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According to some on-line sources (including Wikipedia) Vanguard is owned by its member funds. Furthermore, it is run by its Board of Directors. However, I could not find anything on Vanguard's web site that explains how the directors are chosen. Does anyone have a reference or perhaps a document that explains how Vanguard directors are chosen?

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Vanguard Investment Company is owned by its mutual funds which are in turn owned by the shareholders in the fund. So ultimately the shareholders own Vanguard but they don't get to vote in elections of Vanguard's Board of Directors; the funds do. It is sort of like the Electoral College in the US; in Presidential elections, you actually vote for an Elector, and it is the Electors who vote to elect the President. Ditto for US Senators before the 17th Amendment. Before that, each State Legislature elected its two Senators, not the people by direct vote. –  Dilip Sarwate Jun 17 '12 at 12:35
    
When you say "the funds do", what does that mean? Does that mean the managers of the funds vote? Also, is this written down anywhere at the Vanguard site? –  rlandster Jun 17 '12 at 14:29
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For additional details on how voting works, see the information on voting mechanisms here –  Dilip Sarwate Jun 17 '12 at 17:36
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@DilipSarwate - Though what you say is true the thing you miss here is that part of buying into many of the funds is that you sign over proxy rights to the fund you buy into. So unlike US elections where you can not sign over voting rights to another person, here to buy into vanguard you must sign over your voting rights. So basically the old boys club chooses an old boy to sit on the board. If you look you will see that most board members sit on the boards of other companies as well, chances are if a board member was added to a board they recently named another member to a board they run. –  user4127 Jun 18 '12 at 17:09
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@Chad The Fidelity Funds are run by FMR, which has members of the Johnson family as majority share holders. Each fund has regular elections for its Board of Directors, almost all of whom also serve on most other Fidelity Fund Boards as well as on the FMR Board. I regularly voted in those elections. So, you don't give up proxy voting right there, but essentially a similar old boy network still dominates. So, it is de facto a distinction without a difference. –  Dilip Sarwate Jun 18 '12 at 17:20

1 Answer 1

There are 11 members of Vanguard's Board of Directors. Nearly all are also members of the board of trustees of each Vanguard fund. The CEO of Vanguard is the Chairman of the Board of Directors. He is the only one of the 11 directors who is also actively involved in the management of Vanguard. As for the other board members,

ten are independent directors who have no affiliation with Vanguard or the funds they oversee, apart from the personal investments they choose to make as private individuals.

These are some examples of the backgrounds of three of the ten (independent) Vanguard board members: corporate vice president of Xerox Corporation; former president of Rohm and Haas Co.; president of the University of Pennsylvania.

How are the Vanguard Board of Directors chosen?

The answer is in the description of their duties:

The board members help select investment advisors for the funds; monitor fund operations, performance, and costs; review contracts; nominate and select new trustees/directors; and elect Vanguard's officers.

Emphasis mine. So it seems that existing directors select their replacements.

As for the reference to mutual funds as owners, see the company timeline, on the overview information page about Vanguard. Look at the entry for 1975. With John C. Bogle as CEO:

Vanguard begins operations as a new kind of firm, in which the mutual funds own the management company. Fund shareholders pay only what it costs Vanguard to operate the funds.

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You quote, in part, "The board members help select ... new trustees/directors; and elect Vanguard's officers." So the members of the Board of Directors select new members of the Board of Directors? –  rlandster Aug 17 '12 at 19:49
    
Yes @rlandster that is how I understood it. Please see my next sentence, following the excerpt: It seems that existing directors select their replacements While I was surprised, authoritative information sources, i.e. Vanguard itself, said that that was true. –  Feral Oink Aug 18 '12 at 18:02
    
@rlandster I am going to make some edits to my answer, and provide additional information now, I hope will be helpful, as this does seem somewhat puzzling. –  Feral Oink Aug 18 '12 at 18:06

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