Investors warn dual class shares ‘erode’ shareholder rights 

Lord Hill’s review recommends controversial structure to make London more attractive

Critics have warned that dual class share structures, set to be introduced on the premium listing segment of the London Stock Exchange to draw international IPOs, will dampen shareholder rights.

Lord Hill’s ‘UK Listing Review’, published on 3 March, set out 15 ways to improve the country’s listing regime, including introducing dual class shares in London’s premium listing segment, which currently requires a ‘one-share, one-vote’ structure. 

Dual class structures offer two different share classes, each with different voting rights. This means founders can keep voting control of the company by holding shares with enhanced voting rights.

Supporters of dual class share structures, which are commonplace on US stock markets and other major exchanges, argue they will make the UK more attractive to high-growth, innovative companies post-Brexit.

Lord Hill’s review, which was commissioned by the Treasury, found that between 2015 and 2020, the number of UK-listed companies fell by 40%, while London’s financial centre accounted for just 5% of IPOs globally.

However, critics of dual class share structures have warned they dampen shareholder rights and make it harder for investors to influence corporate behaviour on issues such as environment, social and governance (ESG).

The Pensions and Lifetime Savings Association’s deputy director for policy, Joe Dabrowski, said it would be “harmful” to the government’s stewardship agenda, pension funds and pension savers, and would “erode the rights of investors to influence companies”.

He added: “We are particularly concerned about the possibility that non-voting shares may be permitted in premium listings and would urge the government to retain the principal of ‘one share, one vote’ for premium listings.”

The International Corporate Governance Network, representing over $54tn of assets under management, is also against the proposal and has repeatedly warned about the risks to minority shareholders and corporate governance.

In its December 2020 response to the Treasury’s call for evidence on the UK Listings Review, the ICGN said: “We believe these structures are fundamentally flawed and carry significant governance risks for minority shareholders by diluting minority shareholder protections, management entrenchment and limited accountability.”

It added: “In extremis such structures create opportunities for expropriation, with controlling shareholder gaining private benefits of control at the expense of minority shareholders.”

However, the Hill Review has suggested safeguards to uphold corporate governance standards, such as a mandatory five-year sunset provision.