After consultation with market participants late last year, S&P Dow Jones makes companies with multiple class shares eligible for index inclusion again.

On April 17, 2023, S&P Dow Jones Indices issued a press release announcing that companies with multiple share class structures will be considered eligible for the S&P Composite 1500 and its component indices, including the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, if they meet all other eligibility criteria.

As we had written about in an August 2017 client update, in response to Snap Inc.’s IPO in which only non-voting shares were offered to the public, the Council of Institutional Investors and others had lobbied the major index providers to bar non-voting shares from their indices, arguing that absent this change, passive investors such as index funds would be forced to invest in non-voting shares that erode public company governance. As a result, since July 31, 2017, S&P Dow Jones has excluded companies with multiple share classes from the indices comprising the S&P Composite 1500.

The decision to revisit index eligibility criteria comes after a consultation process that S&P Dow Jones ran with market participants from October to December 2022. This change means that multiclass companies, including those with Up-C structures that were also excluded as a result of the blanket ban in place since 2017, will again be eligible for inclusion in the S&P 500.

While about 90% of companies in our most recent IPO corporate governance survey opted to adopt a one-class share structure, the decision by S&P Dow Jones could affect companies considering going public as they evaluate appropriate share class structures, including those that feature high-vote / low-vote attributes.

If you have any questions regarding the matters covered in this publication, please reach out to any of the lawyers listed below or your usual Davis Polk contact.

This communication, which we believe may be of interest to our clients and friends of the firm, is for general information only. It is not a full analysis of the matters presented and should not be relied upon as legal advice. This may be considered attorney advertising in some jurisdictions. Please refer to the firm's privacy notice for further details.
Copy link to share post