Question 3 10 marks 10 marks Earlier this year the Hong Kong

Question 3 (10 marks) (10 marks) Earlier this year, the Hong Kong Exchanges and Clearing Limited (HKEx) has introduced the creation of the New Board which allows companies with Weighted Voting Right (WVR) structure to be listed. What is Weighted Voting Right (WVR) company structure? Do you agree companies with WVR structure should be allowed to list on the Hong Kong stock exchange? Provide two reasons to support your view.

Solution

The weighted voting right (WVR) is basically a dual-share structure. In this there are two classes of common stock which have unequal voting rights. Example. Class A may have a certain voting rights and class B may have a different set of voting rights. One class may have one vote per share formula whereas the other may have multiple vote per share.

Here whant happens is that the inferior quality Class A shares are issued to the general trading public. Whereas Class B shares with the most power and importance are given to the promoters, directors, management and family of the same.This essentially helps the Class B holders to retain control of the company even after the company has been listed.

I do not agree with the WVR structure on the Hong-Kong stock exchange. Reasons are as follows

1. This looks kind of like an autocratic system. I think when the company has taken public funds, it is a moral duty of the company to consider the public as much a part of the company as the promoters. A dual share structure is not necessary to retain control. The company can effectively hold 50%+ holding with the promoters and still retain control. This is followed world over. A multi-voting thing creates a definite bias towards the promoters and the trading public seems neglected.

2. A person holding a share of a company is ultimately a holder of the business of the company for that particular period when he has held shares. Thus it is important to respect his holding and give him equivalent powers and say in the business.

3. Corporate governance issues would be hidden if a dual class structure exists. If a single class structure exists, then there is transperancy in the way the business is run. Whistleblowers also would have rights to highlight any wrongdoing in the company.