Vanguard founder John Bogle shares his three keys to leadership Featured

8:00pm EDT April 25, 2010

You probably know John C. Bogle best as the founder of The Vanguard Group Inc. and creator of the first index mutual fund. Maybe you saw him named one of Fortune magazine’s four investment giants in 1999 or one of Time’s 100 most powerful and influential people in 2004.

But when you think of Bogle, you probably don’t picture a waiter.

Before starting the company in 1975 with 28 employees, 11 funds and $1.8 billion in net assets, Bogle spent his younger years serving tables. Today, when you ask the 80-year-old investment guru — who has served as the president of Bogle Financial Markets Research Center since stepping down as Vanguard’s chairman in 2000 — how leaders should act, he refers back to that experience.

“When you learn to wait on others, you’re learning important lessons about dealing with other human beings,” Bogle says. “You’re always going to act [kind and decent] to those above you, but you better act the exact same way to those who are under you in the pecking order.”

That stewardship carried into Bogle’s service-centered mission at Vanguard — which, as of 2009, has grown to 12,500 employees, 160 funds and $1.3 trillion in mutual fund assets — and continues to drive his leadership style today. While he acknowledges that guiding the course of an organization can be fun, he also recognizes it’s evanescent.

“You don’t run your company forever,” he says.

So he focuses on a kind of leadership that’s longer-lasting and more meaningful.

“I’ve been known to say, when I speak at business schools, that 100 percent of the leaders that come in and talk to these MBA classes say the first attribute of leadership is integrity,” Bogle says. “I agree with that, even as I point out that while 100 percent of the speakers at these things say that, less than 100 percent deliver it.

“I’m concerned about leadership in the wrong direction, leadership that is self-serving, leadership that has forgotten what fiduciary duty and stewardship are all about.”

Smart Business spoke to Bogle about three key traits good leaders exemplify.

1. Sense of purpose

Bogle begins his discussion of leadership by quoting Warren Bennis’ famous list of distinctions between managers — who have a short-range view and an eye on the bottom line — and leaders — who have a long-term perspective and an eye on the horizon. To Bogle, it all boils down to the single most important trait of leadership.

“Serving a sense of purpose, a sense of where we want to go and commitment to get there ethically — basically a strong moral compass — is an extremely important part of leadership,” he says.

Because you can’t lead without followers, the point is to inspire them with a common mission. So an important aspect of having a purpose is articulating it clearly.

“I don’t think we have nearly enough leaders who have an ability to take advantage of the power of words,” says Bogle, who takes communication into his own hands and looks to passionate writing, from Greek and Roman philosophers to the founding fathers to the Old Testament, for inspiration. “Writing a speech or a message to your associates is something that is extremely high on my priority list. It had to be my words, not written by the public relations department. It has to come directly from you.”

In Vanguard’s early days, for example, Bogle addressed his employees every time the company passed a billion-dollar milestone. Then it was every $10 billion, then every $100 billion. The point is that you get up in front of them and share where the company is and where it’s headed.

“You stand up and speak to them in your own words, a sort of state of the union address,” he says. “Write it in human terms; don’t make it too business-like. Write it. Prepare it. Let them know you’ve gone to the trouble of wanting to make sure they’re informed.

“I’m absolutely convinced people can spot a phony around a thousand yards away. So I guess I’d have to say that another attribute of leadership is, for God’s sake, be yourself.”

Q. What are the keys to communicating your purpose?

It’s to share your passion for the enterprise but also the mission of the enterprise. Here at Vanguard, my task is to create a company that was of the shareholder, for the shareholder and by the shareholder. You’d be amazed how many thousand ways there are to communicate that.

So it’s like, ‘Well, are you just going to repeat it again and again?’ I almost never repeat it in those words. You can express that commitment, service, stewardship in a thousand different ways. If you’re reading a little bit of history, you can also find quotations that are even better written than you can write them and use them effectively.

Communication, in many respects, must be repetitive. We all have short attention spans. But you can do it in so many ways and, in a certain respect, people don’t even know it’s being repetitive.

Q. How do you gauge whether employees are on board with your mission?

In a way, that’s a good question, and in a way, it’s a bad question. As I say in one of my recent books quoting Einstein, ‘There’s some things that count that can’t be counted, and there are some things that can be counted but don’t count.’ I think we can go off the deep end in trying to measure that kind of thing.

We do, of course, surveys of our shareholders. We participate in independent surveys. And we get the top scores there; that’s encouraging that our people are carrying out this mission. But it’s a confirming — it confirms your view of the facts [and] ... the reality of how people are reacting.

We do something we call Crew’s Views and ask our crew members, in an anonymous questionnaire, how they feel about their jobs, their futures, their careers, their opportunities, the management and the compensation. We do get a statistical feeling from that, but I still think personal feelings are the biggest important part of it.

How do you measure something like integrity? How do you measure something like commitment? I don’t know how you measure them. Does that mean they’re not important? No, not at all. They’re the most important attributes of all you do.

I hate this management consultants’ bromide: If you can measure it, you can manage it. What a horrible thought. Think of how our corporations are doing that: If you can measure their earnings, you can manage their earnings. I’m not happy with people trying to sell me something because they got a bunch of numbers — not that the numbers aren’t useful as a supplement. I want to be very clear on that. Particularly in the financial business, you can’t work without numbers. But numbers are the cart and not the horse.

Other than these formal surveys, [gauging commitment is] not an easy thing to do because you can really only do it anecdotally. So the only way you’re really going to get comfortable with how people feel is to talk to individuals.

I always hated the idea of employees so we call them crew members. We’re very nautical; you know, Vanguard was Nelson’s flagship in the Battle of the Nile, a great naval victory. You know, you can’t talk to 12,000 people. So you do it anecdotally. You do it regularly. You observe when you’re going over to the galley for lunch how people seem to be feeling. You

019;re standing next to people in line getting your sandwich; you chat with them — very unscientific. But at the end of it, I think you get a pretty good feeling of how things are going.

2. Humility

Bogle has built a mutual fund empire big enough to warrant an inflated ego. But he hates arrogance, especially in leaders.

“I don’t think you can build something without a large ego, to be honest with you,” he says. “You have to try and suppress it as best you can.”

Remember those followers you need in order to be a leader? They won’t follow blindly after a self-important CEO. They’ll be more committed to following you if you can bring yourself down to their level and adopt the idea of servant leadership, as Bogle does.

“Don’t think you’re a big shot,” he says. “That doesn’t get you anywhere. You’re just a normal, dedicated human being. I think those whom you serve will be much better, more loyal, more dedicated, more committed people in working with you.”

You can’t expect employees to buy in to your purpose if they don’t trust you. And you can’t expect them to trust you if you perch upon an ivory tower. So another key to being a good leader is being a humble one.

“The chief executive is an employee; let’s never forget that,” Bogle says. “A lot of times people think they’re the dictator of a corporation. I think if people would just realize that, they might have a little bit less ego wrapped up in all of this.”

Q. How do you suppress your ego?

What you do is, first, you mingle with those around you. You don’t sit in some isolated office high above the earth. You get out and be with your people. I’ve always thought the idea of an executive dining room was totally absurd and destructive to any idea of leadership.

You better make sure that if the executives get bonus compensation on the basis of how well the firm does, shouldn’t everybody? The worker should participate proportionately in the company’s success. I’m appalled when I see some of these companies where all the awards seem to go to the chief executive. Do you really do everything, no help at all? Please.

Q. How do you make everyone feel like part of the team?

It’s attitude. They will know whether you’re interested in them or not by who you are, maybe as little as a smile or a thank you or just a chat about last night’s Olympics, whatever it might be.

It’s not talking to the people around you, trying to go on a witch hunt — ‘What’s wrong around here and what’s wrong with your boss, what’s wrong with this, what’s wrong with that?’ It’s basically convincing them that you’re as deeply involved in the hard work of building an enterprise as they are. You’re not isolated in some ivory tower and nobody knows your name, nobody knows what you look like, nobody knows who you are.

We have a celebration for someone who’s been here 25 years. We have an Award for Excellence for individuals, about six a quarter each quarter, and I sit down and spend about an hour with each of those people, just trying to get acquainted. They then learn a little bit about the founder of the company, and I learn a little bit about them and the kind of people we’re hiring here.

3. Preparation

If leaders really are looking to the horizon, as Bennis said, it’s not for the scenic view. Good leaders keep their finger on the pulse of what’s going on around them as well as what’s coming around the bend so they can prepare their companies for the future.

Preparation, if you ask Bogle, combines awareness with foresight.

“The best leaders have to be looking around the corner all the time and not looking straight down the street,” he says. “Think about what’s around the corner often in terms of challenges and opportunities.”

Because what’s even worse than never getting a break in life?

“It’s a lot sadder when we get our breaks and haven’t readied ourselves to make the most of them,” Bogle says. “You have to be ready when opportunity knocks.”

Q. How do you stay prepared for the future?

First, you have to educate yourself every single day. One of the jobs of a leader is to learn, even as another job of the leader is to teach. Learning means not only staying up to date on what’s going on in the nation and around the globe — you can’t ignore current events — you also can’t ignore history. I just finished reading one of the great biographies of Alexander Hamilton by Ron Chernow, the struggles he went through to try and get America going down the right course.

So reading — but not just reading business stuff, which all of us do — but reading history and, where possible, even reading the classics. It’s amazing to me how much we can learn if you read Seneca, Fontaine, Socrates, Sophocles, Benjamin Franklin, Alexander Hamilton, John Locke: all the great thinkers of the Enlightenment. It’s an extremely important part of educating yourself.

So staying in touch with the classics, learning from history — that’s readiness, I think. You can never be totally ready. No one knows everything. But you do your best to make your mind a little bit bigger and a little bit better every single day.

Q. How does history prepare you for the future?

There’s this wonderful saying that says those that do not learn the lessons of history are condemned to repeat it. For example, for a nation, we look at the history of the Roman Empire and it finally collapsed. We should look at that and say, ‘Is that in store for the U.S.?’ Or in a much, much smaller way: ‘Is that in store for our company?’

To look at leadership as an isolated thing where you know more about your little, infinitely tiny, small company than anyone in the world — I’d rather know a little bit less about the detail and a little bit more about what’s gone before.

How to reach: The Vanguard Group Inc., (877) 662-7447 or www.vanguard.com