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Ethics at Johnson revered through new speaker series

11/22/2010

Vanguard Group founder, John Bogle, the inaugural speaker in the David J. BenDaniel Speaker Series in Business Ethics, told Johnson audience that ethical principles get lost when not enforced by an organization's principals


“Ethical principles of the business world are nothing without ethical principals to honor them,” said founder and former CEO of Vanguard Group, John Bogle.  In his address as the inaugural speaker for Johnson's David J. BenDaniel Speaker Series in Business Ethics, delivered to an overflow audience in two full lecture halls at Sage Hall Nov. 11, Bogle discussed the importance of responsible leaders who enforce ethical business practices.

The concept of ethical principles versus principals, Bogle explained, originated from a typographical error in a mailing he received. GE was receiving an award for corporate governance and President Jeffrey Immelt was quoted as focusing on the importance of sound “principals” of corporate governance, when he meant principles.

After noticing this error, Bogle began to realize that many companies that claim to value ethical principles in their mission statements often do not have leaders, or principals, that enforce them properly. The reason for this, Bogle explained, is a recent change in capitalism. “Traditional, owners’ capitalism, where rewards from investing went primarily to those who put up the capital and took the risk, changed to managers’ capitalism, where a grossly excessive share of the rewards of investment went to corporations’ managers and financial intermediaries,” said Bogle.

Expanding on this theme, Bogle discussed the consequences American society faces when traditional, professional standards focused on service to the community are superseded by business standards focused on personal profits and service to self. According to Bogle, this transition from professional standards to selfish business standards plagues not only the financial industry, but also accounting, journalism, healthcare, and others.                         

“I’m fully aware that every profession has the elements of a business: If revenues fail to exceed expenses, no organization, even the noblest institution, will exist,” Bogle said. “When so many of our nation’s proudest professions gradually shift their traditional balance away from that of trusted professional service toward that of commercial enterprise, people who rely on those services are the losers.”

Though many companies succumb to the trend of neglecting professional, ethical standards for the sake of making money, there are exceptions like Vanguard—a company with “truly mutual” mutual funds. What differentiates Vanguard from its peers, explained Bogle, is the company’s structure.

“Our mutual funds are structured so that our management company is owned directly by our shareholders, while our rivals are not mutual in any sense of the word,” he says. “The principal function of investment companies is the management of their investment portfolios. Everything else is incidental. The principal role of the mutual funds must be to serve their shareholders.”

Bogle attributes over 36 years of Vanguard’s success to simple ethical strategies, and the company principals’ ability to stay true to their traditional bearings and ethical principles.

“Our corporate values and virtues have been greatly eroded...and it is now your turn to assume responsibility for our great nation’s future,” says Bogle, directly addressing Johnson students. “It is now your turn to join me in the quest to demand ethical principals to implement ethical principles.”

Reported by Maria Minkser, Cornell '13

 

 

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