11 July 2024

ICGN: Global investors deeply concerned by loss of shareholder protections in FCA listing rule reforms

The International Corporate Governance Network is deeply concerned by the loss of shareholder votes on significant and related party transactions, and by the introduction of a two-tier system for share ownership in listing rules reforms announced today by the Financial Conduct Authority (FCA).

The International Corporate Governance Network is deeply concerned by the loss of shareholder votes on significant and related party transactions, and by the introduction of a two-tier system for share ownership in listing rules reforms announced today by the Financial Conduct Authority (FCA).
Led by investors responsible for assets under management of around $77 trillion, ICGN advances the highest standards of corporate governance and investor stewardship worldwide in pursuit of long-term value creation, contributing to sustainable economies, societies, and the environment.
ICGN’s Chief Executive Officer Jen Sisson said: “Investors have repeatedly expressed their concerns over the listing rules reform, and have not been heard.
It is disappointing to see what feels like a polarising approach, pitting management and their advisors against the company’s owners – the shareholders. The interests of shareholders and management should be aligned in creating long-term value. The risks to shareholders are clear, the benefits of these reforms are not.
Today’s changes mean that shareholders, the owners of the company, will no longer have a right to vote on significant and related party transactions. Those votes are an important protection for minority investors, ensuring that large shareholders and company directors do not unfairly benefit from their position.
We are concerned by the introduction of dual class share structures, which create entrenched power in the hands of a small number of investors, disproportionate to their ownership stake. It disadvantages ordinary investors, taking away accountability mechanisms and making it hard for their voice to be heard.
The FCA’s changes create a system which makes the usual dual class share issue even more complicated. Institutional investors may only hold dual class shares for a ten-year period, but there is no limit on how long other holders – such as founders or other insiders – may hold this type of shares. This is neither simplified nor streamlined, and fails to protect minority shareholders. All dual class shares should have sunset clauses. One share should equal one vote.
ICGN members are investing hard working people’s savings and pensions. The UK governance system of accountability to shareholders exists for a reason, to protect end investors, and today’s decision may have unintended consequences for these people.
Strong shareholder rights and protections are crucial. We agree with the goal of a well-functioning and competitive UK market, but are deeply concerned that these changes do not strike the right balance between competitiveness and quality.”
The FCA has committed to reviewing the rules in five years’ time and we look forward to a continuing dialogue between the regulator and investors.

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