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The Battle for the Soul of Capitalism Paperback – November 27, 2006
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About the Author
John C. Bogle is founder and former CEO of Vanguard mutual funds. In 2004, Time magazine named him one of the most influential people in the world. In 1999, Fortune magazine named him one of the four investment giants of the twentieth century.
- Publisher : Yale University Press (November 27, 2006)
- Language : English
- Paperback : 260 pages
- ISBN-10 : 0300119712
- ISBN-13 : 978-0300119718
- Item Weight : 15 ounces
- Dimensions : 9.22 x 6.1 x 0.75 inches
- Best Sellers Rank: #920,385 in Books (See Top 100 in Books)
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Bogle, in the first three chapters, does an excellent job at overviewing and elaborating on the so many ways that high-level corporate officers and fund managers have been robbing their shareholders and investors blind. These include packing corporate boards with dependent cronies that serve as de facto "yes men" in setting up their own outrageously high (at least independently of performance, which seems to bear no resemblance to performance) pay and bonuses, setting up "off book" accounts intermingled with corporate funds and then using personal funds to engage in non-market price transactions with their own companies (which, of course, always benefit them at the expense of the company), for example. It should be stressed, though, that Bogle not only examines commonly known scams such as the two above mentioned, but a whole slew. Many of these are not very well known to even many astute investors. Of course this does not bean he lists them all. The reason for this it that the book was written in 2002, immediately after the high-tech bubble of the late 1990s burst. Hence some shenanigans that came to light since then, for example the practice of "back dating", go unmentioned.
In the final section of the book Bogle provides an extensive list of solutions to these many problems. Many have been already proposed by others such as Warren Buffet. Example includes providing shareholders with a greater voice, in terms of voting, with regard to officer remuneration. Another is to establish de facto independent pay boards that determine officer remuneration. A third is to separate the audit and consulting functions performed by auditing firms.
The sad fact of the matter is that since this book was published about 10 years just about the only reform that Bogle has mentioned, despite the self-evident merits of the reforms he discusses, has been the portion of Sarbanes-Oxley that breaks out auditing firm's audit and consulting functions. Bogle concludes, in the final paragraphs of his book that the reforms he lays out will, eventually, be passed in his opinion because they are beneficial to share and mutual fund owners and are essential to keeping the investing public's faith in the financial markets. Unfortunately he also states, quite explicitly, that these reforms may take a very, very long time to pass. This is not very reassuring to those investors who have lost money in the past and will continue to lose money as a result of these shenanigans.
This book describes how stock (mutual fund and corporate) managers are not "honest, competent and fair-minded...[or] doing the right thing." (p. 89) And just how the "managers' interest [are placed] ahead of the owners' interest." (p. 90) The recurrent theme is that corporate America has moved from owners' capitalism to managers' capitalism.
Bogle describes "the pervasive...'happy conspiracy' among corporate managers, CEOs, CFOs, directors, auditors, lawyers, Wall Street investment brokers, sell-side security analysts, buy-side portfolio managers, and indeed investors themselves--individual and institutional alike." (p. 98)
"More than one-fifth of...growth returns...during the past two decades has been siphoned off by fund managers.... More than three-fourths of the cumulative financial wealth produced...over an investment lifetime will be consumed by fund managers, leaving less than 25 percent for the investors. Yet it is the [95 million] investors ['individuals of modest means--often via retirement plans'] who put up 100 percent of the capital and assume 100 percent of the risk." (p.xxii)
Not only does the author write about the "Captains of Industry" (or robber barons)--Rockefeller, J.P. Morgan and Carnegie--he deals with the current "casino mentality of so many institutional investors..." (p. 98) Yes, you will read of "the conspiracy between corporate money managers and institutional money managers. [We have] a gambler's market instead of an investor's market," declares Bogle. (p. 118)
Bogle explains why "institutional investors [should] move away from their present obsession with short-term earnings of dubious validity and towards a new obsession focused on the creation of intrinsic value over the long term." (p. 114)
Finally, Bogle does not let we individual investors off easy, either, by explaining "the failure of investment America to exercise its ownership rights over corporate America.
As stated earlier, Bogle has solutions which you will read about in the second half of the book.