Calls to demolish two-tier share structures: Investors demand a stake in the power as well as the risk. Russell Hotten reports

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The Independent Online
PRESSURE is mounting on companies to get rid of their complicated two-tier share structures after moves by Great Universal Stores to enfranchise its non-voting shares.

Investors believe it is only a matter of time before other companies fall into line.

'I would think that most other companies will have to enfranchise at some point,' said Richard Regan, manager of investment affairs at the Association of British Insurers. 'Institutions have always felt that non-voting shares are objectionable in principle. Such companies invite people to take a risk stake without giving them a say in how the company is run, or how any problems can be redressed.'

Moves by GUS and Austin Reed to scrap their two-tier structures follow a long line of companies that have bowed to market pressure. Enfranchisement increases the marketability of the shares and makes it easier to raise capital.

However, Sir Michael Angus, Whitbread's chairman, said the company had no plans to change its two-tier structure, which had not hindered growth. Whitbread's share capital is split between 435 million 'A' non-voting shares, and 16.6 million 'B' voting shares. However, the 'B' shares, held by Whitbread families, carry 30 times the vote of 'A' shares.

At Securicor, the 4 million voting shares are held by family trusts. But there are 76.5 million non-voting shares.

Not only is there pressure from investors for changes, but the European Commission looks poised to act. A draft directive calls for the elimination of non-voting shares, though this could take many years to become legislation.

A more immediate cause of pressure is the Cadbury report on corporate governance. Although the report makes no mention of enfranchisement, it says that the investors should take an active interest and involvement in their companies.

'Institutions are beginning to take that advice very seriously and are becoming increasingly irritated by companies able to play the non-voting card,' said a spokesman for one pension fund.

He regards the two-tier structure as completely out of date in the world of global markets. 'Such companies like to say that they want to keep control, and non-voting shares is a good bid defence. But as far as I'm concerned that is no argument for a public company.'

That is music to the ears of the South African investor, Brian Myerson, who has built a stake in Liberty, the retailer. Some say Myerson wants changes to Liberty's two-tier structure to open it up to a bid - which is why the family has so far resisted his demands.

Two-tier arrangements have their roots in family companies of the 1940s and 1950s which sought to raise capital through the stock market but did not want to give up control. Mr Regan said: 'It was only in the 1970s and 1980s, when the size of institutional shareholdings grew, that enfranchisement became an issue.'

For Donald Butcher, deputy chairman of the UK Shareholders Association, which represents the smaller investor, the issue is one of simplicity.

'We believe that two tiers are confusing to the private investor and detrimental to the promotion of wider share ownership,' he said. 'The sensible thing is to scrap them.'