³ÉÈËÓ°Òô

On 26 April, FTSE 100 constituent Schroders plc  proposals to simplify its dual share class structure as it hopes to enhance its governance credentials.

Currently, Schroders has both voting and non-voting shares but intends to enfranchise those shares by converting each non-voting share into one ordinary share, with the same rights as existing ordinary shares. In order to compensate existing holders of ordinary shares for the dilution of their voting rights, they will receive three additional ordinary shares for every 17 ordinary shares.

Shareholders of both classes will separately vote on the proposals, which will be included in the company’s AGM. For the plan to be adopted, 75% of votes cast by each class of shareholder will need to be in favour of it.

Other benefits of the move by Schroders include increased liquidity in the company’s shares, and the potential for share buybacks, which have been prevented under the company’s current system. Presently, the company is only able to return capital through mergers and acquisitions or dividends.

Schroders has publicly maintained a strong commitment to ESG concerns, and its decision to abandon its dual class share structure could be interpreted as an extension of this. In 2021 the company announced it would  ESG factors in the financial analysis of its clients’ investments, and on 11 April 2022  it had completed its acquisition of a majority shareholding in Greencoat Capital, a specialist asset manager dedicated to the renewable energy infrastructure sector managing £6.8 billion in investments. This acquisition follows Schroders’ July 2021 purchase of a minority stake in , which has developed technology to allow landowners and companies to map the natural capital in their landholdings.

Dual class share structures, like that which Schroders is abandoning, have long been controversial amongst investors because of the degree to which they permit specific shareholders (often founders) to retain control of the company, through their special weighted voting rights shares. In 2020, THG plc was forced to  its dual class share structure after its shares tumbled following corporate governance concerns about how it structured its shares. 2021 saw only two companies with a dual class share structure admitted to trading on the London Stock Exchange, namely Deliveroo plc (April 2021) and Wise plc (July 2021). Deliveroo’s IPO has achieved notoriety among analysts and investors alike as being possibly the worst IPO in the history of the London markets. Wise notably undertook an unusual direct listing on the standard segment of the London Stock Exchange’s Main Market on 7 July 2021, of only its class A shares. Wise  in its prospectus that:

‘The primary reason for implementing this Dual Class Share Structure is to preserve the stability and continuity of control and strategic direction in the hands of our existing shareholder base during an initial transitional period after Admission’

Nonetheless, despite recent changes to the Listing Rules, dual class share structures remain unpopular with companies seeking admission to the London Stock Exchange. According to Market Tracker data at the time of writing, of the 22 companies admitted to trading in 2022 none have sought admission with a dual class share structure.

For further information about companies with a dual class share structure, see our  (a subscription to Lexis®PSL Corporate is required). For an in-depth analysis of dual class share structures, see our upcoming UK Equity Capital Markets 2021-2022: Market Tracker Trend Report.