Bloomberg reports that:
S&P Dow Jones Indices barred companies from joining its key U.S. stock indexes if they have multiple share classes, taking a stance on an increasingly contentious issue.
Corporations that issue shares conveying different rights to investors will no longer be able to join the S&P 500 Index, one of the most popular ways of tracking the performance of the American stock market. They'll also be banned from S&P's flagship indexes for mid-cap and small-cap stocks, according to a statement released July 31.
This is just moronic. In the first place, S&P is only applying the rule to its US indices. Its global indices will continue to include companies with dual class capital structures. If dual class structures are so evil, why doesn't;t that apply to companies regardless of country.
In the second place, as I have argued for decades, dual class stock capital structures are unobjectionable when adopted--as they must be under current exchange listing standards--before a company goes public:
Public investors who do not want lesser voting rights stock simply will not buy it. Those who are willing to purchase it presumably will be compensated by a lower per share price than full voting rights stock would command and/or by a higher dividend rate. In any event, assuming full disclosure, they become shareholders knowing that they will have lower voting rights than the insiders and having accepted as adequate whatever trade-off the firm offered in recompense.
There simply is no policy basis for this shift.
