THE CORPORATE GOVERNANCE ALLIANCE DIGEST

January 23, 2019

This special edition of the Digest is published by Eleanor Bloxham, CEO and Founder of The Value Alliance and Corporate Governance Alliance, and John M. Nash, Founder and President Emeritus of the National Association of Corporate Directors.

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Words of Wisdom for Boards from Jack Bogle
By Eleanor Bloxham

In February 2006, Jack Bogle, founder of the index mutual fund and champion of the small investor, joined me on camera for The Value Alliance educational video series, Conversations that Build a Bridge of Trust™.

One of the videos with Jack was a conversation on compensation. At the time, he had recently written the book The Battle for the Soul of Capitalism. Later he would write the book Enough.

Here’s a brief excerpt of Jack’s wisdom from one of the videos which you can watch here.

Eleanor Bloxham:
“What are your views on the current levels of compensation for CEOs and corporate executives?”

John Bogle:
“The current levels of compensation for CEOs in corporate America are, in a word, outrageous.
Now if you go back 25 years, CEOs were making about 40 times what the average worker was. Now it's a number of roughly 400 times.

If they had accomplished a lot in that period, or those that have accomplished a lot, more power to them. But on average they are not even average…
you know, I've been a chief executive not only at Vanguard for more than 22 years actually, a chief executive at Wellington Management Company for 10 years before that, so I know a little bit about what it's about, and I was somewhat overrated.

You know we often--if we're in a growing business, growing times, bullish times, prosperous economy, we're all overrated. And if the opposite is true, well, we don't get the credit we deserve.
 

So I think it's very important that we realize that in a lot of ways corporate results are a bit of an accident. A bit of the tune of the times. A bit of luck. By the same token I want to be very clear, sometimes bad results are an accident and a little bad luck.

So if we could just look long-term instead of short-term at the performance of our chief executives, who are not heroic you know.

I mean I was greatly overrated as chief executive, and I think maybe the greatest and most overrated of all, but I just wish my colleagues and peers, other chief executives, could recognize--at least entertain the possibility that they are somewhat overrated too and perhaps even somewhat overpaid.”

Backstory on the video filming:

When Jack arrived for filming, we were wrapping up a series of videos with Ned Regan, former New York State Comptroller, discussing corporate social responsibility and environmental/social/governance, which Ned said boards didn’t understand well enough. “Was he any good?” Jack asked me as Ned left.

 
During the middle of Jack’s filming, a fire broke out in the alley near the New York Helmsley hotel where we were taping, smoke entered the building and we were forced to exit. Jack had had a heart transplant 10 years before. We were on the 5th floor so I helped him navigate the five flights down. Geraldo Rivera showed up to film the fire scene, which as I recall was just a dumpster fire.

Many people in Jack’s position would have said good bye at that point and I was afraid he might. But Jack stayed, we chatted and then took the elevators back up to finish the conversations.

Post videos:

Over the years when I was regular contributor to Fortune Jack would provide insights for my articles.

Some excerpts and links are here:

From July 2012
 

“I don’t think we’ve lost the battle for the soul of capitalism. But right now, our capital system is functioning badly. Long-term investment is being crowded out by short-term speculation. Instead of owners, we have renters of capitalism in the driver’s seat.”

“Boards need to be overseers of management…Two examples now. Today, boards are allowing companies to spend dollars in ways they shouldn’t. One is on political contributions. The other is the absurdly outrageous salaries we see today. Some compensation consultants may be called independent, but you aren’t going to be a success if you don’t give management a raise. In the fund system, we have the same problem. We don’t want to offend actual clients and we don’t want to offend potential clients."

http://fortune.com/2012/07/24/jack-bogle-has-capitalism-lost-its-soul/
 

From June 2015
 

Vanguard’s “$3 trillion [size] means nothing to me.” On the other hand, “corporate governance is highly important.” “Inequality is a huge social issue,” that “undermines the fabric of society.” It can be hard to lift yourself up from poverty.

http://fortune.com/2015/06/16/jack-bogle-vanguard/
 

In 2013, Congressional investigations implicated J.P. Morgan and its CEO Jamie Dimon in a scandal related to disclosure failures and withholding information from the Office of the Comptroller of the Currency. The matter was referred by Congress to the SEC and the Justice Department. https://www.forbes.com/sites/kotlikoff/2015/01/16/should-jaime-diamon-be-criminally-prosecuted/#8457a8e32080

One day after Jack’s death on January 16, 2019, Reuters reported that J.P. Morgan’s board had increased Jamie’s annual pay to $31 million. https://www.reuters.com/article/us-jp-morgan-dimon-compensation/jpmorgan-board-raises-dimons-compensation-to-31-million-idUSKCN1PB2R0

The current SEC has said they will take a tougher line on individual behavior – of course, for now, with much of the rest of government, they are shut down.

Four days after Jack’s death, The Guardian reported Oxfam’s findings that in 2018 the world's 26 richest people own as much as 50% of the world’s population i.e. 3.8 billion people. Like climate change, the issues are mounting as CNN reports “the world's [2,208] billionaires are growing $2.5 billion richer every day” while the 3.8 billion get poorer. And Oxfam tweeted “"Just 1% of the fortune of the world's richest man, Jeff Bezos, is the equivalent of the whole health budget for Ethiopia."
 

https://www.theguardian.com/business/2019/jan/21/world-26-richest-people-own-as-much-as-poorest-50-per-cent-oxfam-report?CMP=share_btn_tw
 

https://www.cnn.com/2019/01/20/business/oxfam-billionaires-davos/index.html
 

Jack never gave up. We shouldn’t either.
 

Wishing you an energized and wisdom-filled start to 2019, Eleanor
 

This edition of the Corporate Governance Alliance Digest is copyrighted. If you wish to quote from or use the ideas in this Digest, please acknowledge the Digest and its authors appropriately. Copyright 2019. All rights reserved. The Value Alliance Company.
 

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