You're likely well-aware of the new policies that have been issued by major stock index providers, which will exclude or alter the guidelines for companies with multi-class stock structures. The S&P Dow Jones, FTSE Russell, and MSCI recently adopted (or are in the process of considering) changes to their eligibility requirements that would bar new companies with multi-class structures from inclusion in certain indices going forward.
While several major institutional investors have been advocating ''one share, one vote'' for a while now, the conversation picked up with the IPO of Snap Inc., as the company launched with a triple-class stock structure that limited investors to non-voting shares. Even defenders of the multi-class structure have said that Snap Inc. (and other recently public companies like Blue Apron Holdings) have taken the multi-class stock design too far, which has spawned an ongoing stream of articles and critical assessments outlining the pros, cons, and potential impact.
In this blog, however, we focus on two important questions raised this week by our legal experts, the team at Wilson Sonsini Goodrich & Rosati (WSGR). In their timely WSGR Alert (excerpted below), the firm's top experts raised two questions:
- Will the multi-class exclusion result in fewer companies going public?
- Are these policies yet another step towards a ''one-size-fits-all'' corporate governance structure?
From Wilson Sonsini Goodrich & Rosati's Aug. 8 WSGR Alert:
-
- ...There are at least two even more significant problems with the decision by the index providers to exclude companies with multi-class structures. First, although it is far from clear that all newly public companies want to be in the indexes-there are both benefits and drawbacks for a company whose stock is included in a major index-if the goal of this effort is achieved and fewer companies with multi-class structures go public, then it may simply result in fewer companies going public.
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