Two decades of progress on corporate governance in Asian markets and companies is coming under threat by increasingly "localist" thinking, a watchdog group warned Wednesday.
The Asian Corporate Governance Association (ACGA) cited the introduction in Hong Kong and Singapore of dual-class shares — and concerns that the idea is spreading — as an example of local markets turning away from the principle of shareholder fairness.
"The strong commitment to quality and better practices of the past 20 years is starting to become undermined by a more localist and divisive way of thinking," the Hong Kong-based ACGA said in its 2018 report on corporate governance, released in conjunction with financial company CLSA.
Jamie Allen, ACGA secretary general, said that principles of transparency, accountability and fairness have underpinned steady progress.
"Our feeling now, with the introduction of dual-class shares in particular, is the issue of fairness is being undermined in certain markets, particularly Hong Kong and Singapore," he told reporters in Hong Kong at the release of the report, which comes out every two years.
Dual-class shares allow for weighted voting rights and give company founders and insiders more control. The New York Stock Exchange and Nasdaq in the United States allow the practice and companies such as Facebook and Google have them. The idea has spread to Asia as exchanges battle for competitive initial public offerings.
Hong Kong and Singapore introduced the concept this year. Two Chinese companies — smartphone maker Xiaomi and food delivery app Meituan Dianping — listed in Hong Kong with weighted voting rights. There have been none in Singapore yet.
"It creates this very unfair system," Allen told CNBC, adding dual-class shares essentially lock out a company's board of directors.
"People who have a minority of the shares totally control the company," he said. "And therefore that undermines the role of other shareholders."
Stock market operator Hong Kong Exchanges and Clearing said in an email to CNBC in response to the ACGA report that it changed its listing rules to "enhance Hong Kong's competitiveness as a global financial center."
It added that weighted voting rights "include additional investor safeguards such as restrictions on post-listing share transfers and a 'natural sunset' clause for shares listed under the rules."
A spokeswoman for the Singapore Exchange said she had not seen the ACGA report, so would not be able to comment.
However, that exchange said in a June release announcing its rules for dual-class shares that it was joining "global exchanges in Canada, Europe and the U.S." in doing so and implemented safeguards to counter associated risks, including one vote for all shares for certain actions, such as when appointing and removing independent directors.