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By Christine Benz | 10-18-2012 08:00 AM

Bogle Appalled by Funds' Lack of Corporate Oversight

Fund managers to be more vocal regarding the management of companies they own, but there are many conflicts in the way, according to Vanguard's founder.

Christine Benz: One issue that you have been also talking about for a while now is why mutual funds have been so passive about the corporations that they own. Let's talk about that issue and how you think funds should step up and have a greater say in issues like executive compensation or say more about those issues?

Jack Bogle: Yes, executive compensation, and political contributions is another one. Well, I am appalled by what has happened in our industry. You know, when we were a little tiny industry, we owned probably 1% of all stocks when I looked at the industry and maybe 2% back in 1951, doing my Princeton thesis, and now we own 34%. We are the largest holders of stocks. But it's much more than that because you can no longer make a distinction between pension fund managers--institutional money managers--and mutual fund managers. If you look at the top 25 firms, every single one of them is in both businesses.

So, we're really talking about the leverage of something like, let me say, 50% of all stocks. That is to say, these organizations, these large institutional managers counting their mutual funds and their private pension investments control every corporation in America. All of the institutions together own about 66% of stock, and individuals own about 34%, I guess it is something like that; 70-30 let's call it, 70% institutional, 30% individual--a big turnaround over the last half century. And they are silent. "The Silence of the Funds" is one of the chapters [in my new book, The Clash of Cultures], and it's kind of complicated. I mean to each his own on why they are silent.

Benz: Well, you do have a take on that, and you think it is because they seek to win the business of some of these companies that they own?

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