Dual-class shares divide analysts as Bursa resists implementation

Analysts and economists appear divided on the debate centred around dual-class listings that have been going around for some time.

Dual-class listings allow company founders super-sized power over their business even if they hold a small slice of the stock.

Proposals by exchanges in London, Hong Kong and Singapore to allow dual-classes mean they are likely to become more common despite complaints.

Malaysian Institute of Economic Research senior fellow Shankaran Nambiar said that dual class shares go against the norm of voting rights being proportional to shares held.

“This will strengthen the power held by founders and families that run the business, while also throwing the burden of risk to those who don’t have super voting rights,” he said.

As a case in point, Nambiar said that Warren Buffett’s Berkshire Hathaway has a dual-class share structure but not all founders can be expected to have the discipline and ethical sense that Warren Buffet has demonstrated over the years.

“One can expect governance issues and underperformance to feature with this new class of shares. There is already some evidence in that direction,” Nambiar said.

While this debate has been going on, Bursa Malaysia clarified last Friday that it had no plans to facilitate the listing of dual class shares.

In a statement, it said there had been some misleading reports of late which had caused confusion on the exchange’s position on the listing of dual class shares.

“Bursa Malaysia’s position has been misunderstood and taken out of context. We wish to inform that presently, we have no plan to facilitate the listing of dual class shares.

“In Bursa Malaysia’s pursuit to remain attractive and competitive, we are committed to uphold market integrity and ensure sound investor protection in all our market development initiatives,” it said.

An analyst in a stockbroking firm begs to differ, adding that it would help family-owned business to expand their operations by listing their company on the exchange without them losing control of the business.

He said that many family-owned businesses that were very founder-centric have been very successful and would be a great loss to the economy if they had not expanded.

“The dual-class structure could be a way forward for them,” he said.

While majority shareholders would not have control but control is vested in the hands of founders who already have an exemplary track record, “he said.

Still, there are lingering concerns as one analyst in a bank-based broking house said that such structures can lead to abuse of management power and discouragement for takeovers, which can dampen share prices.

On the flip side, he said that structure dissuades hostile takeover bids that may not be in the best interest of the company or the shareholders.

Political and economic analyst Hoo Ke Ping said that Malaysia would have to follow the trends in the world and if the dual-class shares are the trend, then Malaysia would have to go down that direction.

“We risk losing many local companies that might opt to list in other countries if we don’t follow the trend,” he said.