The wrong solution

It was a dark day in the City this January when Amsterdam pushed the London Stock Exchange aside to become Europe’s biggest share trading venue. The Dutch city’s exchanges posted a higher average daily value of shares traded than London, at EUR9.2 billion compared with EUR8.6 billion, leaving the UK government scrabbling to put a finger in an increasingly leaky financial dyke.
Last week, Chancellor Rishi Sunak published a review of the UK listing regime by Jonathan Hill, a former EU finance commissioner which suggests a series of measures to make London once again seem desirable.
These included a relaxation of rules on dual-class shares which would allow founders to keep control over their companies after they list. And while this is not entirely alien to the UK already – shares with weighted voting rights are available in the UK’s standard listing rules – PIRC is troubled to see this being pushed to the premium listing regime.
The idea of further entrenching management and making it even harder for shareholders to have their voices heard runs counter to the corporate governance standards that once made the UK home to one of the most robust exchange regimes. The rationale often used for justifying these structures is that they allow founders to retain control of companies in the face of short-term financial market pressure. But if the objective is to stymie takeovers in order to encourage long-termism there are other, better ways of doing it.
Reducing management accountability is not the same as enhancing management’s ability to adopt a long-term perspective. Those with longer memories may recall that when the FRC decided to introduce annual election of directors to the UK Corporate Governance Code there were protestations that this would lead to too much short-term pressure on companies, and entire boards of under-performing companies being voted out. In reality if anything shareholders have used the power too sparingly.
This isn’t to say that founders won’t want the power offered by dual class shares. The problem is that not every new listing is going to be tomorrow’s Google. It might be tomorrow’s NMC Health. Does the UK want to put more unconstrained power into the hands of founders in that mould?
The reality is that making the UK more attractive to companies of the future requires a lot more than dropping governance standards.

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