HKEx treads carefully on voting rights

Hong Kong Exchanges and Clearing has issued a concept paper that solicits views on whether Hong Kong should allow firms to list that permit company founders to retain greater voting rights than its new shareholders.

Hong Kong Exchanges and Clearing (HKEx) has issued a concept paper that solicits views on whether Hong Kong should allow firms to list that permit company founders to retain greater voting rights than its new shareholders.

The exchange smarted from its failure to secure the Alibaba listing earlier this year.  HKEx was praised for having kept the moral high ground despite sacrificing the lucrative fees.

In a subsequent blog, CEO Charles Li pondered the issue, giving some signs that a change might be needed for commercial reasons, and even gave the example that within HKEx, the Hong Kong government had a greater power of suasion than its shareholding dictated.

The new concept paper takes care to say it doesn’t advocate change or retention of the status quo.

It mentions that current listing rules do not allow listing applicants or listed companies to use weighted voting right structures other than in exceptional circumstances agreed with the HKEx. The exchange has not listed any company using this exception.

HKEx’s presentation said that as at 31 May 2014, 102 mainland Chinese companies were primary listed in the US (on NYSE or NASDAQ), rather than in Hong Kong. 29% have a weighted voting right structure. They represent 70% of the market capitalisation of all US listed mainland Chinese companies

The report also said that companies with dual-class share structures represent 14% of the total market capitalisation of all large US listed companies – including Google, Facebook, Visa and Mastercard.

HKEx asked whether it should continue to forbid companies to use weighted voting right structures. If the answer it gets to that is ‘no’ then change is likely coming.

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