What would Jack Bogle do? Ask Vanguard's clients

Last month InvestmentNews editorialized on the passing of Edward C. Johnson, the “self-effacing leader who drove the stratospheric growth of Fidelity Investments.” The editorial talked broadly about the challenges that occur when a visionary leader departs, which gets to the tension between “tradition and change.”

The piece also discussed Vanguard founder Jack Bogle and the concerns that “Bogleheads” have with Vanguard management. Bogle, who passed away Jan. 16, 2019, would have celebrated his 93^rd birthday on Sunday.

Bogle stepped down as Vanguard CEO in 1996 and stepped off the Vanguard board at 70 in 2000. When he "retired," Bogle started the Bogle Financial Markets Research Center to continue speaking and writing on investing, the industry and Vanguard, independent of Vanguard management. He spent 19 years speaking his own mind, which didn't always reflect Vanguard’s.

The editorial concludes “Leaders at Vanguard and Fidelity probably will be asking themselves what Jack and Ned would do for a while to come.” Perhaps. At Vanguard, management knows well what Jack would do. They might also ask, ‘What do Vanguard investors think?”  

The Institute for the Fiduciary Standard's survey of investors, both Vanguard customers and others, in September 2019 assessed investors' attitudes about Vanguard, Jack Bogle and his investing philosophy.

The bottom line: Vanguard investors familiar with Bogle’s investing and business principles strongly approve of them. They also admire his life principles.

The research was conducted for the Friends of Jack, who came together to disseminate his legacy. Here are key points from Vanguard investors:

• Jack Bogle is viewed favorably, 77% to .3% (yes, .3%); the attributes most associated with Bogle are Vanguard’s low-cost index funds, putting investors first and making investing understandable.   
• Index funds frame the reputation of Vanguard and Jack Bogle. There is wide agreement that index funds are: “more transparent about their investing strategy and costs” (58% to 5%) and “get better returns than actively managed funds over the long term" (49% to 7%).
• Vanguard’s high reputation score (9 or 10 on a 10-point scale), at 73%, crushes that of other well-regarded firms. The “laggard” firms include Berkshire Hathaway, which got a 9 or 10 from 43%; Apple, 39%; Fidelity, 34%; Microsoft, 32%; Charles Schwab, 22%; Merrill Lynch, 16%, and Facebook at 9%.
• Companies' reputations seem to reflect individual reputations. Jack Bogle’s score, 60%, compares well among business, finance and political leaders. Following Bogle are Warren Buffett (54%), Bill Gates (47%), John McCain (38%) Steve Jobs (29%), Chuck Schwab (23%), Michael Bloomberg (20%) and Mark Zuckerberg (9%).
• Jack Bogle doesn't just get respect from Vanguard investors. The reputation scores that reflect the responses from all investors show a three-way tie between Jack Bogle, Warren Buffett and Bill Gates, at 51.7%, 51.3% and 51.0%, respectively. John McCain (42%) and Steve Jobs (39%) follow.   

Jack Bogle’s investing principles reach all investors (breadth) and account for his business success. His life principles or values better explain his relationship with millions of investors represented by our surveyed investors, the Vanguard crew and luminaries in business and politics (depth).

Anecdotes about people's intense feelings for Jack Bogle are as striking as they are legendary. They're based on witnessing Bogle act and candidly advocate for his values, sometimes at his personal expense.        

These anecdotes reflect the fact that Vanguard’s mission is to serve, as Bogle liked to say, “honest-to-God, down-to-earth human beings.” Bogle added that firms such as Vanguard “act as fiduciaries, not as aggressive asset gatherers [and] strive to uphold fiduciary values: candor, integrity, trust and fair-dealing.”  

Bogle took his fiduciary mandate very seriously. He writes in his memoir, "Stay the Course," about the life principles he worked to embody at Vanguard, and cites Lord Horatio Nelson, “whose leadership in the British Royal Navy was legendary.” Nelson inspired Bogle, and the name of the ship he commanded, Vanguard, gave the fund company its name.

In 2005, 200 years after his death, Nelson was eulogized by the Bishop of London: “Nelson spared no pains to stand by and serve his shipmates. He exhibited an infectious trust in people which called out the best in them …  a faith that people are to be trusted in a way that helps make them to be trust-worthy.”

Bogle called these words “foundational.” “An infectious trust in people” may be the most critical phrase. Distrust plagues the industry; the demons of distrust infest major financial services firms and much regulatory thinking. To date, Vanguard seems to have been spared. This is no small feat.  

Is the core tension, then, tradition versus change? Bogle suggests that it's not. He writes of “building a crew of dedicated human beings who care deeply about Vanguard and our values.” He writes, essentially, of building Vanguard’s culture.

The core tension at Vanguard is between culture and strategy. Bogle bet on the Vanguard crew to defend and protect the culture for good reason. He knew its power, as did management guru Peter Drucker who famously stated that culture eats "strategy for breakfast."    

Knut A. Rostad is the co-founder and president of the Institute for the Fiduciary Standard, a think tank formed in 2011 to advance the fiduciary standard through research, education and advocacy.