MAS should say no to dual-class shares

WHEN the Companies Act was amended to allow public companies to have dual-class shares, there was a sense of inevitability about the Singapore Exchange (SGX) opening its doors to listed companies with dual-class shares. I am therefore not at all surprised that the report "SGX close to allowing exceptions for dual-class share listings" (BT, Aug 23) now tells us that the Listings Advisory Committee (LAC) is set to propose that dual-class shares be allowed for companies listed on the SGX. What did surprise me was that David Gerald, president and CEO of the Securities Investors Association (Singapore) (SIAS), speaking on behalf of the association, expressed support for dual-class shares - because they are "well established in the United States and Europe" and necessary to attract companies to list here. What about investor rights and protection, which is the core mission of SIAS?

I have already written extensively on this subject. In my commentary "Say 'no' to dual class shares" (BT, Nov 27, 2015), I laid out in some detail the historical context of dual class shares in the US, the empirical evidence against them, the dangers of importing dual class shares into our market without considering the differences in legal and institutional environments, and the difficulty of implementing meaningful safeguards without defeating the raison d'etre for them. Those who cite Google and Facebook as examples of companies with dual-class shares do not cite Amazon, Apple, Microsoft and other technology companies as counter-examples of those that do not. Citing companies like Google to make the business case for dual-class shares is a bit like citing Warren Buffett to make the business case for appointing octogenarians to run companies. Hugh Young and David Smith of Aberdeen Asia have recently written a compelling piece "Dual class shares are double trouble" in their July 2016 newsletter, setting out an institutional investor's perspective. Most institutional investors are against dual-class shares, and we should brace ourselves for criticism if we allow it.

While proponents of dual-class shares may point to Google, Alibaba or Facebook, we may wish to remind ourselves that when we opened our doors to foreign listings, particularly S-chips, we did not end up with companies like Ping An or Bank of China. Instead, we got China Gaoxian, China Sky, Eratat Lifestyle, Sino-Environment and well over a hundred of others, many that we would rather not mention. Scandals in these listings have undoubtedly contributed to a loss of confidence in our market, impacting liquidity and valuations. We risk allowing history to repeat itself. Investors do not want to feel like they are victims of "bait and switch", with promises of bluechip dual-class shares only to be burnt by those that are only using dual-class shares to entrench and enrich themselves.