Permitting dual class shares in the UK premium listing regime – a path to enhance rather than compromise investor protection

Abstract

AbstractUnequal voting rights arrangements under dual class share structures are increasingly favoured by entrepreneurs and founders of technology companies, in order to retain a degree of control over the company that is disproportionate to their equity shareholdings. The rise of such share structures around the world has put competitive pressure on the UK Government and the country's financial regulator to relax the one share, one vote principle in the premium listing regime of the London Stock Exchange, to ensure the UK equities market remains world-leading and fit for the future development of the economy. There is, however, a long tradition of institutional investors’ distaste for dual class share structures. In fact, the near extinction of dual class listings in the UK capital markets can be largely attributed to the opposition of large British institutions. Therefore, this paper will critically discuss the conflict between the demands to attract listings from high-tech and innovative companies and concerns of a race to the bottom in the UK context. It rebuts criticisms based on investor protection and argues that if dual class companies were permitted to list in the Premium Segment, the higher level of regulatory protection provided in the premium listing regime would help enhance minority shareholder protection and shareholder engagement. The additional safeguarding measures, as we have seen from other global financial centres, would also help to restrain the potential abuse of controllers’ weighted voting power. Together with the market mechanism, permitting dual class listings in the Premium Segment should be welcomed.