Bogle's "The Battle for the Soul of Capitalism"

Vanguard Founder and former CEO John Bogle has written a timely and useful book: The Battle for the Soul of Capitalism. Daniel Berninger posts a nice summary:

"The Battle for the Soul of Capitalism" argues most of the forces that produced the scandals among Enron, Worldcom, et al remain in place.

This means investors should expect another wave of scandals even as the bad actors of the first wave go to trial.

The people running investment funds and corporations increasingly put their short term interests ahead of the long term interests of the investing public. The status quo has corporate CEO's reaping a disproportionate share of returns by finding ways to align the interests of the intermediaries with their own. The link between executive compensation and stock options produces more activities that boost short term stock price even as they jeopardize long term prospects. Bogle makes the point "the more the managers take, the less investors make." By his calculations, investing owners take 100% of the risk while CEO's, intermediary investment bankers, and portfolio managers get 70% of the compounded return. The currently passive nature of stock ownership follows the decline of direct ownership of stocks from 92% in 1950 to 32% today. Portfolio managers do not hold corporate CEO's accountable because the average stock stays in a portfolio for less than a year versus 15 years when Bogle got into the business in the 1960's.

Well worth reading. Posted by James Zellmer at December 29, 2005 10:49 AM | Subscribe to this site via RSS:
Posted to Books | Business