Hong Kong, long a world leader in finance and a bastion of stock market strength in Asia, is at a crossroads. An ongoing debate on how the Special Administrative Region (SAR) can attract potential unicorn - a term for start-ups valued at over 1 billion US dollars - IPOs in the “new-economy” sector has been raging for years. However, recent signs of a truce between the stock exchange and the markets’ regulator could pave the way forward for reform.

Last Friday saw the SAR government, Hong Kong Exchanges and Clearing (HKEx) and the Securities and Futures Commission (SFC) agree on a package of listing reforms that have been the subject of debate for several years. That debate heated up after Chinese tech giant Alibaba ditched Hong Kong in favor of Wall Street for its 2014 IPO, where it was allowed to list with a dual-class share system that has increasingly become the norm in the US and other markets.

The proposed reforms include the establishment of a third board in Hong Kong that would allow dual-class shares and other more relaxed IPO requirements, on top of the main board and Growth Enterprise Market (GEM).

Licking its wounds after the Alibaba loss, Hong Kong is faced with a choice: reform or risk being left behind.

IPOs in recent years – particularly for tech companies – have seen separate classes of shares offered to investors, giving weighted voting rights for founders and board members. While Hong Kong, London and Singapore still work on a “one share, one vote” basis, Facebook established a dual-class share system after listing in the US, where founder Mark Zuckerberg controls 60 percent of the voting rights despite only owning one percent of publicly traded stock.

The argument in favor of dual-class shares is that founders and board members can better safeguard the company’s long-term interests, jumping over potential hurdles put in place by more short-term Wall Street investors.

Continuing with the Facebook example, Zuckerberg was able to spend 22 billion US dollars on buying Whatsapp by largely bypassing shareholders, in a move that he clearly felt was key for the company’s long-term future.

The sacking of Steve Jobs by Apple in the 1990s also acts as a warning to tech startup founders, who are now keen to gather as much power as possible as a safety net for market downturns and unhappy investors.

In principle, dual-class shares are undemocratic and disregard the rights of investors and their ability to have a say over how their capital is used – the recent Snap IPO even saw shares issued with no voting rights at all.

A study by Wharton School and Harvard Business School found that putting an exaggerated amount of voting power into the hands of a select few board members actually damages corporate performance rather than improves it.

Thanks to a dual-class share system, Uber’s founder and former CEO Travis Kalanick wielded so much power that investors simply could not get rid of him, amid months of scandals engulfing the company. He eventually resigned in June, citing a “difficult moment” in his personal life.

As China continues to rise as a hub of innovation, tech startups and unicorns, Hong Kong is desperate to be the destination for the “next Alibaba” listing.

Chinese IPOs have raised 34 billion US dollars in the US in the last decade, and once-divided authorities in Hong Kong are now realizing that without reform, the SAR will continue to miss out on these IPOs, particularly by potential tech unicorns.

HKEx claims that only three percent of listed companies in Hong Kong are in the “new-economy” sector, compared to 47 percent on the New York Stock Exchange. Other proposals to permit IPOs by pre-revenue companies and secondary share listings in Hong Kong could lure Alibaba and other giants already listed overseas back to the SAR, as well as attract new Chinese companies.

HKEx has long voiced support for dual-class shares across all boards, a stance constantly blocked by the SFC until this year. On Friday, James Lau, the SAR’s secretary for financial services and the treasury, said “the two regulators and the government all want to work together…. to make sure our market could attract new economies to list here while at the same time we protect the interest of investors.”

The SFC’s support for investor interests continues to hold sway in this debate, which despite making progress remains far from over. Hong Kong’s strength has long been its ability to enforce regulations on markets, and loosening the rules risks creating a “race to the bottom” in terms of governance standards, according to Arthur Bacci, chairman of Hong Kong Investment Funds Association.