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New York-based S&P Dow Jones Indices (S&P DJI) is pushing back against the inclusion of dual-class share companies in some of its major U.S. indices, such as the benchmark S&P 500 composite index.

Following a consultation with the market, S&P DJI’s index review committee has decided that the S&P composite 1500 index and its component indices — including the S&P 500, S&P MidCap 400, and S&P SmallCap 600 — will no longer add companies that utilize multiple share class structures.

Companies that are already included in these indices will be grandfathered in, but it will not be adding any new dual-class share companies.

The firm’s other major index families are not impacted by the change in policy for the S&P 1500 indices.

“S&P DJI has determined that the methodologies for these indices should not consider governance arrangements when selecting the universe of constituents. Therefore, the methodologies for these indices are not being modified,” it says.

However, the S&P composite 1500 already follows more restrictive eligibility rules and, the committee has determined that, effective immediately, companies with multiple share class structures are ineligible for inclusion in those indices.

Governance experts have long raised concerns with dual-class share structures, which can allow companies to raise capital in the public markets without giving up voting control.

The Washington, D.C.-based Council for Institutional Investors (CII) lauds the move.

“This is a huge win for investors and a blow to companies that deny shareholders any say in how the company is run,” says Ken Bertsch, executive director of the CII, in a statement.

“Multi-class structures, especially those with non-voting shares, rob shareholders of the power to press for change when something goes wrong, which happens sooner or later at most if not all companies,” Bertsch adds. “Shareholders at such companies have no say in electing the directors who are supposed to oversee management.”

S&P DJI’s decision follows a recent move by FTSE Russell to exclude companies that give public shareholders less than 5% of their voting rights from the Russell 3000 and other FTSE Russell indices.

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