In 1951, twenty-one-year-old Princeton economics student John Bogle wrote a thesis on something he had never heard of before—the fledgling mutual fund industry. Bogle’s work drew the attention of the founder of the Wellington Fund, who hired him. By 1965 he was executive vice president of Wellington Management Company. By 1966 he was CEO. By 1974, he was . . . fired. The bear markets of 1973–1974 and resulting poor funds performance led to disputes and Bogle’s ouster.
In Bogle’s words, he was “fired with enthusiasm.” “Our challenge at the time was to build, out of the ashes of major corporate conflict, a new and better way of running a mutual fund complex.” In 1975 Bogle launched not just a new company, but a new kind of company. This was to be a mutual company—it would operate “mutual” funds with true mutuality, keeping costs low so fund investors would benefit along with fund managers. Bogle named his new vision Vanguard.
John C. Bogle 1929 – 2019 | Photo Credit: Vanguard
Industry veterans greeted the innovation as “Bogle’s Folly,” “un-American,” and “a sure path to mediocrity.” Bogle was relentless and pressed on, convinced his new vision was right. “What I’m battling for—building our nation’s financial system anew, in order to give our citizen/investors a fair shake—is right. Mathematically right. Philosophically right. Ethically right.” And right it was. “Bogle’s Folly” has been relentlessly gaining steam for more than forty years and is now the largest issuer of mutual funds in the world. It has more than $5 trillion under management. If only we could all be so foolish. Bogle had a “foolish” vision, put it into practice with a company, and transformed an entire industry and millions upon millions of lives. He changed the world for the better. If only our world had more such foolish visions and actors.
Bogle innovated in both theory and practice from the mutual fund to the mutual company—Vanguard is owned by its funds, which are owned by their shareholders, so Vanguard effectively is owned by its customers. Whatever benefits the company benefits the customers and vice versa. The main way this plays out at Vanguard is that the company charges low fees (only the costs involved in running the company), and increasingly, many customer-owners invest there because of those low fees. The customer-owners get their fair share of market returns and the company gets a growing number of pleased customer-owners. This is an outstanding and now time-tested example of partnership.
At PartnershipEconomics.com and as described in our book Better Capitalism, we follow the example of John Bogle with a “foolish vision.” Our foolish vision calls for innovating in both theory and practice for a mutual economy—not just a fund, not “just” a company (even one as successful and influential as Vanguard), not “just” an industry, but an entire economy and culture of mutuality and mutual benefit. This is no small undertaking, we realize, but it is a worthwhile one, and regardless of the odds, we have to start somewhere. If only our world had more such foolish visions and actors.
Bogle himself urged, “Our ownership society is gone and will not return. Our agency society has failed to serve its principals, as corporate managers and fund managers alike have placed their own interests above the interests of their beneficiaries and owners. It is time to begin the world anew, and build a fiduciary society in which stewardship is our talisman.” Expanding Bogle’s “stewardship” in finance to a broader economic vision, we say “partnership.” It is time to “begin the world anew,” with partnership as the foundational principle.
Our intention is not merely to critique existing modes and ethics of capitalism but to constructively present theory and practice (together a disruptive technology) for an approach that is more profitable in the fullest sense. Bogle is also instructive in the difficult realities involved with implementing such vision. His concepts and company were initially derided as foolish, guarantees of mediocrity, even un-American.
Reflecting on the many criticisms, Bogle offered great perspective: “So it’s also clear that it is a disruptive technology. And it works, but any time you try to introduce a new idea, first it’s it’ll never work. Then, it’ll work but only for a short time. Then, the guy’s really lucky. And finally, you know, he’s right.”
What would it look like for your organization to implement a disruptive technology that is more profitable in the fullest sense? We invite you to contact us to have a conversation. Perhaps you and your organization are ready to join the foolishly creative and courageous ranks of John Bogle.
What about you? Share your story, question, comment, idea, disagreement -- yes, we welcome disagreement for the sake of mutual benefit! -- with us at blog@PartnershipEconomics.com. We will give a thoughtful response, with prioritized attention to emails from our subscribers. Subscribe here >>
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