A proposal for the long term.

A proposal for the long term.

A proposal for the long term.

Moneybox
Commentary about business and finance.
May 30 2002 12:20 PM

A Proposal for the Long Term

Often, perhaps even too often, this column takes a critical line. So today I have something nice to say. A few weeks back, I wrote about John Bogle, the founder of Vanguard and the great popularizer of index funds. While I had some positive points about index funds, I also noted the troubling notion that they can "serve as a kind of buffer between Joe Investor and the consequences of his investing." My beef, in a sense, was that the passivity encouraged in the indexing phenomenon at the very least did nothing to discourage bad management among the companies included in a given index.

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I got a number of interesting responses to this, including notes from corporate governance expert (and Slate contributor) Nell Minow, of the Corporate Library, and from Bogle himself. Both pointed me to this Bogle speech from February. It's worth reading.

The part that interests me most comes toward the end, when Bogle proposes the creation of a "Federation of Long-Term Investors." Noting that just six managers at a handful of firms oversee index funds whose holdings equal about 10 percent of all U.S. stocks outstanding, he suggests that "these firms—passive managers, if you will—come together and discuss ways to make their views felt—on full disclosure, on managed earnings, on executive compensation, on auditor independence, on pension plan return assumptions, on retirement plan investing—and forcefully present those views to the corporations whose shares they own." He adds that active managers with a long-term bias might also want to join in.

I think that's a great idea, and I hope it gets a lot of attention. Bogle says the speech did in fact lead to a meeting including him and individuals from eight interested firms; another half-dozen have also voiced interest, and there seems to be some informal idea-swapping going on. Bogle also says he is hoping to develop a first draft of corporate governance "best practices" for the group to consider in the weeks ahead. "It will be a start, but the going will be slow," he adds. "There are those who say it will never work, but if that kind of negative thinking bothered me, heck, I never would have started Vanguard." And though he says it's premature to talk of whether such a federation could some day even address the social fallout of short-term corporate thinking, it sounds like it's not out of the question.

I bring all this up because in the two-plus years that I've been writing "Moneybox," a point I've tried to make in a variety of ways is that investors, even small investors, are not simply innocent bystanders to the corporate behavior that they often complain about. To invest is to embrace the market, and the market can be brutal, nasty, heartless, and indifferent to human suffering. That doesn't mean no one should buy stocks, but it does mean that people ought to understand the connection between share ownership and the actual behavior of companies. Too many of the investors who have come into the market in the last 10 years seem to want it both ways—they want corporations to be honest and patriotic and for stocks to rise as quickly as possible. This can happen, but it certainly won't if most "participants" in the market simply focus on the last part. As Stan Lee might put it: With great power comes great responsibility. So feeling this way as I do, I can only applaud anything that might push investors out of their often-passive torpor.

Anyway, the good news for Moneybox readers is that they'll have to endure a lot less of me repeating myself, as Slate is in the process of beefing up the column with more material from more contributors. (This is also good news for me: You may have noticed that my "Ad Report Card" column has been spun off, with its own "Fray" and everything, and I'll soon be launching another column within Slate, called Number 1, that delves into the business of how culture gets popular.) This is all part of a move toward more money- and business-related coverage, from a greater variety of voices and more points of view. And if you're not convinced that this is a positive development, let me just mention one thing: The day I started writing Moneybox, the Nasdaq closed at 4610. It opened this morning at 1624. To borrow from Stan Lee again: 'Nuff said.