S&P Dow Jones Indices barred companies from joining its key U.S. stock indexes if they have multiple share classes, taking a stance on an increasingly contentious issue.
Corporations that issue shares conveying different rights to investors will no longer be able to join the S&P 500 Index, one of the most popular ways of tracking the performance of the American stock market. They'll also be banned from S&P's flagship indexes for mid-cap and small-cap stocks, according to a statement released July 31.
The announcement may mean that S&P will ban newly public photo-sharing app Snap Inc. from its key benchmarks, which guide investment decisions for investors with trillions of dollars in assets. But S&P carved out a major exception: current members of the index with multiple classes can stay, sparing giants such as Google parent Alphabet Inc. and Berkshire Hathaway Inc.
Investors have spoken out against companies that don't give equal voting treatment
to all shareholders. Last week London Stock Exchange Group Plc unit FTSE Russell announced
a list of more than 30 companies it would bar from its indexes unless they raised
the percentage of voting rights accorded to public investors.
“The indexes’ decisions are logical and a step in the right direction,” said Mark Humphery-Jenner, an associate professor at the University of New South Wales. “There is an increased expectation that fund managers engage with executives to try to improve corporate performance. This is not possible without voting rights.”
S&P said that the S&P Global BMI Indices and S&P Total Market Index will continue to include companies with multiple share classes or those with limited or no shareholder voting rights.
S&P rival MSCI Inc. is also looking at how to handle dual-class shares in its benchmarks.
While index providers are tightening their rules about companies that use the structures, exchanges around the world are looking at ways to allow such firms to list at their venues.
Hong Kong Exchanges & Clearing Ltd. has announced plans to include dual-class shares, and said 33 mainland Chinese companies worth a combined $561 billion were listed in the U.S. with weighted voting stock. In Singapore, the government has supported a proposal to allow dual-class shares as part of a package to drive economic growth. The U.K. regulator suggested loosening its restrictions in a February discussion paper on the effectiveness of its markets.
Humphery-Jenner said the decisions by S&P and FTSE Russell should help investors.
“Removing such companies from the index eliminates the burden of having to invest” in them, he said.
With assistance from Nick Baker
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