Senate Banking Committee Republicans Decry Influence of "Big Three" Asset Managers

Senate Banking Committee Republicans ("Minority Staff") expressed concern as to the rising influence of the "Big Three" asset managers - BlackRock, State Street and Vanguard - on corporate America through the voting power resulting from their ownership of index funds.

In the report, Minority Staff underscored that these asset managers are responsible for approximately 25 percent of all shareholder votes for most S&P 500 companies. Minority Staff warned that the asset managers have used their influence to advance "liberal social goals" that are unrelated to financial performance, such as ESG and DEI. Minority Staff said these firms may have influenced at least one of the banks they control through their management of investment funds to conform its lending activities to ESG principles or otherwise change its corporate policies.

Minority Staff also said the asset managers take advantage of a voting disclosure exemption meant for passive investors to file an abbreviated Schedule 13G. This is done to avoid making such disclosures as to "certain concessions and other arrangements extracted from management or negotiated with other shareholders, plans to change management or the board of directors, and plans to make other material changes to the business." Minority staff stated that this exemption limits the ability of Congress and regulators to assess the policy implications of the influence by these investment managers, and "prevents the investing public from understanding the direction - which often does not maximize value - that the Big Three are pushing their portfolio companies."

Minority Staff warned that a member of the Big Three advisers might reasonably be viewed as having a degree of "controlling influence" over a banking organization such that it would be considered a bank holding company. According to the report, at least two members of the Big Three have sought assurances from the Federal Reserve Board that they would not be deemed a bank holding company.

Minority Staff urged Congress or the SEC to implement a number of recommendations to both (i) provide for better oversight of the recommendations made by the Big Three, and (ii) reduce their voting discretion. These recommendations include:

• Congress should conduct investigations as to the extent of their influence over "management and corporate policy of their portfolio companies";

• Congress and the SEC should review their compliance with Section 13(d) of the Securities Exchange Act and the filing requirements thereunder;

• Congress and the SEC should consider revising Schedule 13G to "require disclosure of all concessions and arrangements extracted and negotiated by purportedly passive investors"; and

• Congress and the Federal Reserve Board should consider whether any of the Big Three "control any banking organizations for purposes of the Bank Holding Company Act or other banking laws."