Lawmakers Seek Change in Proxy Process for Investors in Passive Funds

Republican lawmaker Sen. Dan Sullivan (R., Alaska) introduced a proposal with the support of several other GOP lawmakers aimed at addressing what Sullivan described as the problems related to consolidated corporate ownership and voting power within the 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,” according to the press release. The “Investor Democracy is Expected (INDEX) Act” would require investment advisers 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 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,” according to the release. The Wall Street Journal noted in a report that the bill  does not currently have support from Democrats, who control the Senate.