Source: United States Senator for Alaska Dan Sullivan
05.18.22
WASHINGTON—U.S Senator Dan Sullivan (R-Alaska) today introduced the Investor Democracy is Expected (INDEX) Act to address problems stemming from the consolidated corporate ownership and voting power within Wall Street’s largest investment advisers and their index funds. With passive investing exploding in popularity over the past two decades, these firms have quietly become the largest owners in almost all public U.S. companies. As such, they are able to leverage the investments of millions of index fund investors into the dominant voting bloc at shareholder meetings.
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.) are original cosponsors.
The INDEX Act would require investment advisors of passively-managed funds to vote proxies in accordance with the instructions of fund investors—not at the discretion of the adviser. The adviser would be responsible for passing through the proxies, collecting the instructions, and dutifully voting according to the investors’ wishes. Deconsolidating this voting power will neutralize the dominance of these investment advisers and foster a healthier, more competitive, and more democratic corporate governance ecosystem.
“The American people deserve the opportunity to vote on behalf of their investments, including those made in index funds. Massive Wall Street firms should not be able to coopt this voting power to essentially control our entire public market.” Sen. Sullivan said. “Currently, the three largest investment advisers vote nearly one-quarter of all shares cast at annual meetings, and are the largest shareholders in over 90 percent of S&P 500 companies. The INDEX Act would correct this extreme market distortion by simply requiring that the power to vote shares resides with the fund investors, not the advisers. This would democratize corporate governance and largely eliminate the influence that these firms wield at shareholder meetings, often to push political agendas. It would also remove these firms as a gateway for special interest groups who push radical agendas through corporate governance that they could not otherwise achieve through the traditional political process.”
“In recent years, a small handful of large index fund managers have used a quirk in securities law to vote shares purchased with other people’s money,” said Sen. Toomey. “The INDEX Act returns voting power to the real shareholders — retail investors who put their own money at risk. Further democratizing investing and diminishing the consolidation of corporate voting power are concepts members of both parties should get behind.”
“Providing more power to individual investors would foster a more competitive corporate governance system, and limit the likelihood that large institutional investors succumb to pressure from activists who have no vested interest in the firm’s long-term growth and success,” Sen. Crapo said.
“If you have financial stake in a company, you should have a say in that company’s decision-making process – but too often, shareholders are at the whim of Wall Street advisors who are not required to put the best interest of investors above their personal agendas or motives. Our common sense proposal will cultivate much-needed transparency and ensure advisors answer to their investors, not the other way around,” Sen. Grassley said.
“Texans work hard to be able to provide for their families and save for retirement,” said Sen. Cornyn. “Texans who invest their hard-earned money should have a say in their investment, and this legislation will help ensure the voices of individual investors are heard loud and clear.”
“Preserving the voice of investors is a crucial aspect of the success of America’s financial institutions. The INDEX Act empowers individual investors and ensures transparency in the management of investment funds,” said Sen. Cramer.
“For too long, Americans’ retirement funds have been weaponized by investment advisers to advance political agendas that are antithetical to many investors’ views and financial interests,” said Sen. Hagerty. “The INDEX Act, which I’m pleased to co-sponsor, is a big step forward in returning voting rights to investors.”
“It’s important that we return voting power back to individual investors and foster a competitive marketplace instead of promoting a system of corporate governance that can be shifted by the votes of only three large investment advisory firms,” said Sen. Tillis. “Millions of Americans invest in companies every day, and these individual investors should not have their shareholder voting rights crowded out by large firms with political motivations. The INDEX Act will create a more level playing field, and I am proud to work with my colleagues on this commonsense legislation.”
“Many Montanans enjoy the benefits of passive investments but don’t know that behind the scenes, corporate voting power is increasingly concentrated with just three companies. Investment advisers are using their power to advance the Left’s woke agenda in corporate America. These investment advisers should not have the power to influence business policies without actually owning the shares they are voting on behalf of. The INDEX Act would ensure that Montanans who own shares in these companies have their voices represented, and that three corporate investment advisors do not have carte blanche to vote however they please,” Sen. Daines said.
“Mammoth investment advisors are listening more to radical activists than to their actual investors, which can sway outcomes at shareholder meetings. That’s bad for the investors who have put their savings on the line and for healthy, free markets. We need to ensure that investors actually get to vote on their investments, and that’s what the INDEX Act would do,” said Sen. Kennedy.
“People throughout Wyoming have invested their hard-earned dollars in major companies across the U.S., yet their voices are being co-opted by fund managers with a partisan agenda. I am thankful to Senator Sullivan for highlighting this problem and working to come up with a solution,” Sen. Lummis said.
“Individual investors and retirees, not massive Wall Street companies, deserve the right to vote their shares,” Sen. Rubio said. “This bill will empower retail investors and prevent large fund managers from abusing their influence to support crazy progressive agendas.”
Sen. Scott said, “Hardworking Florida families deserve to have their investments under their control and used according to their interests. I’m proud to join Senator Sullivan and our colleagues in this important fight to return power back to where it belongs – with individual investors.”
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