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Happy families

11 October 2021 By Jennifer Hughes

In business as in Hollywood as in life, sunsets are supposed to mark a beautiful, perhaps even dignified, ending. Hong Kong tycoon Richard Li  is using the eponymous clauses, which put a time limit on a founder’s supervoting stock, in the upcoming $2 billion New York float of his insurer, FWD. But there are some governance clouds spoiling the allure of this particular twilight.

The filing for FWD’s looming initial public offering reveals that Li will receive special shares carrying 10 votes a pop. These will convert to ordinary shares with just one vote each after seven years, according to the so-called sunset clause. That, though, can be delayed for three years and then for a further five if independent non-executive directors agree.

Debate is fierce about the best length for sunsets. Li’s plans fall roughly within the typical ranges, including extensions. It’s worth noting, though, that the directors who would vote on any lengthening rely on his supervoting power for their board position.

Less common is that FWD’s rules also allow Li to transfer those rights to a family member. So if 54-year-old Li dies, control of what could soon be a $15 billion insurer would potentially fall into the hands of his underage sons’ guardian or even his father, tycoon Li Ka-shing, or brother Victor. Li senior is putting up to $300 million of his foundation’s money into the FWD float while Victor, chairman of their father’s conglomerates CK Hutchison and CK Asset, also does a little business with Richard, with FWD operating a hotel and restaurants in space leased from CK Asset.

Sunsets are currently in fashion as a means of founders showing that they don’t intend to turn their holdings into publicly traded corporate dynasties and hoping to mollify governance hawks unhappy with supervoting stock. Most recent New York floats with founders claiming some innovative tech prowess have carried them, including medical insurer Oscar Health and data giant Snowflake. Yet in most of those, the death of a founder either ends the special rights or sets a 12-month clock ticking.

Li’s FWD is taking liberties with the spirit behind the sunset clause. There is, though, still time to rein that in.


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