Firstly, there is a relatively strong level of retail participation from Hong Kong's hands-on equity traders compared to other markets. Secondly, protection for the average joe in Hong Kong is also, broadly, limited.
«There are limited paths to recourse for Hong Kong which lacks, for example, the right to class actions,» Leung explained. «So our advice to investors is to look under the hood. You have to understand what you are buying into, what your rights are and what options you have for recourse.»
Sunset Clause
The WVR issue is not only a binary matter either. Even if dual-class shares are eventually approved for wider use, greater governance could be exercised through measures, for example, like the inclusion of a «sunset» clause which would allow WVRs to expire. This would be applicable in situations where a formerly extraordinary individual no longer makes contributions, has stepped down or has passed away.
«Here at CFA Institute, if the issue is simply about whether we should or should not, this is a very short conversation,» Leung said. «But even if there is a sufficiently fair reason for the implementation of WVRs, a sunset provision will do wonders for investor protection and governance risk.»
Citing a report by SEC commissioner Robert Jackson, Leung noted that the share price of companies with and without sunset provisions may initially perform similarly but «things start getting funny after five to seven years».
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