The (Re)introduction of Dual-Class Share Structures in Hong Kong: A Historical and Comparative Analysis

Abstract

On 24 April 2018, after five years of consultation and deliberation, Hong Kong formally introduced new listing rules to allow the listing of companies with the dual class share structure, also known as weighted voting rights (“WVR”), under which a special class of shareholders’ voting rights are conferred disproportionately with respect to their equity interest. Historically, some Hong Kong-listed companies adopted the WVR in the 1980s but a ban was effectively imposed in 1989. The debate on the WVR was triggered again by the departing of the Alibaba IPO in 2013. The WVR structure has the benefits of allowing the company management to focus on their long-term goals and also to increase the attractiveness of a stock exchange to potential issuers, particularly the so-called ‘new economy’ companies. On the other hand, the WVR structure has the potential to create very large agency costs in terms of the risks of expropriation and entrenchment. In response to this, Hong Kong has put in place relevant supporting mechanisms such as entry requirements, disclosure requirement and safeguard requirements. From a comparative perspective, the WVR regime in Hong Kong appears to be more stringent than jurisdictions that already allows for WVR companies, notably the United States and Canada, as well as Singapore, which has also recently adopted a WVR regime. This paper argues that the (re)introduction of WVR regime is generally a positive development for Hong Kong, but there are still some lingering concerns. It remains to be seen whether the WVR regime will achieve the purpose for which it was introduced.