The Market Can Curtail Woke Fund Managers
Sponsors of the Index Act have identified a real problem. Their solution won’t be effective.
By Vivek Ramaswamy and Riley Moore, June 9, 2022
Senate Republicans recently introduced the Investor Democracy Is Expected Act, also styled the Index Act, which would require passive investment-fund managers that own more than 1% of a public company to collect instructions from their clients on how to vote their shares. The senators are right to focus on a major problem: The three largest passive asset managers control more than $20 trillion and vote nearly one-quarter of all shares cast at corporate annual meetings to support social agendas disfavored by many Americans whose money they manage.
But as long as BlackRock, Vanguard and State Street represent the largest shareholders of America’s public companies, they will disproportionately influence the behavior of those companies, regardless of whether their clients regain the power to vote their shares.
As a practical matter, most individual investors in index funds can’t cast informed votes at the shareholder meetings of portfolio companies. An individual investor in Vanguard’s total stock-market index fund would have to cast tens of thousands of votes each spring for the stocks held in that fund alone.
Further, the capital managed by BlackRock, State Street and Vanguard is often allocated to these firms not by individuals but by intermediaries such as state and employee pension funds. These institutions generally take their voting directions from two firms, Institutional Shareholder Services and Glass Lewis, which openly embrace the same political orthodoxies as the big three asset managers.