July 9, 2014
To: My Fellow Vanguard Veterans and Principals
My 63rd Anniversary
Monday, July 9, 1951, was the first day of my long career in the mutual fund industry. I vividly remember walking into the Wellington Fund offices on 1420 Walnut Street in Philadelphia. I was a bit nervous (of course!) and wondered what the future had in store for this recent graduate of Princeton University’s Class of 1951.
I was wise to wonder! Little could I have imagined that I would remain with Wellington/ Vanguard for 63 years. Little could I have imagined what surprises and challenges, what successes and failures, what growth and what changes in Wellington lay before me during that long span. Much of what was to follow was due to the ethical values and financial wisdom of my great mentor and friend, Walter L. Morgan, who did his best to impart them to his heir-apparent.
Walter L. Morgan, Wellington Fund, and Vanguard
Walter Morgan was the founder and chief of Wellington Fund and Wellington Management Company, and (as I once wrote to him) he gave me his confidence when I had little confidence in myself. Then, Wellington employed maybe 75 people, and supervised $150 million of assets for the shareholders of its single mutual fund. (Tiny by today’s standards, but then one of this industry’s ten largest firms.)
You all probably know about how my career at Wellington ended (I was fired from my position as chief executive in January 1974), fortuitously opening the door to my creation of Vanguard only seven months later. It was, as they say, the opportunity of a lifetime—a chance to build something new and better for our mutual fund shareholders. The three pillars of our fledging firm were our unique mutual structure, the world’s first index mutual fund, and the unprecedented conversion to a distribution system without a sales force. These disruptive innovations reinforced my conviction that, after Ralph Waldo Emerson, “if you build a better mousetrap, the world will beat a path to your door.”
The World has Beaten a Path to Our Door
Well, as you know, that’s precisely what the world has done. (I’ll spare you the numbers on our assets, our growth, our market share, and the triumph of indexing. You all know them.) One day, I expect, I’ll revel in our rise to industry preeminence, and bask in the glow of our peerless name and reputation. But not now. I have much work yet to do, much more to accomplish.
I haven’t run this firm for many years. When I relinquished my responsibilities as chief executive, I well knew that I no longer had the power of the purse and the power over the persons—our crewmembers—who are largely responsible for, if not exactly what we do as a firm, how we go about doing it. And I salute once again our crewmembers, and especially our veterans, for continuing to maintain our human and ethical values that have been essential to our progress.
The Powers of Leadership
While I was well aware of what power I was relinquishing, I was equally aware of the two vital powers that remained: one is intellectual power, the other is moral power. Still strong, if perhaps diminished (your call on both!), I continue to use those powers to speak out for giving all mutual fund shareholders a better chance to accumulate wealth; for reform in an industry that has come to emphasize marketing over management; for the requirement that every firm that touches other people’s money be subject to high standards of fiduciary duty and trusteeship; and for institutional money managers to assume not only the rights of our collective ownership and putative control, but also the responsibility to play a role in the governance of our nation’s public corporations.
You may have noticed how few other financial leaders have spoken out on these issues. And you may also have noticed that the media and the public are now calling attention to them. That may help to explain why, without a scintilla of promotion on my part, so much recent attention in the press and on television and radio has been focused on my ideas and our firm’s values. My essay, “The Incredibly Shrinking Financial System,” in yesterday’s Wall Street Journal—its 125th anniversary edition—is just one recent example, if a singularly fine one.
The Bully Pulpit
I’m on vacation as I prepare this 63rd anniversary note, reading a marvelous book: Doris Kearns Goodwin’s The Bully Pulpit—Theodore Roosevelt, William Howard Taft, and the Golden Age of Journalism. I’ve been a great admirer of TR for as long as I can remember and have cited him often in my books and speech. I was once again struck by his role in American life during, and even after, his presidency. Here are a few excerpts that I underlined from The Bully Pulpit:
Roosevelt wondered about finding “whom he could trust to carry out his legacy of active moral leadership and progressive reform . . . [who would] make use of . . . the bully pulpit that had provided the key to [TR’s] success.” He understood that, “the vitality of democracy depends on popular knowledge of complex questions . . . [requiring of us] a better understanding of what it takes to summon the public to demand the actions necessary to bring our country [and, I would add, our financial system] closer to its ancient ideals.” That’s what TR’s bully pulpit, and my own bully pulpit, is all about.
A Personal Note of Thanks
As the days fly on, and as I age, I recognize that the time will come when I will no longer be able to engage in the mission that I have set for myself—to speak out for truth and integrity and character in the world of finance, striving to build a better world for investors—honest-to-God, down-to-earth human beings who deserve a fair shake. One’s strength to carry on does not—cannot—go on forever. The spirit is more willing than ever, but the flesh inevitably weakens.
For me, the human beings who have been part of my long career have been by far its most important aspect. Yes, as I have said, “I like human beings better than algorithms,” and judgment better than process. (Not that, at our size, we don’t require many algorithms and much process. Neither has ever been my strong point!) In its early years, Vanguard was young, beleaguered, and scorned. But by the mid-1980s, we developed the momentum that has continued ever since, built on those same three pillars of our founding.
Especially in those early years, when our success was not assured, I knew that among my highest priorities were the need to always be optimistic, to set the standard for commitment, to communicate openly, and, broadly put, to give our wonderful crew the strength to carry on. Turnabout is fair play, and today it is all of you on the crew who give me the strength to carry on. These have not been the easiest days for me, but I carry on because of your confidence, your respect, your admiration, and (as some of you have said) your love. How could such a life possibly be more rewarding?
A song that tells this very story provides a fine conclusion for this message:
Sometimes in our lives we all have pain, we all have sorrow
But if we are wise we know that there’s always tomorrow.
Lean on me when you’re not strong
And I’ll be your friend, I’ll help you carry on
For it won’t be long
Til I’m gonna need somebody to lean on.
Thanks for that strength. Thanks for being part of this fine firm. Thanks for everything.