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Governance

FTSE Russell sets minimum voting rights hurdle that excludes Snap Inc.

FTSE Russell set new minimum voting rights thresholds for inclusion in the firm's indexes that will exclude Snap Inc., following that company's listing in March of a single class of shares without voting rights.

The London-based index provider, in a paper posted Wednesday on its website, said after consulting with its index clients, companies now coming to market will need more than 5% of their voting rights in the hands of "unrestricted (free-float) shareholders" to be included in FTSE Russell's benchmark indexes.

FTSE Russell becomes the first of three big index providers, together with MSCI Inc. and S&P Dow Jones Indices, to conclude consultations launched this year after the company behind the Snapchat image messaging app broke new ground by offering the public only shares with no voting rights.

In its paper, FTSE Russell painted its decision as a compromise between the roughly two-thirds of its clients who believe Snap's initial public offering "set a dangerous precedent" and the remaining third arguing indexes should reflect the "investible universe" and providers shouldn't set minimum governance standards.

The 5% hurdle, a fraction of the 25% mark a majority of respondents favored, is "a principled line in the sand" — capable of discouraging Snap imitators without impacting existing dual-class share heavyweights such as Facebook and Google-parent Alphabet, the paper said.

Even so, conceding "the novelty" of the approach FTSE Russell is adopting and its uncertain ripple effects, the firm pledged to review "both the level of the threshold and the sanction to be applied to non-compliant companies on an annual basis."

In trading on the New York Stock Exchange Wednesday, Snap's shares closed down 3.53% at $13.40, off just more than 50% from its closing high of $27.09 on March 3, the day after its market debut.

In a statement Wednesday, the Council of Institutional Investors welcomed FTSE Russell's decision.

That decision "is a rebuke to companies that would deny public shareholders any voice in company matters and ensure that some minimum corporate governance standards are required to get into indexes," said Ken Bertsch, CII's executive director.

FTSE Russell, in its paper, said roughly $12.5 trillion in institutional and retail investor money globally is benchmarked to the firm's indexes.