Introduction of dual-class shares by Singapore Exchange raises concerns

Introduction of dual-class shares by Singapore Exchange raises concerns

It is a win for company founders looking to go public in Singapore but some investors may lose out when the Singapore Exchange (SGX) introduces dual-class shares later this year.

SINGAPORE: It is a win for company founders looking to go public in Singapore but some investors may lose out when the Singapore Exchange (SGX) introduces dual-class shares later this year.

SGX will be allowing companies to list using a dual-class share structure, whereby companies can issue different classes of shares that are entitled to different voting rights or other rights.

The class of shares belonging to founders and those in management can therefore have greater voting rights, allowing them to retain more control of the company despite owning fewer shares – a structure which has typically appealed to technology companies listing on the New York stock exchange. 

Mr Ernest Kan, deputy managing partner for markets at Deloitte said that allowing dual-class listings will make the stock market in Singapore more competitive, adding that the move by SGX is good news for company owners.

“Whatever long-term plan that they have … that would help them to implement the long-term strategy,” he said.

Being able to focus on a company’s long-term goals is a benefit of dual-class shares, according to Singapore start-up Carousell.  The online marketplace said in a reply by email to Channel NewsAsia that it welcomes the move by SGX to give more control to founders, provided that there are mechanisms to ensure good corporate governance. 

“This is especially relevant in current times where technology evolves very quickly and management needs to be able to make strategic decisions that may not optimise for short-term gains, but are necessary for long-term success,” said a Carousell spokesperson.

But there are concerns as to how this may affect shareholders with fewer voting rights. 
Professor Mak Yuen Teen from NUS Business School thinks that implementing dual-class shares is not a good move by SGX. 

“(These shareholders) would largely be at the mercy of the founders and management,” said the corporate governance expert.  

“We are not addressing the real problem why we are not attracting listings - our low valuations, the lack of investor interest and type and quality of companies we attract,” he added. 


Professor Mak suggested some measures that could help protect the interests of shareholders with fewer voting rights, such as imposing fiduciary duties on controlling shareholders and allowing them to undertake class action against controlling shareholders if their rights are abused. 

But he also pointed out that having too many safeguards would defeat the purpose of having a dual-class share structure. 

Corporate lawyer Robson Lee suggested three ways to safeguard minority shareholders’ interests: having independent directors form the majority of a company’s board and allowing only minority shareholders to vote them in, instituting the practice of having a separate nomination committee and limiting the tenure of board directors. 

For example, shareholders can decide every few years whether the company can continue to be listed on the dual-class share structure. 

“Because it then does not engender what they call the fat-cat syndrome, where management shareholders are so entrenched, they become so comfortable and perhaps even complacent and they may go to sleep and that's not good for governance of the company,” said the lawyer from Gibson Dunn. “Dual-class shares should not be a perpetual feature.”

However, Mr Kan said that investors know what they are getting into before buying shares of companies listed on a dual-class share structure. 

“Willing buyer, willing seller. If you don’t like, you can choose to opt out and not to buy them,” he said. 

When asked whether this makes shares of dual-class share companies less attractive for investors, Mr Kan said that it depends on how issuers make their shares attractive to investors through its dividend policy. 

Despite his support for SGX’s move, Mr Kan said that there are details on dividends and valuation that need to be ironed out. 

For example, what dividends shareholders of different classes are entitled to if they own the same amount of shares, and how a class of shares with fewer voting rights should be valued against other classes. 

It is about striking a delicate balance, according to lawyer Mr Lee.

“It’s between ensuring minority shareholders’ interest are not ridden roughshod over by complacent management shareholders. At the same time, you also do not want good companies to pass Singapore by,” he added.

Source: CNA/ng