"Each of these firms proudly uses the voting power gained from their investors' money to advance liberal social goals known as ESG (environmental, social, and governance) and DEI (diversity, equity, and inclusion)," the report says. "These once benign-sounding concepts are political movements unmoored from financial performance and, perhaps not coincidentally, also popular with corporate C-suites where managers can claim 'success' on matters irrelevant to investor returns."
The report argues that the three mangers have "enormous influence" over shareholder meetings because when a retail investor buys an index fund, they do not then own the stocks in the fund, the fund owns the stocks. "Even though they buy that voting power with other people's money, that voting power gives asset managers like the big three enormous influence," the report states.
The report goes on to outline seven recommendations to "illuminate this regulatory blind spot and clarify the policy implications of the big three's influence." The recommendations include congressional investigations to "develop a more complete understanding of the extent of the big three's influence over management and corporate policy" of their portfolio companies; urging Congress and the Securities and Exchange Commission to bolster disclosure requirements; and advising lawmakers to pass legislation aimed at curbing money managers' voting influence.
One such bill that was highlighted is the Investor Democracy is Expected Act, or INDEX Act, which was introduced in May by Sen. Dan Sullivan, R-Alaska, and 10 Republican co-sponsors, and debated by the committee in June.
Under the bill, passive fund managers that own more than 1% of a company's shares would be responsible for collecting individual investors' instructions and voting according to the investors' wishes. The bill also stipulates that mangers cannot vote without instructions from fund investors, except for routine matters such as ratification of auditors, which will avoid concerns about shareholder meeting quorums, a summary from Mr. Sullivan's office said.