Does anybody else remember the High Growth Segment? The listing category that the London Stock Exchange launched to great fanfare in 2013 as a way of getting expanding technology companies from all over Europe to list in London rather than the US.
I was reminded of it last week when the FCA confirmed its plan to create a new premium listing category for ‘sovereign-controlled companies’ like Aramco.
Both were predicated on the belief that the only thing stopping companies flocking to London was the pesky free float and corporate governance requirements. Both seemed, to many commentators, to be politically inspired rather than a response to a real market need. And both caused a bit of a stir by proposing to water down shareholder protections.
This was particularly true when the plans for sovereign-controlled companies were first announced last year. The FCA proposed setting aside some of the rules it had introduced just a few years before in the wake of the ENRC scandal; rules which it said at the time were ‘designed to strengthen minority shareholder rights and protections where they are at risk of being abused’.
To be fair to the FCA, it has dropped some of its original proposals. It will, for example, now retain the rights of minority shareholders to appoint the independent directors. But if they are not being watered down quite as much as they might have been, the rules are still being diluted. And the justification – that state-controlled companies are different to other companies with a controlling shareholder – is not all that persuasive. Different does not necessarily mean better governed.
In addition, just as in 2013, there is a noticeable contrast between how potential new entrants are being courted and the demands being placed on established UK listed companies.
In 2013, as the High Growth Segment was being launched, UK listed companies were coping with new regulations concerning the strategic report and the remuneration report. This time round, the FCA’s announcement came the week before the government issued new regulations for domestic companies on directors’ duties and remuneration (again).
By and large, those new regulations are welcome, but that is not the issue. Waiving burdens on large foreign state-controlled companies, while at the same time increasing them on UK companies is hardly creating a level playing field and does have a whiff of expediency about it.
Some might object to my characterisation. They might say that the FCA’s plans demonstrate welcome pragmatism and that if major global companies list in London as a result, then irritating a few purists is an acceptable price to pay.
Will the new category for sovereign-controlled companies work? Will there be a rush of sovereign-controlled companies coming to London? And will investors want to invest their money in them despite reservations about their reduced rights?
We will have to wait and see. But five years on, the High Growth Segment consists of a grand total of one company (stand up and take a bow, Matomy Media Group!).
The reasons for this may be nothing to do with governance and shareholder protections, of course, and the dynamics of the new segment may be very different. However, just because the FCA is marking out the pitch, it does not follow that anyone is going to want to play.
Chris Hodge FCIS is policy advisor at ICSA: The Governance Institute