Hero: Vanguard founder John Bogle
For years, small investors measured their portfolios’ performance by little more than day-to-day swings in share prices. Far too many entrusted those portfolios to conflicted financial advisors, and relied on friends for hot tips.
Times have changed. Millions of retail investors – though by no means all – have come to appreciate that the dartboard approach invariably produces poorer returns than a basket of reputable stocks held year in and year out. Many now take the time to compare fees charged by mutual funds and exchange-traded funds (ETFs) and to ask questions about financial advisors’ independence, and their fees.
Much of the credit for this shift goes to John Bogle, founder and for many years chairman and chief executive of Vanguard Group, the U.S.’s biggest mutual fund distributor. Bogle died in January at age 89. His obituaries were filled with such accolades as “champion of the small investor” and “a pioneer of low-cost investing.”
The title of one of Bogle’s books – The Clash of the Cultures: Investment vs. Speculation – sums up his approach. He hammered home to retail investors what had long been common knowledge among pension funds and other savvy institutions; namely, that an actively traded portfolio seldom outperforms the broad market over the long term, net of expenses and trading costs.
He urged investors to look beyond quarterly performance and was a strong advocate of indexing; in other words, structuring a portfolio to mirror a broad market index. Today, the five biggest U.S. mutual funds, two of them in the Vanguard stable, are all index funds.
Bogle was also a fierce critic of funds’ high management expenses. Under his watch, Vanguard managed its indexed funds at cost, with expense ratios far lower than its rivals. A comparison of Vanguard’s expense ratio to the industry average, as estimated by Corporate Knights, suggests that Vanguard saved investors US$28.6 billion in 2017.
Vanguard is owned by its funds, thus putting the emphasis on cost control rather than maximum profits to shareholders. The upshot of that structure was that Bogle himself amassed far less wealth than other Wall Street high-flyers. Forbes magazine estimated his net worth at a relatively modest US$80 million in 2012.
Bogle would mischievously compare that number to the estimated US$7.5 billion net worth of Ned Johnson, owner of Fidelity Investments, Vanguard’s chief rival. But, as he would point out, Vanguard’s assets under management, now totalling more than US$5.3 trillion, are more than double Fidelity’s US$2.5 trillion.
“My only regret about money,” he told The New York Times in 2012, “is that I don’t have more to give away.” Too bad more titans of industry and finance don’t think the same way.
Zero: Postmedia’s Paul Godfrey
Few tears were shed either within or outside Postmedia when news broke in January that Paul Godfrey was stepping down as chief executive of Canada’s largest newspaper chain.
“It’s just a shame it didn’t happen years ago,” said Martin O’Hanlon, president of CWA Canada, the union that represents staff at several Postmedia papers. “It is not hyperbole to say that Godfrey has been a disaster for the newspaper industry in this country.”
Postmedia’s dismal financial performance might have been reason enough for its directors to push for a management shake-up.
Revenues have been on the skids, sinking another 9.4% in the quarter to November 30, 2018, from a year earlier. The company reported a $1.4 million loss, and its balance sheet showed a capital deficiency of almost $100 million. Once worth billions, Postmedia had a market value of just $95 million in mid-February. The chain’s newsrooms have been through several painful restructurings during Godfrey’s eight-year tenure, including a succession of layoffs and buyouts.
But Postmedia also stands out for its sub-par governance. Management undermined editorial independence ahead of the 2015 federal election by instructing its flagship dailies – such as the National Post, Vancouver Sun, Calgary Herald and Ottawa Citizen – to run editorials favouring then-prime minister Stephen Harper. It did much the same the previous year during provincial elections in Alberta, when editorial boards were told to support the Conservatives.
Several other allegations of newsroom censorship have surfaced in recent years. And there’s more.
Even as Postmedia was shedding staff and cutting benefits, the board approved handsome increases in Godfrey’s compensation. His pay soared to over $5 million last year from $1.7 million in 2017.
Then there’s the question of Godfrey’s lengthy tenure. He turned 80 in January. During a conference call last April, Leon Cooperman, the 75-year-old head of New York hedge fund Omega Advisors, took a pointed jab at Godfrey. “We both have a limited time left on this earth,” said Cooperman. “Neither of us want to spend it without being very productive.”
A growing number of North American and European companies have set term limits and a mandatory retirement age for directors. Nicholas Price, content marketing manager at Diligent, a corporate governance portal, wrote in a blog post last year: “It’s gradually becoming accepted…that term limits are a viable way to promote director independence and keep board director skills fresh.”
That message appears to have fallen on barren ground at Postmedia. Godfrey may no longer be CEO, but he remains executive chairman, a powerful job. Responding to Cooperman during last April’s conference call, he quipped: “May we both live to 120.”