Proposed listing framework for dual class share structures
20 April 2018
Letter to Singapore Exchange Limited, 20 April 2018.
We refer to the consultation of Singapore Exchange Limited (“the Exchange”) on a proposed listing framework for dual class share structures, dated 28 March 2018, and welcome the opportunity to contribute our perspective.
Norges Bank Investment Management (NBIM) is the investment management division of the Norwegian Central Bank (Norges Bank) and is responsible for investing the Government Pension Fund Global. NBIM is a globally diversified investor with SGD 5.21 billion (USD 3.98 billion) invested in equities listed on the Singapore Exchange at the end of 2017. We have a substantial presence in all major equity markets globally, including in Asia, and we are a member of the Asian Corporate Governance Association (ACGA). We regard the protection of minority shareholder rights as a necessary requirement to safeguard and promote the fund’s long-term financial interests.
In our response of 6 April 2017 on a possible listing framework for dual class share structures, we expressed our concern that allowing unequal voting rights would lower the traditionally high standards of corporate governance and investor protection on the Singapore Exchange. We remain unconvinced of the merits of introducing unequal voting rights on the Singapore Exchange.
We emphasise the importance of taking into account the interests of all stakeholders in the listing environment.1 As a global investor, we recognise the benefits of competition between listing venues for well-functioning markets. We are also supportive of measures that motivate companies to go public, both in the early phase of their life cycles and in more mature stages. However, we are concerned when these measures affect the protection of minority shareholders’ rights, for instance with the introduction of unequal voting rights. We are encouraged by an increasing awareness that voting rights are a fundamental issue for all shareholders, as indicated by recent decisions of global index providers to consider voting rights as a criterion for index inclusion.
In the present proposal, the Exchange has opted to allow listings with unequal voting rights, allowing a maximum of 10 votes per multiple voting share. We note that the Exchange proposes certain measures for investor protection. In this context, we welcome the strengthening of independence requirements on all key board committees. We note that multiple voting rights are limited to key persons who are already directors of the issuer and to new listings only. We would like to see clearer suitability requirements – based on objective criteria defined at the outset of the new regime – in order to qualify for unequal voting rights. We support the proposal that certain matters should always be subject to “one share one vote” and that multiple voting rights should be non-transferrable.
We see the need for additional measures to protect the rights of minority shareholders. First, we would like to see a time-based sunset clause for unequal voting rights, in addition to the proposed automatic conversion of multiple voting shares if the holder sells part of the interest or ceases to be a director. Second, we recommend against the option to deviate (as proposed in paragraph 4.3 (c)) from the automatic conversion principles (4.3 (a-b)). Third, we suggest that any conversion of multiple voting shares, i.e. not only automatic conversion, must take place on a one-for-one basis. Finally, we recommend adding related party transactions involving entities associated with holders of multiple voting shares, as well as transactions affecting the ratio of multiple voting shares to ordinary shares, to the list of items that should always be subject to the “enhanced voting mechanism”.
We appreciate your willingness to consider our perspective, and we remain at your disposal should you wish to discuss these matters further.
Carine Smith Ihenacho
Chief Corporate Governance Officer
Ola Peter Gjessing
Enclosure: Response to consultation questions (SGX template)
1 We addressed this issue in “The Listings Ecosystem: Aligning Incentives”, Asset Manager Perspectives 1/2016, Norges Bank Investment Management.