U.S. Sen. Dan Sullivan testified before the Senate Banking Committee today on the challenges posed by large asset managers that wield the enormous voting power of millions of passive index fund investors to control “virtually every large U.S. corporation.”
Sullivan spoke on the legislation he introduced last month—the Investor Democracy is Expected (INDEX) Act—that addresses problems stemming from the consolidated voting power within Wall Street’s largest investment advisers.
“The impetus for this legislation was due to my ongoing frustrations with many of America’s largest banks and insurance companies that undertook policies to start blackballing oil and gas investment development in Alaska,” Senator Sullivan said to the Senate Banking Committee. “At the same time, these financial institutions, banks, and insurance companies were eagerly and continue to eagerly do business with Communist China. . .These financial institutions do this in part because of pressure from their largest shareholders, the big three investment advisors, and their index funds.”
Sullivan’s legislation is in response to the hypocrisy of America’s largest banks black-balling oil and gas development in Alaska and across the country while propping up the Chinese Communist Party, even as American families face record-high energy costs. This initial frustration uncovered a much larger concern about the sheer power that is consolidated among the three largest investment advisers: BlackRock, Vanguard, and State Street.
The INDEX Act would require investment advisors of passively-managed funds to vote in accordance with the instructions of fund investors—not at the discretion of the adviser. Deconsolidating this voting power will neutralize the dominance of these investment advisers and foster a healthier, more competitive, and more democratic corporate governance system.
“At its core, the INDEX Act is politically and policy-neutral focused instead on the very real and unprecedented power amassed by the big three investment advisors that should be a concern for us all,” Sullivan said. “It would return voting power back to the beneficial owners of the shares, not the index fund managers. In many ways, it’s a logical next step that was undertaken by Dodd Frank when broker-dealers used to be allowed to vote shares they held in street name. It would neutralize the massive power that the largest investment advisors have amassed and it would empower the real beneficial owner of these shares. It would foster a healthier and more competitive and democratic corporate governance system, which is what we should want and certainly what the American people expect.”
Original cosponsors of Senator Sullivan’s legislation include: Senators Pat Toomey (R-Pa.), Mike Crapo (R-Idaho), Chuck Grassley (R-Iowa), John Cornyn (R-Texas), Kevin Cramer (R-N.D.), Bill Hagerty (R-Tenn.), Marco Rubio (R-Fla.), Thom Tillis (R-N.C.), Steve Daines (R-Mont.), Cynthia Lummis (R-Wyo.), John Kennedy (R-La.), and Rick Scott (R-Fla.).