RPMI Railpen, the asset management arm of the UK-based Railways Pension Scheme, had dismissed the government’s business-luring idea of allowing companies to list shares which carry different voting rights as “detrimental”.

Caroline Escott, senior investment manager at RPMI Railpen, wrote in an email to the UK Treasury, the finance ministry: “Differential voting rights (or dual class share structures (DCSS)) dilute the ability of minority shareholders – including Railpen and others in the responsible investment community with a long-term perspective – to effectively hold companies to account.”

The pension fund was responding to the Treasury’s “Call for Evidence – UK Listings Review” consultation document, published on 19 November 2020 by Jonathan Hill, member of the UK’s upper parliamentary chamber, the House of Lords.

On Hill’s questions about DCSS, including whether they should be permitted in the premium listing segment of the London Stock Exchange, Escott said it was fundamental in any system promoting long-term corporate success that shareholder voting rights were directly linked to the holder’s economic stake.

“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,” she said.

This would in turn damage the UK’s global reputation as a market where investors enjoyed structured protections and ownership rights, she said.

The consultation, based on ideas outlined by UK Chancellor of the Exchequer Rishi Sunak last autumn to alter post-Brexit UK regulation to make the country more attractive to business, also included questions on free-float requirements and whether the current 25% demand was right.

Escott said Railpen believed it was calibrated at around the right level, saying any less would give controlling shareholders too much influence and dilute the potential capacity for influence by minority shareholders in a way which would harm long-term corporate success.

Instead, she argued for a higher level, saying the increase to 25% from 15% in 2011 had had a positive impact on stock liquidity.

“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 wrote.

She said the UK was attractive place to invest largely because of its investor-friendly approach and strong protection for minority shareholder rights.

“We do not believe that either the UK economy or its financial services sector is best served in the long-term by seeking to dilute these protections in a ‘race to the bottom’,” she said.

In November, the International Corporate Governance Network wrote to Sunak warning him against adopting a dual-class share regime and lowering free-float standards as part of his plan for regulation.

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