The UK pension investor among those demanding government protects minority shareholders in its listings review

RPMI Railpen, the investment manager for the railways pension schemes, is urging the government to protect minority shareholder rights in its response to HM Treasury’s Call for Evidence – UK Listings Review.

HM Treasury launched the UK Listings Review in November as part of a plan to strengthen the UK’s position as a leading global financial centre.

Chaired by Lord Hill, the call for evidence identified five specific areas, including the UK’s free float requirements, dual class share structures, track record requirements for company IPOs, prospectuses and dual and secondary listings.

In a letter addressed to Lord Hill dated 5 January, RPMI Railpen senior investment manager Caroline Escott said RPMI Railpen was against dual class shares as they “dilute” the ability of minority shareholders to effectively hold companies to account.

Escott said: “We believe that any move to allow dual-class voting structures would be detrimental to the kind of effective stewardship by institutional investors which the government has been laudably keen to encourage through these and other initiatives.

“This would in turn damage the global reputation of the UK as a market where investors enjoy structured protections and ownership rights.”

Dual-class shares provide some owners with superior voting rights, giving them voting control over a company that is disproportionate to their equity shareholding.

Escott said the principle of “one-share, one-vote” has been a fundamental in the UK’s success as a global financial market and urged HM Treasury not to permit dual-class share structures in the premium-listed segment of the London Stock Exchange.

She added: “We believe that the implications for the UK from allowing dual class share structures would be to reduce the attractiveness of UK-listed companies to investors and this would ultimately have a detrimental impact on the availability of the kind of long-term, patient capital the government is keen to encourage and, in turn, on the UK economy.”

Escott said the free float requirement, which defines how much of a company’s shares must be available for the public to exchange when a company lists on a market, was calibrated at around the right level at 25%.

“We think that any less would give too much influence to controlling shareholders and dilute the potential capacity for influence by minority shareholders in a way which would be detrimental to long-term corporate success,” she said.

“However, if a change were to be made, we believe that using this opportunity to increase the proportion of the required free float to, for instance, 30% could be a powerful signal of the government’s commitment to supporting shareholders to act as engaged stewards of their assets and further enhance the UK’s attractiveness to global investors,” Escott added.

The International Corporate Governance Network (ICGN), which also submitted a response to the consultation, said using dual class shares and a weaker free float standard as a way to attract more issuers to the UK financial markets was effectively a trade-off that waters down regulatory standards at the expense of investor protection.

Kerrie Waring, chief executive of the ICGN, said: “Now that this public consultation makes clear that dual class-offerings and lower free float are both on the table, our clear message to you is that such developments would be unwelcome by a substantial number of institutional investors globally.”

The call for evidence closed on 5 January and the review will now report to HM Treasury.

Last Updated: 8 January 2021
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