Give investors choice on shareholding structures as long as rules are transparent
When e-commerce giant Alibaba abandoned Hong Kong to launch its massive initial public offering in New York, the city's financial leaders found themselves in an unenviable position as critics looked for a scapegoat.
As such it is not difficult to interpret the latest proposals by the Financial Services Development Council as an attempt to make sure we will not let another big one slip away again.
Even so, many of the suggestions are worthy of consideration. Hong Kong regulators and the stock exchange were right not to bend the rule of "one share, one vote" for Alibaba. This does not mean we shouldn't re-examine and reconsider alternative structures in future so long as any such rules are transparent. Among the key proposals are the creation of several new listing boards, including one specialising in companies with unique shareholding structures. This will follow the example of London in developing more new boards tailor-made for the needs of diverse investors and companies.
There are two main issues. Firstly, how likely are we to develop new boards that have the credibility to attract new listings? Would it not be more practical to revamp the existing Growth Enterprise Market to accommodate the new rules?
More importantly, what about the one share, one vote position that underpins our regulatory shareholding regime?
Alibaba had demanded the right for its bosses to nominate members to the board even though they only control minority stakes. Regulators agonised over it before turning down the demand. But Facebook and Google have alternative shareholding structures in the US, just as Jardine Matheson does in Singapore. Their shareholders have been richly rewarded.
The real issue has to do with fairness and the rights of minority shareholders. Can both be protected with alternative shareholding structures like Facebook? Since potential shareholders already know this, they buy into the firm because they trust its top managers. This is the argument often used by founder-CEOs who demand total control despite owning minority stakes. They also argue this frees their companies from being taken over by opportunistic raiders in for a quick profit.
Markets will reward such companies which deliver and punish those that fail. So long as the rules are transparent, there is no reason why investors should not have that choice.