Dual-class shares, lessons from Grab

Malaysia may require all DCS companies to comply with the majority of the local rules to avoid being in similar predicament as Singapore 

IN FEBRUARY, Putrajaya announced plans to allow the listing of dual-class shares (DCS) on Bursa Malaysia as part of its efforts to encourage the listing of high-growth technology companies in Malaysia. 

Earlier that same month in Singapore, Grab Holdings Inc was in the news after it became public that Singapore PAP MP Tin Pei Ling has joined Grab Singapore as its director of public affairs and policy. The appointment created a public uproar and made international news. It also cast an unflattering light on Grab’s corporate governance over its apparent failure to adequately consider the conflict of interest and the wisdom of hiring a politically exposed person to what essentially amounts to a lobbying role. 

Grab listed on Nasdaq in the US in December 2021 with a DCS structure. Its corporate governance holds lessons for Malaysia as it considers allowing DCS listings. 

Many Rules Do Not Apply 

Grab conducts its business in South-East Asia through many wholly and partly owned entities, held through four layers of companies incorporated in the Cayman Islands, including the ultimate parent and listed entity, Grab Holdings Ltd. 

Although listed in the US, many of the US corporate governance rules do not apply to Grab. Grab is defined as a foreign private issuer as the listed entity is incorporated overseas and satisfies other requirements applicable to foreign private issuers, such as having less than 50% of its voting shares being held by US shareholders. 

Since Cayman Islands is considered its “home country”, Grab is allowed to adopt corporate governance practices applicable to Cayman Islands companies, which differ significantly from Nasdaq requirements and afford less protection to shareholders. 

Public Shareholders Have No Say

Grab also qualifies as an exempted company under Cayman Islands law since it conducts its business mainly outside of the Cayman Islands. It is not required to hold AGM. Although it did hold its first AGM post-listing on Dec 9, 2022, in Singapore, there was no resolution for shareholders to approve. Instead, the AGM merely served as “an open forum for shareholders of record to discuss company affairs with management”. 

In any event, Anthony Tan, Grab’s co-founder, controls 62.4% of the voting power at Grab, which would allow him to pass most resolutions if they were put to a vote. This is despite him owning only 3.6% of the ordinary shares. The disparity between his ownership and control is due to Anthony holding only Class B ordinary shares under its DCS structure, with each Class B share having 45 votes, and other Class B shareholders having irrevocably assigned their voting power to him. 

It is this disparity that creates most of the risks for public shareholders in DCS companies. 

Board Control 

Anthony has full control over the appointment and removal of all the board of directors, including the independent directors (IDs), due to his majority voting power. He is also the board chairman and also chairs Grab’s two-member nominating committee (NC), which is responsible for assisting the board in evaluating director nominees for appointment. 

He is also Grab’s CEO and in theory accountable to the board. However, since he chairs the board, leads the committee which nominates director candidates, and can appoint and remove all the directors, the board would not be able to hold him accountable. 

Connected IDs 

Several of the IDs also have relationships with Anthony and Grab, which call into question their independence. Oliver Jay, the other member of the NC, graduated with an MBA from the Harvard Business School in 2011, together with Anthony and Tan Hooi Ling, Grab’s co-founder. 

One of the other three IDs, Ng Shin Ein, is an ID of Avarga Ltd, which is listed on the Singapore Exchange (SGX). The executive chairman and controlling shareholder of Avarga is Anthony’s father-in-law. 

Another Grab ID is Dara Khosrowshahi, who is CEO, director and a major shareholder of Uber Technologies Inc. Uber was previously one of Grab’s biggest competitors in South-East Asia before Grab’s acquired its South-East Asia business in exchange for a reported 27.5% stake in Grab. As of Feb 28, 2022, Uber owned 14% of the Class A ordinary shares of Grab and has 5.6% of the voting power. In most markets, Khosrowshahi would not be deemed to be independent. 

Lessons From Singapore 

SGX has allowed DCS since 2018. However, more than four years later, there is no such company with a primary listing on SGX. This is probably because SGX introduced so many safeguards to mitigate the risks of DCS that they ultimately defeated the purpose of having DCS, which is generally to allow founders almost unfettered control of the company with limited economic interest. 

Malaysia may require all DCS companies to comply with the majority of the local rules, thereby avoiding some of the extreme governance practices that we see in Grab. However, the outsized control that founders have will render most of those rules ineffective. 

If additional safeguards are introduced to mitigate the unique risks of DCS, such as requiring the appointment of IDs to be voted on a one share-one vote basis even though one class of shares carry more votes, they will make DCS less attractive for founders. 

Malaysia may struggle in the same way as Singapore in striking the right balance between giving founders unfettered control and protecting investors. 

An important safeguard in the US that allows companies such as Grab with extreme corporate governance practices to list, while still ensuring that investors have reasonable protection, is the availability of contingency fee-based class action. Indeed, Grab has disclosed in its annual report that two shareholder class action lawsuits have been filed against the company and certain of its officers in the US, relating to alleged misstatements and omissions in its US filings regarding its reported financials, business operations and future prospects. However, similar class actions are not available under Malaysian law. 

I have not seen anything that suggest that Anthony is a dishonourable man. However, imagine a country with a single dominant political party in power, with few effective checks and balances, and no effective means of removing the wrong leaders. This is what a DCS company is like. Is this what Malaysia really want for the capital market? 

  • Mak Yuen Teen is a professor (practice) at the NUS Business School, National University of Singapore. The views expressed are of the writer and do not necessarily reflect the stand of the newspaper’s owners and editorial board. 

  • This article first appeared in The Malaysian Reserve weekly print edition