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UK listing rules bonfire gives more pain than gain

Guy Fawkes, who plotted to blow up the UK Houses of Parliament in 1605, said that a desperate disease requires a dangerous remedy.

[LONDON] Guy Fawkes, who plotted to blow up the UK Houses of Parliament in 1605, said that a desperate disease requires a dangerous remedy. The current UK government would agree: It is considering setting fire to its listing rules to give company founders superior voting rights to ordinary shareholders. The idea is intended to help London stay competitive after Brexit, but it's more likely to explode in its face.

The idea of introducing dual share classes in the UK isn't new, but has been given impetus by the decision to leave the European Union, which has put pressure on London to find new sources of business as trading moves to the continent. Looser listing rules may persuade founders of tech firms to come to London, and stop homegrown startups decamping to New York, where voting rules are more relaxed. London-based fashion retailer Farfetch is a case in point.

The move is unlikely to do much to fire up startups' enthusiasm for London. Certainly, looser rules may give founders extra freedom, and stop them worrying about being taken over. Even then, companies may prefer a New York listing given greater liquidity and richer valuations stateside. Take Hong Kong. It introduced a dual share system in 2018, but has since attracted just two tech firms. One is smartphone maker Xiaomi, whose shares have roughly halved since listing.

The reform could backfire. While the new system is intended to appeal to fast-growing tech groups, it would be hard to stop it being used to shield bad management, as the WeWork fiasco recently illustrated. London's status as a financial hub could be hurt, if foreign investors see the City as a less safe place to do business.

The government doesn't appear blind to the risks. One idea being discussed, according to a person familiar with the matter, is a temporary system, dubbed a sunset clause, where the extra votes expire after a fixed period of five years or 10 years. In practice, that may not prevent abuse, and companies may find ways to extend it.

The best way to help London would be to ensure a stable political and regulatory environment. That's one thing Prime Minister Boris Johnson, who has called the second election in two years to ram through his damaging Brexit deal, seems incapable of doing. Changing the listing rules would be at best a damp squib.

The UK government is considering making changes to Britain's listing rules to allow company founders extra voting rights, according to a person familiar with government talks.

One idea under discussion is to allow companies that list in London to create dual share structures that will expire after five years to 10 years, according to the person. The potential reform is intended to make a London listing more attractive to technology firms.

Currently, UK rules prohibit companies with dual share classes from benefiting from a premium listing.

The discussions were first reported by the Financial Times on Nov 5.


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