By Ross Kerber
BOSTON, July 17 (Reuters) - MSCI Inc has proposed leaving
shares of Snap Inc and other companies including Eaton
Vance Corp out of stock indexes because they lack voting
rights, a sign of the rising skepticism facing corporate
structures that boost the power of insiders.
In a paper sent to clients in June, MSCI said its
proposal aimed "to address the growing concern pertaining to
listings of only non-voting shares," and invited feedback.
Index providers have been reviewing the issue of whether to
include companies with non-voting shares since Snap's IPO in
March. MSCI's idea resembles a skeptical view that rival FTSE
Russell has already put forward about companies that offer
shares with unequal voting rights, even as some technology firms
move in that direction.
A third index provider, S&P Dow Jones, has its own review
underway, with decisions due in coming weeks.
Being excluded from stock indexes would be a blow to young
companies like Snap by making it harder, or impossible, for some
big fund managers to buy the stock. Critics including big
pension funds worry giving shareholders less say over matters
like executive pay or board elections will make corporate
leaders less accountable, while some executives say tighter
control helps them run their business with a longer-term focus.
Shares in the parent of Snapchat have already been under
pressure since its $3.4 billion IPO in March and last week sank
below their $17 initial sale price, amid concerns about the
popular messaging platform's slowing growth and competition from
Under Snap's unusual structure, most power on matters like
executive pay or board membership is concentrated with
co-founders Evan Spiegel and Robert Murphy.
MSCI and Snap declined to comment. Snap previously said its
voting structure would help it "remain a founder-led company"
and that the majority of its board is independent.
Index clients include big fund sponsors like BlackRock Inc
and Vanguard Group, who have been critical of the turn
away from voting shares but have also bought shares of Snap.
A BlackRock spokesman, Ed Sweeney, declined to comment on
the index reviews but pointed to its governance guidelines,
which state that "BlackRock supports the concept of equal voting
rights for all shareholders."
A Vanguard spokeswoman, Arianna Stefanoni Sherlock, said
while Vanguard has concerns about Snap's structure, "We believe
companies like Snap cannot be excluded solely on the basis of
voting limitations at this time."
In the paper sent to clients, also available on its website,
MSCI proposes to leave non-voting shares out of popular products
like its U.S. equity indexes if their voting power at a company
is less than 25 percent for new constituents, or less than 16.67
percent for existing constituents.
In the case of its All Country World Index (ACWI)
, the paper states, the proposal would keep Snap
out of the product, and six non-voting shares would be deleted.
The only U.S. company in the group is asset manager Eaton Vance
, whose publicly traded shares do not include voting
rights, a structure in place since 1959.
Eaton Vance spokeswoman Robyn Tice said while it does not
wish to be removed from indexes, "we cannot control what they
decide to do."
According to the MSCI paper, some companies with both voting
and non-voting listed share classes, such as Alphabet
, could remain in the ACWI.
Ken Bertsch, executive director of the Council of
Institutional Investors, a trade group for pension funds and
other big investors that has been critical of unequal voting
rights, said he was encouraged by the MSCI proposal.
Bertsch said the group could accept some concepts like
allowing indexes to retain big companies even with unequal
voting rights. "We don't want to kick Google or Facebook out of
the indexes, it would be way too disruptive. Our concern is to
set a limit on this," he said.
The council remains concerned more IPOs may follow Snap's
example such as a recent one by meal-kit service Blue Apron
Holdings. A spokeswoman for Blue Apron declined to
(Reporting by Ross Kerber in Boston. Additional reporting by
Trevor Hunnicutt in New York and David Ingram in San Francisco;
Editing by Dan Burns and Tom Brown)
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