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"Localist" thinking in the form of the introduction of dual-class shares in some Asian markets threatens to undermine shareholder fairness and could spread, the Asian Corporate Governance Association (ACGA) says in a report.
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Dual-class shares allow for weighted voting rights and have so far been introduced in Hong Kong and Singapore in a bid to attract IPOs.
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Jamie Allen, ACGA secretary general, says "fairness is being undermined" by the concept.
Two decades of progress on corporate governance in Asian markets and companies is coming under threat by increasingly "localist" thinking, a watchdog group warned Wednesday.
The Asian Corporate Governance Association (ACGA) cited the introduction in Hong Kong and Singapore of dual-class shares — and concerns that the idea is spreading — as an example of local markets turning away from the principle of shareholder fairness.
"The strong commitment to quality and better practices of the past 20 years is starting to become undermined by a more localist and divisive way of thinking," the Hong Kong-based ACGA said in its 2018 report on corporate governance, released in conjunction with financial company CLSA.
Jamie Allen, ACGA secretary general, said that principles of transparency, accountability and fairness have underpinned steady progress.
"Our feeling now, with the introduction of dual-class shares in particular, is the issue of fairness is being undermined in certain markets, particularly Hong Kong and Singapore," he told reporters in Hong Kong at the release of the report, which comes out every two years.
Dual-class shares allow for weighted voting rights and give company founders and insiders more control. The New York Stock Exchange and Nasdaq in the United States allow the practice and companies such as Facebook and Google have them. The idea has spread to Asia as exchanges battle for competitive initial public offerings.
Hong Kong and Singapore introduced the concept this year. Two Chinese companies — smartphone maker Xiaomi 1810-HK and food delivery app Meituan Dianping 3690-HK — listed in Hong Kong with weighted voting rights. There have been none in Singapore yet.
Despite the paucity so far, Allen expressed concern of "contagion" as the idea spreads, citing it being under consideration in South Korea and seen as potentially attractive in China .
"It creates this very unfair system," Allen told CNBC, adding dual-class shares essentially lock out a company's board of directors.
"People who have a minority of the shares totally control the company," he said. "And therefore that undermines the role of other shareholders."