The London Stock Exchange (LSE) has long been a symbol of financial strength and market credibility, but in recent years it has lost much of its allure, particularly among entrepreneurs and growing companies. This trend is starkly reflected in the number of firms choosing to delist or avoid listing on the exchange altogether.
Non-executives and advisors I speak with consistently highlight the overly complicated and onerous regulatory requirements as a primary reason the LSE no longer appeals to high-growth businesses, especially in comparison to other global exchanges.
The Financial Conduct Authority (FCA) has introduced reforms aimed at simplifying the listing process, such as reducing shareholder voting requirements for certain transactions and allowing more flexibility around dual-class shares. While these changes have been welcomed by some, many of the non-executive directors I engage with are skeptical about their impact. They argue that while the reforms may remove some friction points, the core issues – overly burdensome governance, reporting requirements, and constant regulatory changes – remain, making the LSE an unattractive option for entrepreneurs.
One of the central challenges, as voiced by these NEDs, is that the cost of compliance and the level of scrutiny imposed on public companies in the UK are significantly higher compared to other markets. Many founders and boards feel that the effort required to comply with the LSE’s regulations can stifle innovation and detract from running a growing business. They often prefer remaining private or listing on exchanges where the regulatory environment is perceived as more conducive to entrepreneurship, such as in the US. As one NED shared, “The rules are just too demanding; it’s like swimming through treacle. There’s a reason why so many firms are turning to private equity instead of listing.”
This sentiment is backed by broader trends. The number of companies delisting from the LSE due to mergers, acquisitions, and private equity takeovers outpaces the rate of new listings. The delistings reflect not just economic pressures but a widespread disillusionment with the public market structure in the UK. The depressed valuations of companies on the LSE make it easier for private firms or overseas entities to acquire UK-listed companies at a discount, contributing to the LSE’s shrinking market capitalisation relative to the UK economy.
Moreover, despite efforts to attract tech and high-growth companies through reforms like dual-class shares and Special Purpose Acquisition Companies (SPACs), many entrepreneurs still find the LSE’s environment too rigid. They cite the lack of flexibility in managing shareholder expectations and the time-consuming nature of public market obligations as significant drawbacks. This contrasts sharply with the appeal of remaining private or seeking listing opportunities on more agile, tech-friendly exchanges like NASDAQ, where growth capital is easier to raise without the same regulatory constraints.
The FCA’s attempt to modernise the LSE’s listing rules is an acknowledgment of these issues, but it is not seen as a panacea. As one entrepreneur told me, “It’s not just about making the process simpler. It’s about making it more relevant to today’s companies.” To many in the non-executive and entrepreneurial community, the LSE is still saddled with an outdated model that focuses too heavily on governance and regulatory oversight at the expense of fostering business growth and flexibility.
Ultimately, while the reforms may encourage a marginal increase in IPOs, the broader challenge for the LSE is to address the systemic issues driving companies away. A genuine revival will require more than incremental regulatory tweaks – it will need a fundamental reassessment of how the UK can compete as a global financial center that supports growth without stifling innovation.