Research On The Design And Implementation Effect Of Dual Share Structure Of Internet Enterprises

The capital markets of the mainland and Hong Kong have been adhering to the system of "one share,one right" for a long time.Since 2018,Hong Kong capital market and China’s Science and Technology Innovation Board have carried out institutional reform and gradually opened up the restrictions of listing conditions on dual-class share structure.Therefore,it is an urgent subject for the theoretical circle to study the local cases of listing with dual-class share structure.This paper takes Xiaomi and Ucloud,the first listed enterprises adopted dual-class share structure in Hong Kong and the mainland respectively,as the research objects.First,it compares their design differences in share structure,special voting right,restricted conditions and protection measures,and concludes the problems in the design of dual-class share structure.Then,this paper study the implementation effect of this structure in three aspects: the Board of Directors,governance level of management and financial performance.The findings as follows:In terms of design: dual-class share structure has the following problems:(1)the maintenance degree of dual-class share structure is limited for the founder’s control power,and enterprises still faces the risk of share right dilution on subsequent financing.(2)The conditions of special voting rights holders are almost limited to the current founders,leading to the unreasonable entry and exit mechanisms.(3)The appointment of independent directors and members of the board of Supervisors is easily controlled by special voting rights holders,which has weakened the role of the internal supervision mechanism.In terms of implementation effect:(1)dual-class share structure enables the Board of Directors to directly control and supervise management’s decision-making.On this basis,Xiaomi and Ucloud optimize the internal organizational structure and improve the governance level of the Board of Directors and management.(2)The implementation of dual-class share structure reduces the cost of share right dilution in external financing for Xiaomi and Ucloud,and maintains the outstanding growth of listed Internet enterprises.The structure protects the control power of Xiaomi and Ucloud from the short-term interests of other shareholders when they implement strategies of low profit margins and low pricing,which enhances the market competitiveness of the enterprises and demonstrates stronger operation capacity and growth than those with "one share,one right".In view of the conclusions drawn in the design and implementation effect of dual-class share structure,this paper puts forward the following suggestions:(1)in the aspect of share design,the share of voting rights should be controlled around two-thirds,quantitative assessment ought to be adopted for special voting rights holders,and evaluation criteria and results should be introduced into the entry and exit mechanism.(2)In terms of internal governance: First,the enterprises are supposed to separate the executive director and the interim director,and implement the succession in batches or change of the Board of Directors and the management team.Second,increasing the proportion of representatives of employees,minority shareholders and independent directors in order to enrich the diversified background of independent directors.Third,the appointment and removal of independent directors shall be dominated by minority shareholders,and the performance of independent directors shall be published at regular intervals.