(p. B10) . . . Britain is changing the rules to attract more would-be corporate dictators. Its financial regulator this month [July 2024] is ditching shareholder protections in an effort to attract IPOs back to the venerable London Stock Exchange.
The hope is that owners of companies will like London more if they can maintain control, while management will like London more if they don’t forever have to ask pesky shareholders for permission for things.
. . .
Investors in the U.S. have been all too happy to buy companies where the founders have kept control, or act as if they did. Benign dictators are in fashion.
. . .
The history of corporate success fits this model perfectly. Founders who manage to create, expand and list a company are usually pretty good. It isn’t surprising that shareholders like to give successful founders a free rein, avoiding all the usual corporate-governance restraints designed to prevent flights of fancy by a runaway CEO.
Founders also have skin in the game, in the form of a large part of their fortunes tied up in the stock, unlike the hired help who fill the C-suite at most big companies. Their flights of fancy might not always work out—Alphabet’s “moonshot” ventures have mostly lost money—but are part of the point of investing with a founder promising growth.
. . .
In companies that give extra votes to the founder, it becomes hard or impossible to change the board, let alone kick out the CEO.
. . .
London’s outright ban on dual-class stock has been tested by market forces and failed because companies simply listed elsewhere, usually on the Nasdaq. Britain will now have a corporate-governance regime that puts more onus on shareholders to protect themselves.
For the full commentary see:
(Note: ellipses, and bracketed month, added.)
(Note: the online version of the commentary was updated July 19, 2024, and has the title “Streetwise; There Is a Time for Corporate Despots—but It Isn’t Forever.”)