Li, Hong Kong exchange chief executive: Hong Kong's capital markets are at the crossroads of reform

In recent times, Mr Ma still sees Hong Kong as the ideal place for Alibaba, and Hong Kong, which has already issued an official veto signal, seems to have suddenly turned a corner.

Following the "Dream Talk" investor protection, on the evening of October 24, the Hong Kong Exchange chief executive, Li, in his personal name, talked about Hong Kong's listing rules in a 4,000-word long article. This article Li "Eight answers", bluntly that Hong Kong's capital market has been at the crossroads of reform, should seriously consider to meet the innovative companies to amend the listing rules, to give founder shareholders a certain "special rights."

Although the full text does not mention Alibaba, but its meaning 彰彰.

Li, for the first time publicly commented on the controversial "partner system" previously proposed by Ma Yun, through a "four or two" of the "heavy" statement: "To be honest, I do not understand this issue with our discussion of the listed companies equity governance mechanism has any logical relationship." "It is easy to defuse the public's previous entanglements and criticisms of this particular system." It is also suggested that as long as the founder or founding team of an innovative company is a shareholder with a certain shareholding, it is possible to consider giving certain special rights, which is not necessarily related to whether or not to adopt a partner.

Li stressed that it was imminent to discuss changes to the listing rules, or that Hong Kong might "lose an entire generation of innovative technology companies", and he appealed to market participants to join in a wide range of discussions to grasp the great opportunity to plan for the future of the Hong Kong market.

Li the clear attitude of this article, the elaboration of the detailed, it can be said that has gone beyond the theoretical discussion, into the substantive hypothesis argument. And this, to Alibaba twists and turns on the road of listing, what will bring about a turnaround?

Maintain the status quo, double equity, or compromise?

First, Li fully affirmed the founders ' unique value for innovative companies.

"The biggest difference between an innovative company and a traditional company is that the key to its success is not capital, assets or policy, but the founders ' unique Dreams and visions." The success of Apple, Google and Facebook stems from the founders ' unlimited creativity. "And there is an important common feature of innovative companies, founders have no money to start a business, must be to angel investors, venture capital, private equity and other financing, so that equity has been diluted; Once the company goes public, their stakes will fall further and the helm will be threatened and may even be easily expelled from the board.

Li that under a good system design, encouraging innovation and protecting the interests of public investors is not irreconcilable. The key of the system design is that the founder's control power must match the market's check and correction mechanism, in order to reduce the founder's loss to the company and other shareholders because of the wrong decision or abuse of power. The so-called "water can carry a boat, but also to overturn", so checks and balances and error correction mechanism is essential, a market in the balance and error correction mechanism more powerful, to the founder's control can be greater, and vice versa.

Hong Kong can choose to maintain the status quo, although it is easy to occupy the moral heights, but also means that the initiative to abandon a large number of leading economic trends of innovative companies, thereby losing the core competitiveness of the future.

In Li's view, Hong Kong is now at a crossroads, with the maintenance of "insurance" on the other side and the introduction of a double shareholding structure, which is fraught with other possibilities. Between the two ends, the most essential controversy is whether to give the founders the majority of the directors nomination rights.

One option is to allow founders or teams to nominate a small number of board members (e.g., 3 seats in 7 seats, 9 seats in the 4 seats and so on, and a certain degree of influence on executive appointments; This requires regulators to devise ingenious institutional arrangements that protect the stability of founders and teams at the helm of the company, and not the basic principles of common ownership ( The appointment of the chief executive, in particular, has a substantial impact.

Another option is for a founder or team to nominate a majority of board directors, but the shareholders ' meeting can veto the founder's nomination, except that all shares share the same rights. Li suggested that there must be an additional error-correcting capability and expiry date for this nomination system.

"If the founder's nomination has repeatedly been rejected by the shareholder, the nomination will continue, that control may have resulted in actual shares of different rights, and if such nominations were to disappear permanently after the general meeting of the shareholders ' veto, the founders would seriously consider the nomination for shareholder support. When other shareholders and founders have a major conflict over their fundamental interests, other shareholders can withdraw this privilege by one or two vetoes, an arrangement that would significantly reduce the likelihood of a possible misuse of the system. "Li this remark, or can for Ma's appeal, find a solution?"

The Battle of the partners

For Ma Yun proposed "control of the company's people, must be adhering to and inherit the Alibaba mission culture partner", Li that this is not contradictory to the listed company's equity governance mechanism.

"The partner is bound by the contract between the partners, who enters who is decided by the partner to reach a consensus, thus reflects the partner company's value inheritance; under the company system, the relationship between shareholders depends on the" standard contract ", and the shareholder is free to enter and sell through the market. The former is the rule of man and the latter. Li that, as a regulator in the approval of listing applications, only concerned about the shareholders, directors and management of the three groups of people between the power and responsibility relationship, whether it is a partner is not related to this.

Frankly speaking, the partner is the management team's internal agreement, but the listed company can only adopt the equity based corporate governance mechanism, the two are not inconsistent under the same right of shares.

If the listing rules are to be modified, the scope of application can only be limited to the innovative companies that meet the requirements.

Li stressed that if the market agreed to give some innovative companies the founder shareholder some special rights, the acquisition of such limited rights must be the founder or the founding team. The founder must be a shareholder and hold a certain stake, because the discussion is based on the rights of the shareholders to ensure the overall and long-term consistency of the founders ' and shareholders ' interests; once the founders or the founding team's holdings fall to a certain level, the system "exception" should also be automatically invalidated.

Similarly, if a "partner" complies with the conditions listed, such as the founder or team of an innovative company, and is a shareholder holding a certain share, then it can be considered, otherwise it is not necessarily related to whether the applicant adopts the "partner system".

Another key issue that derives from this is how to define "innovative companies". Who defines it? In this respect, Li did not give a solution.

If most of the participants in the market agree to revise the listing rules, minor changes may require only the discretion of the regulatory body, but the privileges involved in the equity system are likely to require comprehensive market advice and even legislative procedures.

The problem is that the process is short of months, 1 years long, is Mr Ma patient enough to wait for the possible turn of the Hong Kong market?

As Li said, he does not care about missing one or two of listed companies ' applications and what Hong Kong really needs is a reform of the overall listing plan. Once Hong Kong chooses to support openness, innovation, accountability and a culture of long-term development, more "Alibaba" will flock in.