George Dallas writes about the possibility of loosening restrictions on dual class stock in the UK. We only disagree with one point — he says it is “ironic” that this is being considered just after the adoption of the robust new UK stewardship code that is the new standard other jurisdictions should aspire to. It isn’t ironic; it is pushback.
It is ironic that in the aftermath of the launch of the new UK Stewardship Code that the UK government is taking soundings on relaxing limitations on dual class share structures (“Why dual class shares deserve consideration”, editorial, November 12). The Stewardship Code seeks to encourage and empower shareholders to use their voting rights intelligently and responsibly to hold companies to account on key matters including board composition, remuneration and capital resolutions.
The introduction of dual class share structures in the UK would be anathema to this: it would have the effect of watering down the voting voice of shareholders to the point that minority shareholders do not matter. This is not only a form of regulatory schizophrenia vis-à-vis stewardship, but we need to emphasise that dual class structures are not welcomed by investors. Of the International Corporate Governance Network’s investor members (whose aggregate assets under management exceed $34tn), more than 80 per cent responded negatively in a recent member survey against dual class shares.
And why? Because, as you note, dual class shares erode accountability to management and have the effect of entrenching managers and controlling owners. While in the short term this might protect a young company from the animal spirits of financial markets, the trade-off is not positive longer term for minority investors, or indeed for the company itself.