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Listing rules revamp can help attract high-growth firms but caution needed

06 Jan 2021

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The UK’s listing rules must evolve to attract innovative, high-growth firms to the stock exchange, the Institute of Directors has urged.

However, the Government must be wary of a ‘race to the bottom’, the IoD argued in its submission to the Hill Review.

To balance the ability to attract new listings with the need to maintain strong governance standards, the IoD proposed that the Government:

  • Create a discrete segment of the existing premium listing category which is devoted to innovative high-growth companies.
    • Within this segment, innovative companies could be permitted, under strict conditions, to undertake IPOs or equity issuance with dual class share structures which deviate from the current principle of ‘one share, one vote’.
    • For instance, this could allow an anchor shareholder or founder to maintain control for a pre-determined period.
  • Such shielding from investor activism should be time-limited and non-transferrable in nature.
  • Certain features of the premium listing framework should remain non-negotiable and universally applicable. For example, all premium-listed companies should remain subject to the UK Corporate Governance Code. 

Dr Roger Barker, Director of Policy and Corporate Governance at the IoD, said: 

“The UK’s stock market is a global centre for business, but we can’t sit on our laurels. The Hill Review presents an exciting chance to consider how our listing rules can change, to attract a new breed of fast-growing companies that are increasingly reluctant to go public.

“However, the Government must proceed with a caution. A race to the bottom to win extra listings would ultimately be self-defeating. Good governance is one of the UK’s key selling points.

“Given the higher uncertainty around their business models, some innovative companies can be put off by the perceived myopia of the markets. This is a problem, particularly given the slowdown in listings. Public listing is also an important mechanism for fast-growing firms, which often have a significant impact on wider society, to develop their governance structures.

“The Government could use a number of strategies to accommodate founders’ demands while not undermining wider governance standards. Introducing a discrete segment within the premium listing category would be sensible. Making any shielding from investor activism time-limited would also be the right approach, ensuring that mature companies remain open to the scrutiny of shareholders.”

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