The move by the company behind the Russell 3000 index could limit demand for Snap shares, which have steadily declined in price since the Snapchat maker’s initial public offering in March.
LOS ANGELES — The company behind the Russell 3000 index will not include Snap stock in that or other closely watched indexes after investors voiced concern over the lack of voting rights given to Snap shareholders.
The move could limit demand for Snap shares, which have steadily declined in price since the Snapchat maker’s initial public offering in March.
FTSE Russell, the index manager and operator of the London Stock Exchange, said Thursday that companies that don’t give ordinary shareholders at least 5 percent of corporate voting power will not be added to its indexes.
The decision, which is expected to be finalized next month, applies to a handful of companies, including meal-kit delivery service Blue Apron. But it was motivated by Los Angeles-based Snap and its unprecedented decision to hold an initial public offering in which it sold only nonvoting shares.
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The move concentrated voting power among the firm’s founders and drew the ire of some institutional investors, who said the company’s structure would make it unaccountable to shareholders. Investors were concerned that, despite their objections to Snap’s structure, they would be forced to buy the company’s shares if Snap were included in major stock indexes.
State Street Global Advisors, which has about $800 million in assets across three funds that track Russell indexes, has expressed frustration with companies that limit shareholder voting rights — as well as with index managers.
Portfolio managers at State Street recently wrote that excluding companies such as Snap ruins the whole point of indexes, which is to reflect the stock market. But they’re also unhappy that Snap and other companies don’t trust long-term shareholders enough to give them a voice.
“We believe Snap’s decision to withhold all voting rights to public shareholders erodes the basic principles of shareholder rights and the ability to promote long-term value creation,” concluded a State Street report.
Snap declined to comment on FTSE Russell’s decision. The company has argued that its structure provides a valuable shield from investor overreach and that a mostly independent board of directors is a sufficient check on co-founders Evan Spiegel and Bobby Murphy, Snap’s chief executive and chief technology officer, respectively.