Sullivan Discusses INDEX Act and Record-High Energy Prices on Squawk Box

05.19.22

WASHINGTON-U.S. Senator Dan Sullivan (R-Alaska) discussed his newly introduced Investor Democracy is Expected (INDEX) Act on CNBC's Squawk Box this morning. The bill democratizes the corporate governance voting process by restoring voting rights from asset managers to their clients-the shareholders. Sullivan also discussed the record-high gas prices and unprecedented inflation as hard-working Americans endure a tenth straight day of record-breaking gasoline prices.

SULLIVAN: We Need To Bring The Shareholder Power Back To The Beneficiary Owners Of The Shares

CNBC HOST BECKY QUICK: "Our next guest is a lawmaker who just introduced what's known as the INDEX act that stands for investor democracy is expected. The bill is intended to rein in the voting power that big asset managers like BlackRock and Vanguard typically have over public companies these days that power sometimes has led to a greater emphasis by the asset managers on environmental, social, and governance principles. For more on this, let's bring in the man who introduced the bill, Senator Dan Sullivan of Alaska. And senator welcome. Why don't you introduce this bill?"

SULLIVAN: "Good morning, Becky. Well, look, it's a simple bill. And it is intended to get the voting power back to the beneficial owners of the shares, not to the index fund managers. And the big reason is the market distortion of the power that these index fund managers have. Think about the numbers, now they fluctuate, depending on where the market is, but over $20 trillion managed by the Big Three BlackRock, Vanguard, State Street, over 25% of all shares, voted on in public companies are voted on by these three, and they're the largest shareholder in over 90% of the S & P 500 companies. And so to me, that is an enormous market distortion. And we need to bring the shareholder power back to the beneficiary owners of the shares. This is really a quirk in the law, that they have this much power to vote the shares. Nothing against these companies. They've done a great job in terms of lowering fees and doing passive investments which many American investors want, but they don't want them to have all the power, particularly in terms of corporate governance."

SULLIVAN: It's Condescending to Say The Average American Doesn't Vote Their Shares, Therefore They Shouldn't Have The Opportunity

CNBC HOST ANDREW ROSS SORKIN: "Senator, here's the complicated part. And I'm curious where you land on this. The truth is that most people who buy into a 401 K plan, put money in in various indexes, it's sort of a set it and forget it situation. Most of them are not studying the market. They're not studying the companies in those indexes. They're not interested in it. It's unfortunate, but it's a reality of the situation. Unfortunately, it's actually similar to our democracy, and that most people don't vote. They let others vote for them. And that's sort of, in a way, what's happening here. And so the question is, is it to take the power away from a Blackrock or a State Street to vote at all? Is it to just simply give them the option? And in some cases, that's what's happening? Now, that option is there in a way that it perhaps wasn't before? What's the right answer there in the balance?"

SULLIVAN: "Well, Andrew it's a really good question. And it's a combination of both. And I know you've talked to Larry Fink. I mean, Blackrock is already starting to do this themselves. And remember, they don't dig into all the details of each of these companies either. They invest in the broad base index funds. So it's not as if they're getting involved in the nitty-gritty of each of the companies they invest in, in terms of management, in terms of what they want to have done for that company. But I will tell you this, you know, I think it's a little condescending to say, well, heck, the average American doesn't vote the shares, which is true, therefore, they shouldn't even have the opportunity or power to do it. In many ways. Not voting is a vote itself. So to me, it's both too much power with these index funds, who were never meant to dominate corporate governance in the market like this, never meant to do that. It's really an outgrowth of their success, but also to make sure that investors who are the beneficial owners, if they want to vote, they can vote. And that's what my bill does."

SULLIVAN: Maybe Blackrock Doesn't Want It, But The Average American Recognizes We Need To Produce More American Energy

SULLIVAN: "In terms of moving energy, this administration is not willing to actually permit energy infrastructure, whether it's whether it's pipelines like Keystone, whether it's LNG terminals that we need. And you mentioned ESG. I mean, that is tied into my legislation, the INDEX act that we just talked about, you know, there's always this mentioned that investors don't want it. Well, maybe Blackrock doesn't want it. But I think the average American recognizes that we need to produce more American energy. There was a poll recently, over 60% of Americans think we need to produce more American energy from our own country. So that's where I think the market is disconnected from the average American. And we're seeing that in terms of the prices at the pump, and natural gas prices have doubled in the last two years. These are things that are really impacting not just the economy, but working families throughout the country."

SULLIVAN: High Inflation Is A Self-Inflicted Wound By The Biden Administration And It Is Crushing American Families

SULLIVAN: "You know, Becky, I was home over the weekend. And this is the issue, high prices at the pump, high inflation prices that are crushing American families they're crushing middle-class families, working families in my state and this is a self-inflicted wound. From day one, this administration has been focused on shutting down the production of American energy, limiting pipelines and infrastructure, getting investment firms to squeeze off capital to the energy sector. And you know, since I was last on your program, let me give you three additional examples of this. The Biden administration canceled the Cook Inlet lease sale two weeks ago. That's a big hydrocarbon production area in Alaska. They took half of the National Petroleum Reserve of Alaska off the table for development. That's probably the hottest oil reserves in the world right now in terms of discoveries. And they issued new NEPA rules just three weeks ago that are clearly meant to make it harder to permit pipelines, permit LNG terminals. So this is a full hostility towards the energy sector. They've been doing it since day one, and it's clearly the reason we have higher energy prices in America that's driving all of the inflation challenges that we have in this country right now."

To watch the full interview, click here.

Additional ICYMI's on the Index Act:

• "Sen. Sullivan looks to curb power of giant investment firms embracing ESG" (Zachary Halaschak,Washington Examiner, 05/19/2022)

• "Lawmakers Seek to Curb Voting Power of BlackRock, Vanguard and Other Big Asset Managers" (Angel Au-Yeung, The Wall Street Journal, 05/18/2022)

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