HKEx CEO Charles Li has conjectured in his blog that there may be changes afoot to the way Hong Kong treats non-standard shareholding structures.
Non-standard shareholding structures tend to come about when an entrepreneur wants to float their company on the markets, but does not want new investors to have a proportionate say in how the company is run.
Hong Kong has maintained what Li describes as a “moral high ground” in the past, meaning that there are no separate share classes that would deprive new investors of a fair vote. Other exchanges have not maintained this principle, and have garnered some IPOs as a result.
Charles Li therefore seems to be having second thoughts about holding that moral ground. He acknowledges that losing a couple of listing candidates is “not a big deal for Hong Kong.”
However, the idea of restricting new shareholders’ rights and overall governance is a concept that Chinese entrepreneurs are now demanding in order to keep tight control over their business.
“Losing a generation of companies from China’s new economy is [a big deal].”
At that point he strives to determine how “innovative companies deserve special consideration when it comes to governance.”
He believes that their success comes from the founder’s unique vision, rather than other factors that drive success in normal companies.
“Arguably, because these founders are so vital to their companies, protecting them is also a form of investor protection. In fact, most international markets are willing to allow shares with differentiated voting rights,” said Li.
A problem comes when trying to determine just who is special enough to merit this kind of treatment. At this stage Li indicates that objective definitions would be applied to evaluate their subjective qualities.
“The companies that qualify for special consideration would depend on the reasons behind the change. If it is because of the uniqueness of founders and innovative companies, then we would have to carefully define these terms to limit their application. They shouldn’t apply to everyone.”