Yesterday The Corporate Library sent out a great Tweet regarding John Bogle, the founder of The Vanguard family of mutual funds, titled JACK BOGLE ON THE SILENCE OF THE FUNDS. The man who created index fund investing was speaking at the CFA Institute in Boston and ardently implored institutional fund managers, at all levels, to get off their collective duffs and pay closer attention to corporate governance.
One would imagine that if you're investing trillions of dollars for the future benefit of millions of Americans a duty of care would be exercised whereby you would know as much as possible, not only about a company's balance-sheet and income-statement, but that the company has an educated, experienced and effective board; that this board is not a rubber-stamp for management, that their are competent compensation, governance, and accounting committees; that the firm doesn't have pending legal issues that would compromise earnings, and is generally compliant with state and federal regulations. How about that the company offers shareholders "voting-rights"? But Mr. Bogle addressed the issue that mutual and pension fund managers have no interest, incentive or motivation to follow any of these governance issues.
In Mr. Bogle's address to the CFA he admonished mutual and pension fund managers for moving away from their "own-a-stock" outlook to a more "rent-a-stock" perspective. The Corporate Library reminded readers of the fact that average portfolio turnover now is 100%. Mr. Bogle urged professional investment managers to return to a long-term point of view and even supports the reinstatement of Glass-Steagall - the seperation of investment & commercial banking.
Mr. Bogle's final swings at these large money management firms was in calling for them to take corporate governance into consideration in the securities analysis process and would support legislation that would establish a "fiduciary responsibility" for the industry. Now there's some change I can believe in!
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