A group of investors approached the stock index providers like MSCI and S&P Dow Jones to bar Snap Inc. and any other company that plans to sell shares that are non-voting from their benchmarks.
S&P and MSCI have said that they are reviewing the inclusion of Snap as adding Snap Inc. would mean that the managers of the stock index will compulsorily have to buy shares. It is also possible. Other investors tracking their performance against these indexes may follow suit likely.
The big money investors are worrying about buying Class A shares of Snap since they would have no voting rights. This means that shareholders have no voice in important matters like executive pay or future strategy of the company.
Amy Borrus, the Council of Institutional Investors’ deputy director, said that they are trying to tap into the public market without giving the shareholders any say.
She added reaching out to the index providers that all of them would like to see indexes exclude these new ‘no vote’ companies. She’ll be meeting with the index providers this week to discuss further.
The Managing Director of S&P, Dow Jones, David Blitzer said that they will not be adding Snap for at least 6 to 12 months after its Initial Public Offering and will need time to study the structure of Snap Inc.
Although S&P Dow Jones has no hard requirement of the voting structure of the company, the committee feels that the investors should have more influence over the proceedings of the company.
On March 2, MSCI said that Snap qualifies for indexes like MSCI USA Index, but the very next day they said after analyzing further that Snap does not meet requirements. The inclusion of Snap Inc. in MSCI USA Index is going to be re-assessed in the month of May, according to a statement on MSCI’s website.
Snap Inc. had declined to comment on the matter.
The IPO of Snap Inc. priced at $3.4 Billion hit the stock market last week, marking the hottest IPO in the technology sector in the past three years. Investors grabbed shares of this company even if the co-founders had retained complete control of the company’s proceedings. This situation is alarming to many big investors who feel that other companies might start copying Snap Inc.’s structure.
Big S&P 500 companies like Google parent Alphabet and Facebook have non-voting shares as well, but they still grant voting rights with some other widely traded shares.
Snap Inc.’s chairman Michael Lynton in reply to council’s concern last month about Snap’s lack of voting rights, wrote back to point out a prospectus section that states the structure of voting that prolongs the company to remain a company led by their founders and Snap having a majority independent boarding that includes him as well.