SGX in the next few weeks will issue a consultation paper on whether its Listing Manual should be amended to allow dual-class shares or DCS. This follows the recommendation by SGX's Listings Advisory Committee (LAC) that the exchange should be flexible enough to allow for various IPO structures and that the rules should be amended to make way for DCS. LAC for its part, studied the issue after the Companies Act was amended this year to permit DCS. As LAC chairman Gautam Banerjee said in a press interview last week, given that the Act now allows DCS, then it makes sense that SGX follow suit.
Investment bankers, lawyers and corporate finance practitioners will no doubt be rubbing their hands in glee whilst hoping SGX will accept the LAC's recommendation; corporate governance advocates on the other hand would be wringing their hands in despair since they see it as a backwards step for minority rights
For my part I believe that because the Companies Act has already been amended then even though I have my doubts that we should be tinkering with what is essentially the one-man, one-vote system, DCS are an inevitability here, and that the best that we can do is ensure that proper safeguards are in place to try and protect minorities as far as possible.
One possible safegurad is lowering the 1:10 voting ratio that LAC proposed which basically gives privileged shareholders 10 votes per one share held. I don't know how low the proportion should be, there is after all a risk that too low a ratio could negate the attractiveness of a DCS structure But perhaps SGX could look into this suggestion, which was made by Prof Mak Yuen Teen. I would go further and suggest that Prof Mak, Singapore's foremost expert on all matters relating to governance and board independence, should be actively engaged in drawing up the Consultation Paper.
Another possibility is to restrict DCS to professional investors only; another is that if DCS IPOs are opened to the retail public, there should be prominent warnings about the risks associated with such companies so that small investors are fully cognisant of what they might encounter down the road. There're more, such as restricting voting rights when it comes to appointing independent directors and when privileged shares are sold, but it's important to note that no amount of safeguards can guarantee against failures and that there will be lapses no matter what type of share structures are in place. However, because of the concerns surrounding DCS, additional effort should be taken to try and make sure these do not occur.