Index fund guru Bogle finds little traction on governance

NEW YORK Tue Jun 24, 2014 2:16pm EDT

Jack Bogle, founder and retired CEO of The Vanguard Group, speaks during the Global Wealth Management Summit in New York June 17, 2014. REUTERS/Shannon Stapleton

Jack Bogle, founder and retired CEO of The Vanguard Group, speaks during the Global Wealth Management Summit in New York June 17, 2014.

Credit: Reuters/Shannon Stapleton

NEW YORK (Reuters) - Jack Bogle, a celebrity for low cost investors, faces a disconnect with his own fan base when it comes to corporate governance.

Bogle, founder and former chief executive of index fund giant Vanguard Group Inc, is a well-known critic of investment firms that he says should use the massive number of shares they control to bring tougher oversight to areas like executive pay or corporate political contributions.

But Bogle acknowledged that few retail investors in products like index funds worry about such matters, reducing pressure on fund firms to seek changes.

"Most of them don't care" about such matters, Bogle said at the Reuters Global Wealth Management Summit last week.

"They think it's trivial," Bogle said. "They don't see the relevance."

His remarks help explain why proxy voting patterns by fund firms have not shifted much since the financial crisis.

Meanwhile, investors are increasingly moving cash to Vanguard and rivals like BlackRock Inc (BLK.N), known for index funds and other low-cost products, giving the firms more influence.

'WALL STREET WALK'

Mandated to own the stock of many companies, index fund managers cannot simply sell shares when they grow unhappy - the "Wall Street Walk," as Bogle dubs it.

Vanguard leaders and others like BlackRock Chief Executive Larry Fink say the dynamic gives them extra responsibilities as shareholders, and that they work closely with corporate executives behind the scenes.

For the 2013 proxy season, Vanguard funds voted in favor of 95 percent of director nominees and supported 96 percent of company "Say on Pay" proposals.

A sampling of the online forum Bogleheads.org, a discussion site inspired by Bogle's approach to investing, suggests most participants are fine with Vanguard's approach.

“I am not sure how much extra I would be willing to pay Vanguard to have them be active shareholders of a passive portfolio. Probably nothing,” wrote one investor last year.

Others say more attention to governance would make little difference to broadly diversified portfolios.

“As an index style investor, corporate governance, and the composition of the individual boards of directors would seem less important, since we own the entire market,” Warren Whitney, a retired automotive engineer and Vanguard investor who is active in a Detroit-area Bogleheads group, said via e-mail.

Bogle said the prevalence of such views means fund firms have a fiduciary obligation to investors to keep a close eye on matters like the salaries of chief executives.

"There are all kinds of beneficiaries out there who have no idea what's best for them," Bogle said.

Bogle said he supported Vanguard's quiet approach but urged it to offer more details about its interactions with some companies and to say what changes resulted, if any.

Asked about Bogle's remarks, Vanguard spokesman John Woerth said that giving out such information "would be counter-productive to having meaningful, credible discussions and enacting change."

(Editing by Tim McLaughlin and Bernadette Baum)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
Corpgov.net wrote:
A recent Pensions & Investments editorial, ‘Winning Over Proxy Voters,’ argues that institutional investors like Vanguard and BlackRock have a fiduciary duty to announce their proxy votes in advance of annual meetings, if doing so is likely to influence voters.

If institutional investors heed their call, it would lead to more votes against pay and would encourage retail investors to copy their votes. 95% of retail shareowners don’t bother to vote. Copying the votes of these giant investors would make it easy to vote by ‘brand.’

Jun 24, 2014 9:12pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.