Dual Class Shares in Singapore – Where Ideology Meets Pragmatism

Abstract

This article seeks to understand the rationale for and potential implications of the introduction of dual class shares (DCS) in Singapore. It does so by first considering the theoretical as well as evidential arguments for and against the use of DCS, followed by a survey on the reception (or otherwise) of such structures in four common law jurisdictions with vibrant capital markets, viz., Canada, the United States, United Kingdom and Hong Kong. It observes that the chief argument cited by business founders to justify the use of DCS structures is the desire to enhance a firm’s long-term profitability by shielding the (talented) founder from short-term market pressures. Though the use of DCS structures remains controversial, the phenomenal success of technology unicorns such as Alphabet Inc. and Alibaba appears (for now) to have sealed the place of DCS in the American securities markets. This exerts considerable pressure on competing markets to follow suit. Singapore’s response to this aggressive competition is pragmatic but measured. The indications so far are that the regulators would chart a middle path between the conflicting goals of incentivizing entrepreneurial fundraising and investor protection by permitting DCS structures in exceptional cases circumscribed by stringent safeguards. This, it is submitted, is an appropriate response given the theoretical and evidential underpinnings of DCS structures as well as economic and regulatory conditions peculiar to Singapore. Should it succeed, this development would serve as an interesting and notable example of a regulatory innovation that avoids the proverbial race to the bottom in the face of intense competition.