on whether the city should change its listing rules to attract more flotations. The government-appointed Financial Services Development Council will also review the IPO system.
SFC chairman Carlson Tong Ka-shing told the South China Morning Post: "The SFC's [stance] is that any change of rules and regulations must put shareholders' protection as top priority."
Hong Kong Institute of Directors chairman Kelvin Wong, a non-executive director of the SFC, also opposes any concession for a dual-share structure. "One share, one vote is the name of the game," he said.
Wong said if a company has two classes of shareholders and one class has more voting rights than the others, it would be far too easy for one class of shareholders to proposed corporate plans that were favourable to them but to the detriment of other shareholders.
Shareholder activist David Webb, a former HKEx director, reiterated his support for the SFC's stance. Institutional investors were often cautious towards such structures, he said.