Abstract
AbstractThere is a dearth of British tech-companies listing on the London Stock Exchange (LSE), and the LSE lacks a large, innovative tech-company such as Google. The UK Government, concerned as to the loss of UK tech-companies to foreign acquirors, views the encouragement of UK tech-firm listings as a policy priority. Dual-class stock, currently prohibited from the LSE Main Market's premium-tier, allows founders to list their firms, and retain majority-control, while holding significantly less of the cash-flow rights in the company. This article will broach the potential for dual-class stock to attract UK tech-company listings, and explore the benefits that dual-class stock can engender for UK tech-companies and their public shareholders. The risks of dual-class structures will also be discussed, but it will be shown that in a UK regulatory context, in relation to high-growth tech-companies, the risks may not be as severe as presumed, and easily moderated through judicious controls.
Highlights
INTRODUCTIONThere has been very little academic discussion of the topic in the UK, even though, at one time, long before the redesignation of the tiers of the Main Market into the standard-tier and the premium-tier, dual-class firms were not rare on the London Stock Exchange (LSE), with bastions of the city such as Marks & Spencer, ITV, Whitbread, Shell, Burton Group, Ranks and House of Fraser adopting the structure.[13] The subject is especially topical, with the Financial Conduct Authority (FCA)[14] and the UK Government[15] recognising the potential for dual-class stock to support long-term company performance and investment in tech-companies
Individuals could garner indirect exposure to such companies through their investments in pension plans, insurance products and investment funds, those institutional investors will desire to allocate significant funds to more liquid, publicly-listed investments.[31]. Such institutional investors can invest in tech-companies listed on other exchanges, a significant proportion of investments by UK funds remains in the UK,[32] and, policy-makers are seeking methods to promote the listing of UK tech-companies on the London Stock Exchange (LSE)
If UK tech-companies are not listing on the LSE, it begs the question as to how they are operating and raising finance? It is possible that UK techcompanies are able to generate the equity financing that they require without having to resort to the public markets
Summary
There has been very little academic discussion of the topic in the UK, even though, at one time, long before the redesignation of the tiers of the Main Market into the standard-tier and the premium-tier, dual-class firms were not rare on the LSE, with bastions of the city such as Marks & Spencer, ITV, Whitbread, Shell, Burton Group, Ranks and House of Fraser adopting the structure.[13] The subject is especially topical, with the Financial Conduct Authority (FCA)[14] and the UK Government[15] recognising the potential for dual-class stock to support long-term company performance and investment in tech-companies. The final sections of this article will weigh the benefits that dual-class structure can bring to the success of high-growth tech-companies, against the potential risks to public shareholders. It will be argued that the UK’s regulatory and market environment mitigates the most extreme risks, and a relaxation of the premium-tier prohibition of dual-class stock could give the UK’s tech-industry the boost that it needs
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