New stock market rules are to protect minority investors in major companies, in the wake of recent controversies involving controlling shareolders at mining groups ENRC and Bumi.
After a year-long consultation, the Financial Conduct Authority has strengthened the listing regulations for major companies to give minority shareholders additional voting rights and greater influence over key decisions. But the regulator has stopped short of demanding an increase in the free float - the amount of shares available to trade - from the current 25%.
The rules apply to any company where there is a controlling shareholding of 30% or more, and will include businesses such as Sports Direct International and Associated British Foods. Around 50 leading companies will be bound by the new rules.
The regulator said the companies involved would have to sign an agreement to ensure they can operate independently from their majority shareholder. The agreement would give independent shareholders a veto over transactions between the business and its main investor. Independent directors would have to be approved by a vote of all investors and a separate vote of independent shareholders.
The rules also give additional voting power to minority shareholders if a controlling investor attempts to cancel the company's listing or remove the rights of minority investors. There is also a requirement for greater transparency from the companies.
David Lawton, the FCA's director of markets, said: "By safeguarding minority interests from abuse by controlling shareholders, these changes will promote market integrity and empower minority shareholders to hold the companies they invest in to account."
Investigations into alleged irregularities at both Kazakh miner ENRC and Indonesia's Bumi raised questions about the wisdom of their original flotations on the London market, given the damage and losses caused to minority investors. ENRC was controlled by its trio of founding shareholders - who are currently in the process of taking it private - while Bumi was part of the Bakrie family's empire.
Richard Weaver at PWC said the City would be relieved the regulator decided not to increase the free float, adding: "Some of the proposed rules, such as the requirement for a formal agreement with the controlling shareholder, may be little more than the codification of existing practice in many cases and hence may not be especially onerous.
