S&P Policy Unlikely to Thwart Multiclass Stock Structures
Standard & Poor’s recently announced policy changes banning companies with multiclass stock structures from listing in the S&P indexes. The announcement comes after rival index provider FTSE Russell announced that it will require companies to offer non-restricted shareholders at least 5 per cent voting rights.
Both measures come amid pushback from investors against companies that want to be publicly traded but also retain control by offering multiclass stock structures. Though widely considered a win for investors, experts say they doubt the announcement will stifle public companies from using the multiclass stock structure.
In the recent Snap IPO, investors were vocal about the company’s decision to sell shares with no voting rights but ultimately the Class A shares from the company’s IPO sold at $17 a share.
S&P Multiclass Stock Structure Policy
According to the press release, the following guidelines related to companies with multiclass stock structures applies:
- The S&P Global BMI Indices and S&P Total Market Index will continue to include companies with multiple share classes or with limited or no shareholder voting.
- The S&P Composite 1500® and its component indices will no longer add companies with multiple share class structures. Existing index constituents are grandfathered in and are not affected by this change.
- The methodologies of other S&P and Dow Jones branded indices remain unchanged at this time.
The multiclass stock structure policy changes for inclusion in the S&P Composite 1500 is effective immediately upon announcement.
About Multiclass Stock Structures
Multiclass stock structures are defined as the issuing of various types of shares by a single company. In a multiclass stock structure, stocks can consist of Class A, Class B, and Class C shares, with each class assigned distinct voting rights and dividend payments. In the case of multiclass stock structures, the owners of the company typically keep a majority of voting rights and thus majority control of the company. The share class that is offered to the public typically has limited voting rights or no voting rights.
Companies famous for their controversial multiclass stock structures include Facebook, Berkshire Hathaway, and Google.
About S&P 500 Dow Jones Indices
S&P Dow Jones Indices is the largest global resource for essential index-based concepts, data and research. It is also home to several iconic financial market indicators, such as the S&P 500® and the Dow Jones Industrial Average®. The company as a whole has over 1,000,000 indices and is often considered the standard for how investors measure and trade the markets.
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