S&P Dow Jones Indices drops rule barring companies with multiple votes

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S&P Dow Jones Indices drops rule barring companies with multiple votes

After less than six years, Snap Inc.'s initial public offering led to changes that barred the company and others like it from joining major stock indexes, although at least one major index provider has decided to drop those limitations.

A 2017 rule barring firms with multiple share classes from joining indexes like the S&P 500 SPX has been dropped, the S&P Dow Jones Indices said Monday. The move comes after the manager consulted with market participants at the end of last year to discuss several possible changes to the policy.

After the Snapchat mobile app's parent company went public in 2017 by selling a class of shares without voting rights, Snap SNAP, was the poster child for the original change. The unprecedented move secured that co-founders, Evan Spiegel and Bobby Murphy, would retain absolute control over their company even while selling shares to the public.

Snap's move was an acceleration of an approach used by a number of Silicon Valley tech companies to ensure that founders retain control of their companies even while selling shares to the public. In addition to Facebook's parent Meta Platforms Inc. META and Google parent Alphabet Inc. GOOGL, GOOG, similar structures were utilized by companies such as Snap Inc. that provided their leaders with special shares that included increased voting rights, which Snap took further by offering no voting rights.

FTSE Russell instituted rules for putting votes in the public s hands when selling stock, and S&P Dow Jones Indices completely blocked all companies that had multiple classes of stock from joining its core indexes. While FTSE Russell's rule demands that at least 5% of votes rest in the hands of public investors, S&P Dow Jones Indices will now drop its rule completely after about 80% of respondents voted in favor of a change in 2017 in the stock market.

Besides completely discontinuing the rule, there were other options. The consultation process was divided into several options and asked to rank them, including barring companies that only offer nonvoting stock to the public - like Snap - or allowing companies that established sunset policies that would eventually revert all shares to equal voting rights.

Investors want change, but founders like Mark Zuckerberg hold them off.

The change to allow all companies with multiple share classes to join the S&P Composite 1500 and its multiple component indexes is effective as of Monday, S&P Dow Jones Indices announced. The report said tracking stocks will still not be eligible for inclusion.

With snap's collapse, its founders make every effort to protect the people who matter most - themselves.