March 12, 2021 UK Listing Review: The Hill Report
This review was set up in November 2020 to make recommendations to make the UK listing regime more attractive to companies post Brexit. Lord Hill was clearly not given a lot of time to carry out this review, particularly given it was done in the height of Covid, but he has done a reasonable job of identifying some key areas that could be improved.
One of the most interesting (if not entirely surprising) comments from Lord Hill was that “everyone to whom we have talked – investors, advisers, regulators, banks, companies considering listing – thinks that there is a need for change and reform.” It is highly unusual that all stakeholders agree there is a need for reform, but this matches with what Elemental has been seeing in the market.
The Key Recommendations
The Listing Review’s key recommendations were as follows:
- Dual Class Share Structures: A particularly contentious area globally, Lord Hill recommended allowing dual-class share structures for companies on the premium listing segment of the London Stock Exchange. This would allow founders to maintain control of a Company even with a minority shareholding. This is already allowed with a standard listing, but allowing premium listed companies this flexibility would be a key change.
- Reduced Free Float Requirements: This recommendation would reduce the amount of a company’s shares that need to be in public hands from 25% to 15% and allow companies to use other measures to demonstrate liquidity.
- Rebranding and repositioning of the LSE’s standard listing: The LSE standard listing is rarely used by companies and is often viewed as a lower segment than AIM. This was not the intention when it was launched and Lord Hill would like this to be rebranded and made more attractive to companies. He also suggests that there should be the option for companies with a standard listing to be included in market indices which seems sensible.
- Annual Report: The Chancellor should present an annual report to Parliament on the State of the City, with an update on the steps that have been taken or are to be taken to promote the UK in this regard.
- Re-designing the Prospectus Regime: In particular, Lord Hill would like admission to a regulated market and offers to the public to be treated separately. Lord Hill’s hope in this regard is that further issuances by companies that are listed or quoted, should either be completely exempt from requiring a prospectus, or be subject to much slimmed down requirements (eg confirmation of no significant change).
- SPACs: Lord Hill recommends revising the Listing Rules in relation to SPACs. Lord Hill notes that the current Listing Rules can require trading to be suspended in the shares of a SPAC on announcement of a potential acquisition. He also recommends additional protections for shareholders, such as a shareholder vote and redemption rights.
Retail Investors and Stewardship
The Listing Review did specifically look at empowering retail investors and two areas in particular:
- Improving retail investor involvement in corporate actions and stewardship, using technology; and
- allowing retail investors to participate more in capital raising by listed companies, without the burden of a full pre-emptive offer.
The results of this review have not been widely reported largely, we suspect because the recommendations were not really there. Other than believing these were things to be encouraged, Lord Hill largely recommended that these areas were looked at by others in the future.
These are tricky areas and the recent controversies around GameStop show the hard balance between the power and rights of retail investors, whilst also ensuring they are properly protected.
Lord Hill also noted that there is a new generation of younger retail investors, who expect to be able to use technology to register their views, potentially in respect of broader social issues, such as ESG.
However, there is an obvious tension between this desire to engage younger retail investors in governance and corporate actions, with some of the other recommendations of Lord Hill, such as dual share classes and reduced prospectus requirements. We intend to write a follow-up article looking at these tensions between making the UK more attractive to companies listing in the UK and protecting the shareholders themselves.
Elemental is an integrated professional services firm offering joined-up support across governance, compliance, and accounting. Elemental partners with boards, law firms, and in-house legal and accounting teams. We have represented over 1,600 clients from over 100 countries. We provide a full range of company secretarial services including listing and post-listing support. For more information please get in touch.