Dual-class shares more bane than boon for Singapore markets: report

Contradictions in corporate governance policies nullified listing rules and code revisions.

The introduction of dual-class shares (DCS) has damaged regulatory credibility whilst contradicting emphasis on investor stewardship, according to findings from the Asian Corporate Governance Association (ACGA) and CLSA’s ninth edition of corporate governance (CG) Watch.

According to the regional report on CG in Asia Pacific (APAC) which is published every two years, Singapore came in at third place, trailing behind Australia and Hong Kong. Hong Kong nabbed the second spot from Singapore thanks to its regulatory enforcement which includes a new ‘front loaded’ strategy from the Securities and Futures Commission (SFC) and high duality disclosure from Hong Kong Exchanges & Clearance (HKEX).

Also read: SGX opens listing to firms with dual class shares

The report comprises of two distinct surveys including a market-ranking survey carried out independently by ACGA on macro CG quality in 12 markets across APAC and a separate company survey conducted by CLSA analysts around the region focusing on CG practices amongst approximately 1,100 firms listed in APAC.

“The introduction of dual-class shares in Hong Kong and Singapore, and other markets following suit, is undermining the principle of fairness,” ACGA secretary general Jamie Allen said in a statement. “This could have a far-reaching adverse impact on investor trust in Asia regulatory systems.”

CG policy contradictions were apparent despite Singapore’s revised CG Code and changes made to enforcement strategy and listing rules, ACGA and CLSA said.

Both parties also highlighted a lack of transparency in the Monetary Authority of Singapore’s (MAS) funding for securities regulation, whilst also noting that information was sparse on certain proposed new laws.

Also read: Daily Briefing: SGX eases dual-class share rules to lure tech IPOs; Singapore turns to venture debt for funding

Meanwhile, despite noting how the new Singapore Exchange Regulation (SGX RegCo) has brought more vigour to the Lion City, they added that a litany of corporate scandals has raised doubts about the deterrence effect of enforcement.

In their view, ambition of independent audit regulators appear diminished.

Across the region, the best performing category was auditors & audit regulators, whilst the worst performing was investors. Markets tended to do well in CG rules however many underperformed in government governance.

“Asian corporate governance reform has made significant strides over the past 20 years through a balanced focus on three key pillars: transparency, accountability, and fair treatment of shareholders,” Allen added in a statement.