Control Of Voting Rights And Conflict Of Interest Under Dual-Class Share Structure

Dual-class share structure refers to a kind of ownership structure with different voting rights in common shares issued by a company.Dual-class share structure separates cash flow right from voting right.On the one hand,dual-class share structure effectively solves the problem of diluting the original shareholders' control rights by increasing capital and expanding shares,and makes the company maintain the control position of the founders while raising equity financing.On the other hand,it increases the risk of controlling shareholders encroaching on the interests of external shareholders in pursuit of private interests,and escalates the conflict of interests among shareholders.This paper makes a case study of Xiaomi Corporation listing on Hong Kong Exchanges and Clearing Limited(HKEx)to illustrate the superiority of dual-class share structure at the company level and the market level.In April 2018,HKEx revised its listing rules to accept the listing of new economic companies with dual-class share structure.Xiaomi Corporation is the first company with dual-class share structure listing in Hong Kong.Dual-class share structure has many potential benefits for Xiaomi Corporation in equity financing,corporate governance and talent incentive,such as alleviating the contradiction between equity financing and maintaining the founders' control rights,effectively resisting hostile takeovers,maintaining the independence of management decision-making,realizing the long-term development of the company,and helping to realize the deep division of labor of innovative enterprises.On the other hand,dual-class share structure has some negative effects: increasing the risk of the ultimate shareholders to the tunneling of small shareholders,and the existing information disclosure system has insufficient restrictions on the beneficiaries of super voting rights.For these reasons,Xiaomi Corporation adopted a series of measures such as restricting the super voting rights and disclosing the risks related to dual-class share structureseparately,so that dual-class share structure can give full play to its advantages under a certain restraint mechanism.In order to explain the advantages of dual-class share structure more comprehensively,this paper elaborates the process,reasons and effects of the reform of listing system of HKEx at the end of the case study.For a long time,in order to protect the interests of public investors,regulatory authorities in many countries or regions have been restricting dual-class share structure.However,in recent years,the growth rate of new economic companies with dual-class share structure has been accelerating.HKEx has missed many new economic companies,including Alibaba's IPO,because it always adheres to the basic value of "one share,one vote".Because dual-class share structure has irreplaceable advantages,HKEx has abandoned the principle of adhering to nearly 30 years and carried out the reform of listing system to meet development requirements of the new economy.HKEx has found the best balance between protecting investors' interests and adapting to the equity structure of enterprises in the new economy.It has rapidly transformed from a market dominated by the old economy such as finance and energy to a listing hub of new economic companies.Whether from the company level or from the market level,dual-class share structure has irreplaceable advantages,and the contradiction between the founder's control rights and the protection of the interests of public shareholders is not irreconcilable.Therefore,in the future,more companies will choose this kind of ownership structure,and more markets will accept dual-class share structure.Although A-share market does not have the conditions for introducing dual-class share structure in an all-round way,it should also conform to the development trend of dual-class share structure and actively make changes.The innovations of this paper are as follows: Firstly,compared with American stock market,the gap between Hong Kong stock market and A-share market is smaller.Xiaomi Corporation is a dual-class firms listing on HKEx,and also a very influential technology-based enterprise in the Mainland of China.The case study of Xiaomi Corporation has more reference significance for the future development of A-share market.Secondly,the research ideas of this paper are innovative.In addition to the case analysis of a single company,this paper also takes the institutional changes of the securities market as the background supplement of thecase,demonstrating the trend of the widespread acceptance of dual-class share structure in an all-round and multi-level way.