HKEX Consultation: Weighted Voting Rights Concept Paper
Release Date: 2014-11-30
To: Hong Kong Exchanges and Clearing Limited
Feedback on the Weighted Voting Rights Consultation by the Hong Kong Stock Exchange
Following Alibaba's unsuccessful attempt to list on the Hong Kong Stock Exchange with a non-traditional shareholding structure, leading them to opt for a U.S. listing, your organization has initiated a "Consultation on the Concept of Weighted Voting Rights." After thorough discussions with our members and compiling their feedback, we express strong opposition to this initiative.
Our objections are based on the following key points:
1. Weighted voting rights can create a disconnect between ownership and voting power, leading to disproportionate influence over board decisions and major corporate actions, which we find inequitable. This misalignment undermines sound corporate governance practices and results in unjust shareholder treatment.
2. Dual-class shares, such as those referenced in the Stock Exchange Appendix I, "Third Interim Report of the Standing Committee on Company Law Reform: B Shares," paragraph 7, are criticized for contravening the democratic principle of "one share, one vote." They can enable minority control that is self-sustaining, which, as noted by academic insights submitted to the U.S. Securities and Exchange Commission, might lead to management unaccountability and diminished company performance, ultimately harming ordinary shareholders.
3. Legal safeguards are essential for business trusts to protect investor interests. Even holding a majority of issued trust units doesn't guarantee influence over management or the appointment of directors, while major shareholders may cash out significantly yet retain control.
4. The stock exchange is meant to facilitate capital raising and provide investment opportunities. However, weighted voting rights could lead to misuse, lowering the cost of control, detaching it from company growth, and shifting the focus from fundraising for development to cashing out, thereby eroding trust and discouraging investors.
5. Without mechanisms like collective litigation rights, the exploitation of minority shareholders becomes a risk, undermining shareholder protection.
6. A reduction in shareholder rights could deter investors from participating in the local market.
7. Allowing listings with inequitable terms could tarnish Hong Kong's investment reputation and hinder its economic progress.
8. The presence of stocks with varying voting rights could result in market confusion.
These concerns form the basis of our opposition. Additionally, we have gathered responses to the "Weighted Voting Rights" consultation from several members and plan to submit these to your Corporate Communications Department.
Wishing you financial prosperity!