Tag: dual-class capital structures

Major indices announce decisions to exclude companies with multi-class share structures

Earlier this week, the S&P Dow Jones Indices announced that the S&P Composite 1500 and its component indices (the S&P 500, S&P MidCap 400 and S&P SmallCap 600) will no longer add companies with “multiple share class structures.” Existing index constituents will be grandfathered in.  This decision follows a similar, but less sweeping proposal announced last week by FTSE Russell,  with FTSE focused on multiple classes with limited or no voting rights. (The proposal is expected to be published, subject to any further feedback, as changes to the “ground rules” on August 25.) Another index, MSCI, has made a similar proposal. While these changes in methodology are imposed against the backdrop of an ongoing conversation about voting rights, the S&P confirmed to me informally that the change in methodology for the S&P Composite 1500 applies to multiple classes of listed or unlisted outstanding common equity, regardless of whether any class has limited or no voting rights. The S&P also confirmed that the phrase “multiple class share structures” is not intended to capture any class of preferred stock. Why do these changes in methodology matter?  As described in this article from Reuters, “[i]nclusion in a stock index has been an important milestone for young companies, bringing their shares into many passive funds and others that closely follow indexes like the S&P 500, a guide for trillions of dollars of capital worldwide.”

Framework developed by the Investor Stewardship Group establishes common set of investor expectations for corporate governance

The Investor Stewardship Group—a group of the largest, most prominent institutional investors and global asset managers investing, in the aggregate, over $20 trillion in the U.S. equity markets—has developed the Framework for U.S. Stewardship and Governance, a “framework of basic standards of investment stewardship and corporate governance for U.S. institutional investor and boardroom conduct.” The stewardship framework identifies fundamental responsibilities for institutional investors, and the corporate governance framework identifies six fundamental principles that “are designed to establish a foundational set of investor expectations about corporate governance practices in U.S. public companies. Generally, the principles “reflect the common corporate governance beliefs embedded in each member’s proxy voting and engagement guidelines,” although each ISG member may differ somewhat on specifics. The ISG encourages company directors to apply these basic principles—while acknowledging that they are not designed to be “prescriptive or comprehensive” and can be applied in various ways—and indicates that it will “evaluate companies’ alignment with these principles, as well as any discussion of alternative approaches that directors maintain are in a company’s best interests.” The framework does not go “into effect” until January 1, 2018, so that companies will have “time to adjust to these standards in advance of the 2018 proxy season,”  the implication being that failure to “comply or explain” by that point could ultimately lead to shareholder opposition during proxy season.  Check out the countdown clock at the link above!

What’s up with the declining number of IPOs?

At a meeting on Thursday of the SEC’s Investor Advisory Committee, a panel discussed the declining number of IPOs, a topic that seems to be top of mind for many in the securities arena.  Of course, there’s a reason for that; according to a panelist from EY, there were about 8,000 public companies in 1996, but only about 4,000 now. What happened?