The larger the organization, the more responsibility it should carry,Mary Leung, CFA’s Asia Pacific head of standards and advocacy, said in a conversation with finews.asia about the troubling pursuit of dual-class shares in Hong Kong.
The enhanced power of otherwise equally priced shares – called weighted voting rights (WVR) in Hong Kong – was introduced based on the argument that a firm's success could be heavily reliant on the contributions of a single extraordinary founder or manager who should be rewarded extraordinary voting powers.
«Hong Kong first thought about WVRs back in 2014 when Alibaba was looking for a listing venue and the stock exchange was quite ready to change the rules for them but the [Securities and Futures Commission] came out saying that this was not going to work and they went to New York,» said CFA’s Leung in a recent conversation with finews.asia.
Such unequal powers creates obvious setbacks in terms of investor protection and governance. risk. But since 2014, the Hong Kong exchange has become home to three listed companies with WVRs – Alibaba, Xiaomi and Meituan Dianping. This has been limited to founders and key managers but the exchange proposed this year to expand the regime to include WVRs for corporate shareholders.
«Big Boys»
«If you talk to institutional investors, they hate this notion that their dollar is worth less than other people’s dollar,» Leung shared. «But they are very pragmatic. If they see there is uncertainty in relation to a company’s management, they will just put a discount on it.»
Still, Leung expressed concerns for the general investing public and underlined that large corporates – and their partnering issuers – should not fear greater controls but instead embrace them due to their organizations’ sizeable role in the economy and society at large.
«All these companies we are talking about are not small companies – they are huge,» she stressed. «If you are a big boy, why don’t you play by the big boy rules? What are you afraid of? If you think about governance, risk and proportionality, it’s the bigger guys who have more responsibilities, not the other way around.»
Investor Protection
Hong Kong is not alone in providing WVRs to shareholders. New York and other cities also operate exchanges that offer dual-class shares, also commonly to firms from the tech sector. But Hong Kong is markedly different due to several factors.
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