The recently announced IPOs of Alibaba and Weibo, the Chinese service providers, shine a light on the range of global corporate governance practices. While companies’ pursuit of friendly corporate governance standards is sometimes termed a “race to the bottom,” in this case it’s not entirely clear which way is up. Alibaba filed its IPO in the United States after the Hong Kong exchange refused to permit Alibaba’s key founders and partners to maintain a stronger influence on the board, while Weibo has chosen a dual-class share structure to maintain founder control.
Given Hong Kong’s long history of founder-run firms, this action provides assurance to that market that minority and outsider rights will be protected, even at the cost of a major listing. On the other side, however, it’s hard to characterize the U.S. market as a haven for poor governance, given its unique degree of liquidity, transparency and regulatory oversight for investors. These kinds of governance structures have appeared repeatedly in recent U.S. IPOs: notably, dual-class share structures have locked in founder control at Facebook, LinkedIn, and others. Perhaps the U.S. market is robust enough to tolerate these weaker protections of minority shareholders, but it remains an open question whether this kind of corporate governance structure can protect minority and outside shareholders. One mechanism of oversight in the U.S. market may not be available to investors in these companies: Weibo’s filing documents ominously warn that U.S. investors may be unable to recover if their rights are infringed under U.S. securities law.
Shareholder rights and protections are monitored in GMI Analyst.
In addition to Alibaba and Weibo, this week’s Governance Insight Alert includes 19 companies whose ESG and accounting risk profiles have been affected by recent events.
Read more articles on corporate governance and other topics at the GMI Blog.
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