Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition

Part V. ON SPIRIT

I have absolutely no doubt that the principles expressed in Part IV will serve the investment side of the mutual fund industry, and, in turn, serve mutual fund investors. However, given the way fund management companies currently operate, these principles are unlikely to serve the needs of the business side of this industry. Readers may have been surprised to see a discussion of that issue in a book about commonsense principles of investing, but it is of crucial importance for investors.

Part V takes an even more surprising turn. I discuss my own business philosophy as it is reflected in the entrepreneurship, leadership, and human values that I have tried to manifest in the creation of the Vanguard Group, under a structure that is antithetical to the mutual fund industry norm. But while our growth provides evidence that such a structure can function effectively, history tells us that a more enlightened governance structure may not be enough. Life insurance companies, for example, maintained their mutual structure for 100 years or more, but seem to have long since abandoned the principles of mutuality, and are now formally abandoning the structure itself.

Will structure carry the day in the mutual fund industry? No. More than structure will be needed. The business of managing other people's money—no matter how an enterprise is structured—must be focused on the human beings it serves and the human beings who provide those services. A mutual structure may be necessary ...