Investment professionals divided on support for dual-class shares: CFA Institute

DCS structures could erode corporate governance standards, and exchanges have to consider mandating safeguards.


A poll which interviewed 454 investment professionals in the Asia-Pacific region has revealed a split view between the professionals on dual-class shareholding (DCS) structures.

In a CFA Institute report published on Tuesday, 53 percent of the professionals opposed to DCS structures while the support for the product was at 47 percent.

DCS structures could erode corporate governance standards, and exchanges that deal with such products have to consider mandating provisions such as “time-based sunset clauses” to safeguard minority shareholders, the CFA Institute said.

Time-based sunset clauses would ensure that super voting rights will automatically convert to regular rights to vote through a “one-share, one vote” scheme after a period agreed upon between the management and investors, it said.

"The single most important safeguard is a mandatory time-based sunset of not more than five years," the institute said.

That safeguard protects public shareholders from entrenchment. It also gives founding shareholders enough time to execute their strategy and create value without undue worries of unexpected market changes, CFA Institute said.

The CFA Institute also flagged that in the Asia-Pacific region, investors may not always receive proper legal action against rogue companies or management.

“When things go wrong, public shareholders of listed DCS companies have little influence — without a vote, they cannot provide oversight of boards or management… For family businesses with a DCS structure, it is much easier for major shareholders to abuse their position and take advantage of public shareholders, either through massive executive compensation packages or questionable consultancy arrangements,” the global association of investment professionals said.

Singapore and Hong Kong recently gave the green light on DCS structures.

Hong Kong had allowed the DCS structure in April while Singapore gave the nod in June, joining other global exchanges Canada, Europe and the United States.

In September, Chinese service giant Meituan Dianping debuted on the Hong Kong Stock Exchange as the second firm with a DCS structure, after Chinese gadgets firm Xiaomi.

DCS structures give new economy businesses like start-ups and technology firms the ability to raise funds through an initial public offering, while giving them the autonomy to retain their voting power and control over the company.

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