“S&P appears to deviate from its published criteria in its decisions on adding firms to its index much more than Russell does,” the paper said.

Benchmark Behemoth
It all adds to the debate over the extraordinary power wielded by index providers in modern markets. Roughly $5.4 trillion of assets directly track the S&P 500, while another $8 trillion uses it as a benchmark, according to S&P estimates.

S&P Global’s own research has argued that the impact on the share prices of companies joining the S&P 500 -- the so-called index effect -- has dwindled in recent years. In other words, there’s less incentive for a firm to try to win admission to the gauge.

Meanwhile, a discretionary element to S&P 500 inclusion is openly acknowledged by the benchmark provider. Company size is a major factor, as is liquidity and profitability, with the final decision taken by an index committee.

That group aims to minimize turnover and also take sector representation into account, according to the firm’s methodology. Shifts in index composition are made as needed and “changes in response to corporate actions and market developments can be made at any time,” it says.

In the paper, Li, Liu and Wei said it’s unclear whether and how executives and employees in other parts of the company interact with the committee.

“As of now, the existing literature still has not investigated the objectivity of the index composition and the possible conflict of interest in the membership decisions on the most tracked stock index,” they wrote.

It’s a sensitive topic for ratings companies, who came under fire after the global financial crisis from critics who argued they gave risky debt securities higher ratings than deserved to maintain good ties with the corporate issuers paying them.

As recently as 2020, another firm, Morningstar Credit Ratings LLC agreed to pay $3.5 million to settle with the Securities and Exchange Commission over a conflict-of-interest matter. The firm settled without admitting wrongdoing.

In its governance framework, S&P Global sets out “clear separation of distinct functions and duties across the organization,” according to its website. “This ensures effective conflicts of interest mitigation and management,” it says.