The “one share, one vote” principle ensures that those who have more of a firm’s share capital have more influence over the company but it does not necessarily equate to investor protection, Hong Kong Exchanges and Clearing Ltd. (HKEx, 00388.HK) chief executive Charles Li wrote on his blog Monday.
“Many people connect ‘one share, one vote’ with investor protection. But are they really the same thing?” Li said, calling for a debate on Hong Kong’s listing rules after Alibaba Group last month announced plans to float in the United States, rather than in Hong Kong.
Li said investor protection is the ultimate goal while “one share, one vote” is only one of the many means. If the guideline fails to fulfill the goal, it can be overruled, just like in the case of connected party transactions, he said.
Hong Kong should think deeply about whether the city should blindly follow or completely reject the US model, which allows dual class shares, Li said.
“Is there a middle road onto which we could walk where we could consider allowing some weighted share rights to founding shareholders of technology companies while at the same time ensuring that we adequately protect the core interests of the public investors?” he said.
The HKEx chief has done a good thing by calling for a debate on whether the city can review its listing rules so that technology companies, which are usually operated by founders who have minority stakes, can go public in Hong Kong while protecting the interests of general investors, observers say. However, it will take a long time to close the debate due to the complexity of the matter.
Some experts in the IPO markets have previously suggested that a dual-class share structure is workable in Hong Kong but the majority shareholders should not enjoy the nomination right. Some others suggested that a founder who does not hold a majority stake in his firm should lose the nomination right after five years from the listing date. The founder can renew his term by opting for re-election every five years.
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