Don Phillips: In recent years, you've moved your focus from just the fund industry to much more of capitalism in general, of corporate America. How would you say the state of corporate stewardship is in the US today?
John Bogle: I don't like the state of corporate stewardship in America today. I think the managers of our corporations, their employees, they behave like the imperial chief executives, we call them. They look to their own financial interest. They issue enormous options to themselves. They get the board approval, but they control the boards.
The compensation has gotten totally out of hand, ridiculously out of hand. It's basically robbing the shareholders of these corporations of the money that's really rightfully theirs. That's a system that has to change. Corporations should be managed for the shareholders and not for the managers or the insiders.
Get out the first edition of Intelligent Investor. Forty percent of that book, Benjamin Graham's first edition, 1949, I believe - forty percent of that book is written about what to do when corporations don't operate well or operate too much in favor of insiders. We seem to have forgotten those lessons.
But my view is - and this is the overall master thesis of why I want to develop a federal standard of fiduciary duty for all money managers -- and that is if all money managers acted as fiduciaries, serving only one master, that pension beneficiary or that mutual fund shareholder, then they will demand of corporations that the corporations themselves, they will get back involved in corporate governance. They'll get back involved in long-term investing, and they'll require these corporations, in turn, to apply those same rules of stewardship to their own corporations.
Put the shareholder first. Create value for the shareholder, not in the form of stock price. It's very easy to create a higher stock price with all this financial manipulation, and very difficult, far more difficult, to build the intrinsic value of a company, which ultimately is what America is all about. It's what the stock market is supposed to be giving you in the end, the long run, an investment return and not a speculative return.
So, yes, the corporations have been run in the interest of their management and the mutual fund management companies, are also run in the interest of their managers. They're taking advantage of their agency position.
This is not just my opinion; it's an opinion of Vice Chancellor Strine of the Delaware Supreme Court, so I've got some good support there. The system has to be fixed, and that's the best way I know how to do it: to have money managers return to the days of stewardship and trusteeship.