Vanguard’s founder: shareholders have a “right to know what we are all doing”
This week, the Corporate Reform Coalition released a video interview with Vanguard Group’s founder, John C. “Jack” Bogle, about his vision in 1975 to set up a different kind of mutual fund company and how he thinks companies should best serve their shareholders.
Bogle, who founded Vanguard over 40 years ago based on a novel principle at the time- that a mutual fund company should be owned by the shareholders of its funds and not just by management- remains committed to that vision today. He fosters that commitment by speaking out on broader investor issues, for example, corporate political spending disclosure.
Bogle has submitted a public comment to the U.S. Securities and Exchange Commission (SEC) on the securities law professor’s petition calling for the SEC to put forth a rulemaking that would require publicly- held companies to disclose how they spend money in politics. When asked why he commented on the petition Bogle replied, “It’s the shareholder’s right to know what we are all doing,” referring to corporate activities.
Bogle’s remarks come at a significant time. Investor advocates are reaching a tipping point in their push for the SEC to issue a rule requiring companies to disclose how they spend money in politics.
As of October 21, outside spending in the 2016 election alone has totaled over $1 billion, much of which is coming from dark money groups that do not have to disclose their donors. This makes it impossible to track secret corporate influence. Americans know that more dark money in our politics is not good for the health of our democracy, but when faced with adversaries such as giant corporations it’s hard to see an easy way to make change.
One way to combat secret corporate influence is to bring it into the light, which this disclosure rulemaking would do. Unfortunately, the SEC has been dragging its feet on the rulemaking and Congressional Republicans have helped the stagnation by inserting an inappropriate policy rider into the federal budget forbidding the SEC from finalizing (though not from working on) the rule.
For the last decade, investors have been filing shareholder resolutions at individual companies and seeing promising responses from many who are interested in increasing their transparency. Without a uniform rulemaking, though, others are allowed to continue to keep shareholders and the public in the dark about how they spend in politics. Even those who do disclose may not do it the same way as other corporations, making it hard for investors to actually use the information to make corporate comparisons.
How do mutual funds fit into this picture? The major ones, like Vanguard and BlackRock, have incredible power in corporate elections; power accumulated from the millions of retirement savings accounts they manage. With the volume of shares they control, the major mutual funds can and should support shareholder resolutions calling for political spending disclosure. Instead, Vanguard, specifically, either votes against or abstains from voting for these resolutions at the companies where its clients’ savings are invested. The weight of the major mutual fund vote means that many times resolutions fail to get majority support without it.
All shareholders, whether the traditional kind or those who own shares through their mutual fund investments, “are entitled to the information they want, they’re owners,” says Bogle in the interview. Therefore, if shareholders are calling for information about how companies spend money in politics so that they can weigh the reputational risk of this activity, companies should listen and increase their transparency.
The gravity Jack Bogle continues to hold within the investment community is immense, and we should heed his words about shareholder rights. The SEC should make strides on the political spending disclosure rule and Congress should not stand in its way. Until the rule is finalized, though, mutual funds should not hamper the efforts of shareholders calling for disclosure at individual companies.
Bogle seems optimistic that the tide is turning in shareholders’ favor. “When shareholders aren’t served first the world will change,” he says. “And it is changing.”
Watch Vanguard’s founder Jack Bogle talk about a shareholders right to information like a company’s political spending.
View video here: https://www.youtube.com/watch?v=JJzBGfroiqA&feature=youtu.be