Hardly Shy or Retiring: What the flap about Jack Bogle's retirement says about Vanguard
Sandra Ward
Aug 16, 1999
Even index funds need a personality. (Especially if the company that sells them doesn't advertise much.)
The face of Vanguard Group, the second-largest mutual-fund firm and the one that made the index fund famous, is so unmistakably that of its forceful and erudite founder Jack Bogle, there's been no chance for the chairman and chief executive of the past three years, John Brennan, to make an impression. Though he is the steward of upward of $500 billion in investments and retirement savings, and he is serving a stint as chairman of the trade organization that represents the industry, he remains relatively unknown -- so much so that The Wall Street Journal editorial pages might be prompted to ask "Who is John Brennan?" (as it has been known to do for obscure members of the Clinton Administration).
That's an image problem. And it may explain why, like it or not, the rules stipulating Vanguard directors step down in the December of the year they turn 70 won't be bent to accommodate Bogle, who entered the realm of septuagenarians in May. (Even though Vanguard celebrates two birthdays for Bogle, the date he was born and the date of his heart transplant, February 1996, the firm is sticking to the first in this matter.) Maybe, just maybe, Brennan will come out of the shadows.
While Bogle says "I'm not so sure I do" want to stay on as a director, he adds that he would have liked the opportunity to consider a gracious offer to waive the long-standing policy made in deference to the founder and senior chairman of the 25-year-old company. "I am an extremely important figure to Vanguard shareholders," he proclaims, pointing to electronic chat room discussions conducted by so-called "Bogle-heads" as confirmation. Not that we didn't know.
That's not to say Vanguard won't see fit to grant the preachy and passionate Bogle some kind of emeritus role so that he can continue using Vanguard as a bully pulpit on behalf of shareholder rights. Bogle says he and company officials have been working for months on a business plan to be unveiled in September and will provide him new responsibilities at the firm. He was mum on his new functions.
Yet it almost doesn't matter. Actively involved in Vanguard affairs or not, Bogle will always be closely identified with the firm. And not just the firm but the mutual-fund industry as a whole: Long ago he moved beyond the confines of Vanguard, viewing himself more of the industry's major-domo and conscience. Let's face it, anyone who truly believes that Bogle will somehow lose his voice and slip into obscurity because he's no longer on the board of Vanguard can't know Jack Bogle very well. He says so himself: "I'm a long, long way from retiring."
Perhaps once Jack No. 1 steps down, Jack No. 2 will emerge as his own man, and be recognized for some of the successes of the past three years, which are numerous: strong performance, record-shattering asset growth, and continued leadership in providing low-cost funds.
"I'm sure Bogle would have preferred the board waive the policy, but Brennan doesn't want a towering figure from the past looming over his accomplishments," says Burton Greenwald, a fund consultant based in Philadelphia.
No firm comes close to matching Vanguard's commanding growth of the past few years. It was the top seller of mutual funds in 1998. This year, investors have poured so much into Vanguard funds that the Malvern, Pennsylvania-based firm is on track to gain $63 billion in assets, busting last year's record. "What's germane to Vanguard shareholders at this point is that Brennan's been successful," says John Woerth, a spokesman.
Bogle appears to agree, admitting that the environment for funds has changed dramatically from when he first conceived of Vanguard. "He is a manager, above all a manager," says Bogle, paying a backhanded compliment to his 45-year-old protege. "And he's a good manager. Today, we need managers more than leaders or missionaries."
There's no denying that people have been attracted to the firm's wide array of index offerings, a style of investing long championed by Bogle as the most efficient and cost-effective. There's also a long list of AOK actively managed funds that hold solid appeal such as Windsor I and Windsor II , Wellington , PrimeCap and Health Care . Investors benefited too when Vanguard expanded its brokerage service-started by Bogle in 1983-to allow its customers access to more fund choices, a move it needed to make to protect its all-important 401(k) business.
When major changes have been undertaken-such as adding an outside manager to Windsor this year and closing Health Care to new investors-Bogle's been part of the decision-making process and seemed to back the moves instigated by his chosen successor. Now it's time to keep forging ahead. So, what's the problem?
"I don't think the business issues are that big," insists Bogle as he tries to explain the differences between himself and the other Jack. "The company I founded has investment ideals that are eternal. No one will abandon index funds. No one will abandon the low-cost structure. No one will abandon the mutual ownership structure of the company. The basic investment values ... that I created aren't going to be changed. The significant difference is, I created a strategy because I was on a mission. Now we have businessmen more than missionaries."
Press him further and he reveals that he thinks Vanguard is beginning to spend too much on advertising and that could drive up costs to shareholders unnecessarily. Fact is, an increase in the amount of advertising by Vanguard is probably about as big a threat to shareholder pocketbooks as Mets' pitcher Al Leiter's three-run double Thursday is to put him in contention for most runs batted in. Fact is, too, index funds are a dime a dozen these days and Vanguard, like every other mutual-fund firm, is competing for assets across all fronts at a time when there are more funds than ever and fewer people interested in buying shares in them. More advertising comes with the territory. Running a fund company is a business, not a religion.
Visit Barron's at www.barrons.com for the latest financial analysis and commentary, updated daily.
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