Jake's View

Don't change listing rules until lawyers have to change theirs

PUBLISHED : Sunday, 31 August, 2014, 5:23am
UPDATED : Sunday, 31 August, 2014, 5:23am

Besides Alibaba, the exchange paper showed it lags the US in getting information technology firms to list here. At the end of May, a third of the 102 mainland companies listed in the US [had] dual-class share structures and 70 per cent of them [were] IT companies. In Hong Kong only 6 per cent of newly listed companies from January 2010 to December 2013 were IT firms.

Business, August 30

Some people just don't know when they are well off. In my view, one of the strongest arguments for banning distorted voting rights in listed companies is that it helps keep those wretched IT companies off our market.

Yes, I know that some of them have been spectacular winners. But for every Apple Corp there are a hundred sinkhole stocks in information technology. Let the venture capitalists have them, I say.

For the ordinary investor and for the reputation of the stock market nothing beats boring companies that do boring things. They make you money. IT loses you money. Don't believe me? Welcome to poverty.

And let's get it straight about Alibaba, too. The Hong Kong exchange was actually willing to listen to the plea that its founders be given preferential voting rights but insisted they would have to feel at least some of the pain of their smaller shareholders if things went wrong. You've got to put some skin in the game, said the listing committee.

Alibaba wouldn't have it. The game the founders wanted to play was "heads I win, tails you lose". The committee quite rightly showed them the door, upholding the principle that all questions of democracy have long been settled in Hong Kong - A shares have the same voting rights as B shares.

But now we have our exchange officials dismayed that Alibaba made good on its threat and is listing in New York instead. Maybe we should allow high-powered B shares after all, they say in a consultation paper, wringing their hands all the while - "The Exchange has formed no view for or against Weighted Voting Rights".

Uh-huh. I see. Is that also true of your boss, fellows?

But the key question here is one that this paper only touches on briefly. It is that investor protection in New York goes well beyond regulators who may, and then again may not, have more than the greater glory of their exalted selves in mind.

What investors have in New York is two very good tools for wringing compensation from market brigands who have robbed them. These two are class-action lawsuits and contingency fees.

If you believe you have been cheated, you can join your lawsuit to those of others who are taking the same case to court, and you can make arrangements with the lawyers handling the case that they will only be paid if they win.

That's in New York, where people live in the 21st century. Our own lawyers in Hong Kong still live in the 18th century and will have none of it.

Class-action lawsuits are not allowed and lawyers who accept contingency-fee payments can be sent to prison for it. It's called champerty, a horror in the eyes of our judges.

Thus all we have in Hong Kong if things go wrong is the Securities and Futures Commission, which cannot always get your money back for you.

The two essential legal reforms that could possibly make preferential voting rights worth considering here have been rejected outright.

They have even been made a crime.

Abandon all hope ye who think things may change. They won't. Our lawyers are dead against it.

They see a threat to their income and, as we have an overweighting of lawyers in the Legislative Council, the sky will fall in before champerty is recognised as a legal virtue.

In these circumstances I can't for the life of me understand why the exchange bothers putting out a paper soliciting views on preferential voting rights.

To introduce such a thing in the absence of class-action lawsuits and contingency fees is to put a noose over the head of the small investor and the rope in the hands of any bandit who happens by.

Just forget it, fellows. If you can't change the lawyers' rules, then don't change your own.