Vanguard at 50

In Malvern, Pennsylvania, with little notice, Vanguard began operations May 1, 1975.

Vanguard founder, John C. Bogle, wrote in his 2002 book, Character Counts: “When we began operations on May 1, 1975, we employed twenty-eight crew members.” In 333 pages, Bogle tells the Vanguard early story through 42 speeches over two decades. 

And what a story. Vanguard observed its 50th last week. The firm and industry media acknowledged its great achievements. 

Vanguard grew to $10 trillion in AUM and 20,000 employees in fifty years. Numerous industry and financial publications took note, including The Evidence-Based Investor, Barron's, and Kiplinger. 

This growth is historic; the question is what are the engines behind this growth? Innovation, marketing, technology, strategy, management, employees, favorable regulation? What are the lessons learned?

Vanguard CEO Salim Ramji noted, “Fifty years ago, Jack Bogle started a revolution …”

In his statement, Ramji repeatedly cited the “crew” – a term Bogle first used to address its employees. Those familiar with the firm's iconic logo, depicting a large ship, will likely recognize his penchant for the nautical.

Peter Drucker (1909-2005) may well have been the most influential management consultant in the 20th century. Drucker put corporate culture and the care for all personnel on CEO’s agenda. He put it simply: “Management is about human beings."

The first time Bogle publicly spoke in a dedicated speech on his thinking behind his focus on all crewmembers and "human beings" seems to be an April 2002 speech addressed to the Johnson Graduate School of Management, Cornell University.

He starts, “Over the years I have come to love and respect the term, ‘human beings’ to describe those with whom I serve and those clients whom we at Vanguard serve together … it is human beings who are at the core of both our service strategy and our corporate operating strategy.

In Character Counts, Bogle testifies to this conviction. He credits the company's growth, reaching $530 billion in AUM and 15 million investors by 2001, to the Vanguard character, personnel, and its mutualized structure – not the booming markets.

Bogle sought to make Vanguard a “Company that stands for something”. His chief purpose was to “inculcate.”

That means, “Pounding home the importance of a solid system of human and ethical values … “Integrity, honesty, discipline, quality, ambition, loyalty … character.”

By 1980, Vanguard had turned a corner. In September, total assets crossed $3 billion and Bogle spoke of the challenges overcome to reach this milestone. In part, “We have been through a lot together …  (and) without our people we are nothing.”

Bogle’s annual talks to Vanguard crew continued from 1981 until the year 2000. Through that time, he reiterated his themes of Vanguard’s company character and the importance of crew members to Vanguard’s success. In December 1987, on the heels of the Black Monday, October 19, Bogle congratulated his crew:

“My sense of pride in everyone of you, working together for the greater good, caring about our clients, caring about one another … is in truth, beyond the power of mere words to convey.” 

In 2001, just days before 9/11, Bogle stated, “It is almost indisputable that Vanguard’s rise to industry leadership has come largely as a result of our character …” The character of the crew. 

That October, Bogle wrote on what the terrorist attack means for the markets. “For the moment emotions have trumped economics as a driver of the stock market.” He also wrote that the resilient markets will recover and go on to reach new highs, as they have always done before. 

On Vanguard, Bogle wrote, “I am impressed and delighted with the strength of our crew and our clients in the aftermath of the terrible, terrifying events of September 11. … We press on regardless and we stay the course.”  

Do Vanguard shareholders “Stay the course” today? Looks so. Vanguard reports 97 percent of self-directed retirement savers did not trade in this year through April 11. Of those who traded on April 4, 84 percent re-balanced, adjusting their equity allocation by less than 10 percentage points, notes Andy Reed, head of Investor Behavior Research at Vanguard.

Bogle’s quip, "Don’t do something, stand there!" has held.

The engine behind Vanguard’s growth over 50 years is the crew. The crew embraced and implemented the principles that Jack Bogle inoculated into the Vanguard family with passion and eloquence. 

Crewmembers past and present should take a bow for the virtual applause from the tens of millions of Vanguard shareholders and all retail investors!    
 

Knut A. Rostad is co-founder and president of the Institute for the Fiduciary Standard, a not for profit dedicated to furthering fiduciary principles in investment advice through education and advocacy. Rostad edited The Man in the Arena, Vanguard Founder John C. Bogle and His Lifelong Battle to Serve Investors First, Wiley 2013.