Transcript: Tim Buckley, Vanguard’s CEO



Transcript: Tim Buckley, Vanguard’s CEO

The transcript from this week’s, MiB: Tim Buckley, Vanguard’s CEO, is below.

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ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: I am super excited about this week’s Masters in Business Live with Vanguard Group CEO Tim Buckley. If you recall pre-pandemic, we had started doing these live events. The first one was with Ray Dalio, and then we did one with Howard Marks, and then everything closed down and we kind of put it on hiatus.

Well, they’re back. Masters in Business Live is back, and this one with the CEO of the Vanguard Group was really quite wonderful. It was at the big ETF exchange conference in Miami that was held last weekend. I got to sit with Tim for about an hour and ran through about 45 minutes’ worth of questions, and we took some questions from the audience.

If you remember about five years ago, when it was announced that he was going to be CEO, we did 10 questions with Tim Buckley, and I’ll link to that in the description of the podcast. This completes my set. I have now interviewed all four Vanguard CEOs for Masters in Business, Jack Bogle, Jack Brennan, Bill McNabb, and now Tim Buckley. Really quite a fascinating conversation, a tour de force.

With no further ado, my Masters in Business Live discussion with the Vanguard Group CEO Tim Buckley.

So let’s talk a little bit about what we have going on right now. You’ve been at Vanguard for over 30 years.


RITHOLTZ: You’ve been CEO for five years. How’s it going?

BUCKLEY: It’s been a learning time, and it’s been a growth time is what I would say, Barry. It’s been, you know, an incredible opportunity. If you think about what Vanguard is all about, we sit there each and every day, figuring out how do we help people retire better, put their kids through college, afford that dream home? I think everyone in the audience agree, it’s been a tough few years for investors and that’s the time to rally. And certainly for us, that has been a time to show up and answer the bell for our clients. And so it’s been a real rewarding time. It may seem odd to say that, but a really rewarding time.

RITHOLTZ: So let’s talk a little bit about your unusual career path. You come out of Harvard undergraduate, and you essentially get a job as like a gofer for Jack Bogle. You’re his —

BUCKLEY: Yeah. Well, I was lackey to the lackey, really. He had —

RITHOLTZ: So you’re weren’t working for Jack. You’re working for Jack’s guy?

BUCKLEY: Well, I suppose you’re working for him, but I really was working for Jim Norris who was his assistant. We worked together for Jack Bogle. I reported to Jack Bogle. I found out later I had the title of Chairman’s intern, and found out I had that title because they weren’t sure I was going to make it through the summer. So I come out of undergrad as Chairman’s intern, I thought that was my title for good. After the summer, they changed that. I found out, well, if you made it —

RITHOLTZ: Oh, you have a job.

BUCKLEY: — you have a job. I didn’t know what was going to happen if the intern part didn’t work out. But I was lucky to find Vanguard.


BUCKLEY: Well, coming out of school and, look, my oldest is a junior in school now. So I’m sure he’ll face this. But I was the typical senior and I was a little lost, coming out of school. I’m the son of a heart surgeon, and I grew up with someone who had a ton of purpose in his life. I mean, Barry, like saving lives on a daily basis, that gives you a little bit of purpose.


BUCKLEY: And I was lost and I wasn’t going to go into medicine. Look, I didn’t have the steady hands for it and I didn’t have the stomach for hospitals. And I love business, I love the markets, I want to go there. I was a bit struggling. I was trying to find a place with the same type of purpose, and I was thinking maybe I need to go back into medicine. My father said to me at that time, save lives or help people live better lives, anything else and you’re wasting your time. And —

RITHOLTZ: No pressure?

BUCKLEY: No. But he said you don’t need to go into medicine for that, and then he actually suggests I go to talk this company Vanguard.

RITHOLTZ: Really? That was your father’s suggestions?

BUCKLEY: Yeah. He said, hey, reach out to Vanguard. And I was fortunate to come down and interview at Vanguard. And, look, it’s love at first sight. I mean it was a company owned by its clients with a clear purpose to really give them a fair shake and provide them with a better future. And 32 years later, here we sit.

RITHOLTZ: What was it like working for Jack Bogle right out of school? I mean, clearly, Vanguard wasn’t the Vanguard we know today 30 years ago, but it had to be a little intimidating.

BUCKLEY: Well, maybe I should have said I was both lost and a little clueless. I mean, remember, this is 1991, you’re coming out, this is pre-Internet. I mean, really, no one knows who Vanguard is. So my friends really thought Vanguard was an airline.

RITHOLTZ: Which it was.

BUCKLEY: Yeah. A second guess would have been a healthcare company. And you know, I used to have to describe it as the Pennsylvania version of our Boston competitor, and so people didn’t know Vanguard wasn’t the firm it is today. And then Jack Bogle, like, he wasn’t a household name. So I didn’t show up intimidated, I showed up curious. And you know, I asked a ton of questions. And he’s a guy that, look, wanted to teach a lot. And if you were willing to listen, you’d learn a lot.

RITHOLTZ: So Bill McNabb was the CEO during the financial crisis. And when I spoke with him, he talked about how that created both challenges and opportunities for Vanguard. You’re the CEO during the pandemic COVID lockdown. What sort of challenges —

BUCKLEY: A couple of bear markets.


BUCKLEY: We’ve had, let’s see, inflation at a 40-year high, tightest labor market of our lifetimes. But, yeah, other than that, it’s been easy time.

RITHOLTZ: So what sort of challenges and opportunities have the past five years presented?

BUCKLEY: I think it’s one huge lesson for us, and it’s brought out in our leadership team. Great leaders, you’ve got to embrace your reality. You can’t be an optimist or a pessimist. You just have to embrace the facts in front of you, brutal as they may be. And that’s what we learned throughout this, and you have to plot the best path forward. And maybe if you’d hear me humor, if we will go back to the kind of the first time we talked and you go back to that time, because Vanguard had been gone through a decade of incredible success, great growth, and look, our fund performance had been top notch, if you went back to that time, and our Net Promoter Scores were really, high cash flow outpacing the industry. So all signs were great.

We had a wonderful opportunity in front of us. We looked at client success, it was defined by the funds they hold, but also by the advice they got from us. And for 40 years, like, we’ve been hammering away at the fund side. We have lowered the cost of investing, and we have improved the quality of those funds. And you know, dare I say we made a change in the industry.

Well, we started to think that maybe we could actually do that on the advice side. Maybe we could be the Vanguard of advice, because we had this PAS Group, the Personal Advisor Services that had some early success. So we sat down and said, okay, like, could we build another engine of value? Engine 1 being in funds, and Engine 2 being advice. And if we could do that, that’d be wonderful.

So right before doing that, right after we talked, we like looking at our competitive position, do it constantly, and we call it, hey, let’s embrace the brutal facts. We looked at the foundation of our position, and it wasn’t as good as we thought it was. In fact, we’re low cost leader. But at that time, we weren’t. If you looked at our ETF assets, at that time, less than half of them actually would have been considered lowest cost in the industry.

Our NPS scores were high, but they were declining because of an antiquated digital experience. We were losing market share in the critical retirement, the 401(k) business. Internationally, we were spread too thin. We were serving institutional clients that weren’t core to who we are. We’re all about the individual investor. So we looked at those and said, well, we got to address those and we want to build this new engine of value with advice. Great. Awesome. That seemed like enough. And then COVID hit.

We had a choice to make at that point, and the choice was, do we just delay everything and play defense, or do we just add the pandemic to our list of brutal facts? We chose the latter and said, we have no idea how long this is going to go on, but we owe it to our clients to emerge from it stronger and better than when we went in. And we had prioritized all our strategic plans, we had to figure out how to get them done while people were remote.

It forced us to make some tough choices in that time in some big investments, whether we were building out our advice capabilities and building virtual teams to do it, or you know, tough choices in our retirement business. We had to rebuild it soup to nuts. And we partnered with Infosys, but that meant 1,300 crew went and worked for Infosys. But it meant we could triple the resources that we had, you know, focused on our retirement business.

We looked in our personal investor, our direct business and said, we have to organize it differently and we have to modernize that digital experience. And tough decision overseas, we basically pulled back from Asia. It was all institutional clients. And we gave back $125 billion in assets, which most people think is crazy.

RITHOLTZ: Billion with a B.

BUCKLEY: $125 billion.


BUCKLEY: They were all institutional separate accounts. That’s not what we do here and gave it back to them. That’s not where we’ll excel. And you know, it’s just not what makes us tick. It’s a little tangent here. Like, we were managing money for people for a basis point and a half, and then they’re going ahead and charging 70 basis points. Like, that’s not why we get out of bed, right? We want to see an investor have a better return as a result. So make those tough choices and, you know, five years later, we’re sitting a lot better off.

RITHOLTZ: Whatever you identified as a structural fault line, how far along do you feel you are in the process of, hey, we’re here, we want to end up there? Are you halfway there, most of the way there? How do you tackle those?

BUCKLEY: We talked about just getting started. But you know, it’s one of those things that as a leader, you don’t think about like, well, here’s the finish line and then I’m done. It’s how far can you push it and get the next team ready to take over and continue that journey. But for us, you know, we measure our success in different ways. We measure our success by how are our funds doing, and we look back long-term performance. And right now, you look back over 10 years, our active funds, 94 percent are outperforming their competitive group averages, 68 percent are outperforming their benchmarks.

If you look at that ETF low cost leadership space, I believe 86 percent of our assets would now be considered lowest cost. So we can actually have that low cost title back, if you will. If you kind of continue on to that advice journey that we had, for us, we’re just thankful. The last time we talked, we have about $80 billion in advice assets. That sits at about $350 billion.

RITHOLTZ: Out of $7.2 trillion?

BUCKLEY: Out of $7.2 trillion, but it’s growing at 15 percent to 20 percent a year. And there are 650,000 clients that hit the bottom of the market last year, 80 percent of them are still right on target with their goals. And for advice, for us, too, is also a matter of you think about advisors, how are we using model portfolios to make their result better? Are we making sure that they have the right products from Vanguard to actually complement what they do, the right practices?

Being in the advice business ourselves, we can help improve their practices, justify the advice that they give, justify the fee. And you know, just simple things like, hey, the value of tax loss harvesting, how do you make that apparent to people? Something that, for us, save our clients about $300 million in four months, that alone. And our digital experience, you’re asked about that, that one I can tell you how far along we are in modernizing that. We’re about 75 percent of the way in doing that, and so great change.

RITHOLTZ: So you mentioned the pandemic was a little bit of a challenge. Everybody is working remote for a long time. How do you maintain corporate culture with 20,000 18,000 employees, when the vast majority of them are not coming into the office?

BUCKLEY: I think it’s tough for every company out there, when you’ve hired thousands of people who have never set foot on a campus and you often model the behavior in a culture. And so the first thing for us is in the leaders that you actually select and that’s so crucial for us. So in our screening, you get odd interview questions. We’re trying to figure out, are you purpose-driven? Like, are you actually someone who is going to be purpose-driven?

But then we have something that I learned from one of my mentors, you’ve talked with Jack Brennan before, our former Chairman and CEO, and he always established this early on in the culture, that it would be client, crew, self, always in that order. And a lot of companies will say that, like, he will put the client first. But, like, we don’t have another choice. Our clients own us. We don’t have anyone else to serve.

And then during the pandemic, it’s been clear to us like, yeah, but the only way we can mess that up is if people start putting themselves in front of the client. And so the leaders there, we have to say, okay, we have to enforce it. It’s always the client first. And as a leader then, that means that you have to take care of the crew before yourself. So we emphasize that wholly, that leaders are going to actually make sure that crew know that they care more about their success than their own.

So, for me, it’s more important to see my team success than Tim Buckley’s success. And it’s amazing how that helps build a team if you’re true behind it, and it builds the collaboration on that team. And then down the road is somewhere where you put yourself, but that is a core to our culture. We’re able to do it in a virtual world. But now that people are basically back for three days a week, it’s a lot easier to reinforce it. And people do see it when they’re actually face to face.

RITHOLTZ: So back three days a week, home optional two days a week, how does that structure change what you expect people to do when they actually come to the office?

BUCKLEY: Yeah. So I’m sure a lot of people have been through this, where they come into the office and we had it. First, when people came into the office and they were on Teams when they were in the office. So what we’re finding is —

RITHOLTZ: Doing Zoom calls?

BUCKLEY: Yeah. We’re finding, like, okay, they come into the office, they say hello to each other, they sit down on their desk, and they go on video all day long. Well, that defeats the purpose of actually those serendipitous moment, we’re bumping into each other, trading ideas. You’re sitting in a conference room, you’re talking with each other, building on everyone’s points, if you’re on Teams. We said, why is that? Well, it was because not everyone was coming in, and you still had some people at home, or you didn’t want to travel from building to building. We have a nice campus and not everyone wanted to travel.

And we just said, no, actually, when you’re here, like, first, everyone got to be here. And then, secondly, when you’re here, we expect you to actually interact with each other, not on Teams. And you want to see that Team’s usage drop in the middle of the week and go up on the tail ends because Monday and Friday are the virtual days. So we actually had to establish that norm that people have gotten so used to using Teams all the time in the middle of the week. We had to move people away from it.

RITHOLTZ: So let’s stick with the leadership theme, and you come to the CEO row with a unique leadership background. You used to describe yourself as CIO squared. You were chief investment officer and chief information officer, an unusual combination, and then to be elevated to CEO. How does that background affect how you think about the role of chief executive officer?

BUCKLEY: Yeah. I think for every CEO, you need perspective, and I think both the CIO jobs gave me incredible perspective. The first one, I became CIO right at the tail end of the Internet craze. I was on the web and then took over as chief information officer. And that was a time of incredible hype, right? The Internet is going to change the world. Oh my gosh, it will change how we actually consume, you know, video, how we game, how we do business. And everyone was talking about that ’99, 2000. You remember that well, and then it didn’t happen right away, and everyone ended up disappointed. We know what happened over the long run.

You know, back then we used to talk about something that I’ve tried to bring back for people, which is that Gartner Hype Cycle, if you remember it. And that Gartner Hype Cycle is something where whenever there’s a disruptive technology that it comes in, there’s a lot of hype and high expectations, so unrealistic expectations, followed by something doesn’t happen, you have disillusionment. You have the trough of disillusionment, and people give up on it.

But the true change comes when, hey, you know what, those loyal to that technological change figure out over not one, two, but three, five years, how to drive change and how to leverage it. And that’s been true through time. It was true whether it’s with the Internet, you can cloud it with mapping the genome with EVs. And it’s true in investments, where you have to look at change and you know, people will talk today about, okay, a private equity is some magic elixir. Like, I can just get private equity into my clients’ portfolios. It’s not true. I mean, private equity, there’s greater return dispersion, but the returns on private equity are often below the S&P 500, or on average.

So you’ve got to do your work. You’ve got to see through and say, okay, well, that means that I need to keep fees low and I have to get with the right GPS, et cetera. And so you can drive, you can figure out where’s that long-term change going? So those two jobs give you a perspective for, okay, avoid that hype and how do you see through the long-term change that you want, that you think you should drive home. They’re probably different in how you embrace change.

And I think the world is always changing, right? So that’s a dangerous thing. Like, how people code, where you host something, all of those things, you know, how applications talk to each other, those have totally changed since I was CIO. But if you think in investments, like, there are more rules in there. Like that proven investment philosophy of diversification, that’s not going to change overnight. So you have to be more careful in the investment world. And, hey, both of those give me a balance as CEO.

RITHOLTZ: So Vanguard now has a hardcore tech geek as CEO. How has that affected the company? How has that affected how you approach the use of technology in the world of investing?

BUCKLEY: Yeah, Look, thanks for calling me a tech geek. I’ll take that as a compliment.

RITHOLTZ: That’s how it’s meant.

BUCKLEY: Yeah. Look, for us, technology is the embodiment of our service. We’ve always been a virtual company, just used to be through the mail and 1-800 number when I joined. So it’s always been that way for us. So this needs to be a necessary area of investment. And I mentioned this, when you lead with technology, what can happen to you is if you don’t continually make the investment, you fall behind, because it gets so costly to address your legacy. It becomes an albatross. Kind of your legacy applications, they become a burden and they slow you down, and they slow down what you can do for your clients.

We made the choice of, you know, we’re going to eliminate that legacy. And a few years ago, we said whether you’re investing directly, whether your investing through an advisor, whether you’re investing through retirement plan, the platforms that we deal with, our service infrastructure, our investment infrastructure, cloud native. So we’ve rebuilt. We’re about 74 percent of the way through of rebuilding all our applications to be cloud native.

Now, that sounds cool. Like, what does it give you? It builds up your resiliency but your speed. And I’ll give you an example, maybe the team won’t love that I’ll use this one. But we launched a mobile app last year, right? It fell flat on its face, the mobile app. Like, it was panned. Our clients hated the mobile app. And in the past, when you did that, well, you had to live with it. Like, you’d have to wait for nine months to fix the problem. But because it was built cloud native, that meant you could make changes to it. You can make the changes every two, three days. And so we did 200 releases to it in nine months. And that app has gone way past the satisfaction ratings, client satisfaction ratings of the past one. It continues to grow.

And so being cloud native can give you incredible speed. Resiliency last year, our availability, you’ll never get a good article written when you have high availability. You just want to avoid the bad ones. We’re 99.97 percent available for our client application. So that’s a number I hadn’t seen before.

RITHOLTZ: So let’s talk a little bit about fees. The Vanguard effect has been well documented, not just the spaces that you’re in. It forced everybody else to be more fee competitive. But even spaces you first start looking at, immediately has a ripple effect and fees drop. How much lower can Vanguard push fees? Half of my portfolio, is it 3 BPS?

BUCKLEY: Oh, how about 2?

RITHOLTZ: Okay. But aren’t you going to run out of room eventually?

BUCKLEY: Well, the way we’re built, being client owned, it’s the way we return profits to our clients.

RITHOLTZ: That’s the dividend.

BUCKLEY: That’s the dividend that we pay out, is to lower that expense ratio. And it’s how we’re built and those are economies of scale. Every year, just like any other company, we have our expenses that includes kind of the big investments we’re making in the business. And we have a revenue line. You know, we’ve had been lucky, it’s been very profitable year after year.

Well, what do you do with that? Number one, you put it back into the business. There’s plenty of capital to put back into the business if it’s projects that will meet your cost of capital. So you do that. You have to make sure you have enough liquidity reserves, so if there’s a big bear market, you want to protect your investments, et cetera, risk event. But then other companies will retain earnings. They’ll pay a dividend, will go to a family. What we do is we say, okay, with that capital, we’ll give it back to our clients in the form of lower expenses. And it’s been a pretty powerful cycle, and that’s why year after year, we’re able to kind of lower expense ratio.

So I mentioned Jack Brennan, I bumped into him in the hall the other day. He stepped down as the CEO in 2008. And he said, Tim, when I joined Vanguard, our expense ratio was 88 basis points.


BUCKLEY: 88. And it’s, you know, less than a 10th of that now.

RITHOLTZ: Wow. That’s pretty impressive. So —

BUCKLEY: So many industries where you actually are getting more and pay dramatically less.

RITHOLTZ: And this has been the history of the firm from day one. This is the core of Jack Bogle’s philosophy. A lot of people think it’s all about passive, but Jack began as an active manager. You’re now about 20 percent active at Vanguard. Tell us a little bit about what you guys are doing on the active side of asset management.

BUCKLEY: It’s a funny fact. I’ve been there 32 years I joined Vanguard and index is only 10 percent of our assets.

RITHOLTZ: You were 90 percent active?

BUCKLEY: Yeah, 90 percent active. So we were an active firm —


BUCKLEY: — when I joined Vanguard. And it’s evolved over time to be 80 percent index. We firmly believe in active. We firmly believe in low cost active. But its place in the portfolio has changed. If you think about it, for most clients, it’s an index at the core. If you have the risk appetite for active, it’s going to play much more of a satellite. And so as we look at it, we look towards strategies, well, maybe it’s the same, a little bit higher. You’d hope for information ratio, but you have a bigger risk budget or standard deviation. So you look for more excess return. So that plays for a better complement to the index portfolio.

Now, how do we think about active managers? People talk about, well, yes, people, philosophy and process. You’ll go through all of those. But we found the best way to evaluate. One is make sure that they can tell you what their edge is. What is their active edge? And it has to be one that can’t be easily duplicated in the market. Because in a zero sum game, right, where you’re competing with other managers, you want an edge that nobody else has. So you can’t just say we have smart people and they collaborate well with technology, right? Everybody got smart people and everyone got great technology.

You can’t just say, you know what, we think differently. We want you to prove it. So how do you think differently? So you’ve talked with the leaders of Baillie Gifford, like, where do they hire from? Well, they don’t hire from business schools, right? They’ll hire military intelligence officers and have them work actually in (inaudible) and with someone else, and they keep them in pods or teams that they work together, but they don’t collaborate. They don’t want group things. They don’t let them work with other groups. And then you measure, do they truly keep that edge of differentiated thinking?

We do it to ourselves, our active fixed income group against super smart people, supported by great technology. But what’s that edge that no one else can duplicate in there? It comes from our structure. If you think about the fact that we’re client-owned, so we’re delivering as close to at costs as possible. We’re going to be a lower fee than almost everybody out there. That means a low hurdle rate. So we do that.

Well for us, that means that you’re not getting paid to take risk when spreads are tight like right now. But don’t take a lot, you don’t have to. You don’t have to take that extra spread or go out in credit quality and take extra risks there. Because, look, you have a low expense ratio. You can be higher quality, and you’ll equal or maybe fall behind just a little bit, and you’ll keep a lot of dry powder. And so then when you have spreads wide now, you know, dislocations in the marketplace, you have plenty of dry powder and you deploy it.

And with that strategy, you will outperform over the long run. And I mentioned that 10-year performance, if you look at our active fixed income, I believe 98 percent of the funds have outperformed their competition over the long run, so their competitive group average. And straight up, the number is huge. So it’s a differentiated way. but we measure it, like, do they truly deploy that dry powder? Do they take advantage of it?

RITHOLTZ: So you mentioned Baillie Gifford, I bet a lot of people here in the states don’t know them, been around for a century in the U.K., if not longer, highly regarded, great track record. I want to put that in context of leadership. You’re reaching out to, I guess, not a competitor but a peer, saying, how can we get better? How often does that occur? What sort of strategies do you put into place? How often are you saying, hey, let’s sit down and talk shop?

BUCKLEY: With our outside managers or with outside firms?

RITHOLTZ: You know, Baillie Gifford is a great entity.


RITHOLTZ: They were managing money for one of the public pensions for —

BUCKLEY: Yeah, so we have a team who are constantly out there looking for who could be great outside managers. And they will look for that active edge, look for that differentiation. And they’re constantly out there so that if there’s an opportunity that pops up in a fund, or there’s an idea for a fund, that we actually have a list that we can go to right off of people that we respect and that we could work with.

And then working with Vanguard, you know, one of the differentiators is that we’re so long term. We have such a long-term focus that they truly can have a low turnover and stick with an idea and not worry, hey, they’re underperforming for two years. Like, we’re going to move on from them. So we’re probably a lot more patient, but at the same time, you know, highly educated in the questions we ask.

RITHOLTZ: So you joined the leadership team in 2001, which is, you know, a decade —

BUCKLEY: All right. We’re going back now.

RITHOLTZ: Yeah. — a decade into your career. That’s a pretty fast advancement. I assume you were relatively young compared to the rest of the leadership team. How do you get from that entry to senior management? What was the career path like from there?

BUCKLEY: Yeah, I was young and over my head.


BUCKLEY: Oh, yeah. And definitely, I mean, I had been running the web and that was enough for me. You know, unfortunately, back then, our CIO suddenly passed away, and Jack Brennan asked me to step in and lead our technology group. It was a surprise choice for everyone, and it was a surprise for me. And I remember talking to him about it, pushing back a little bit like, you know, look, I don’t have the IT background that other people would have. And he said to me, Tim, I’m not asking you to code, I’m asking you to lead.

And then he went through the competencies that you would expect me to bring to the table and how I can bring our IT division to the next level. That stuck with me. A couple of things stuck with me, it was the importance of competencies and developing those competencies in people, and the importance of taking risk in the development of people.

Another thing that occurred to me probably a year later, and that was that we’re big believers in doing 360s on people, so getting feedback. Every leader should go out and get feedback not just from their boss, but from their peers and those people on their teams. So I did a 360. And you know, it always starts off with your strengths and where you’re doing well and say like, oh, gosh, you know, Tim is strategic and he’s got drive and he gets results, and collaborative, and love and everything. Then you get down to, okay, here’s what his weaknesses where he needs to work. And you know, the bottom was patience and we can come back to that some other time.

RITHOLTZ: Right. You need the patience to look at that.

BUCKLEY: Yeah, I know and it’s still a weakness. But second from the bottom was developing talent. Man, I was stung because I realized that I had been a taker all this time, not a giver.

RITHOLTZ: And you had been mentored by Jack Brennan?

BUCKLEY: Of course, yeah, by Jack Brennan, and Bill McNabb, and Mike Miller, and you know, all these people through time, who had taken an interest in my career. And they took an interest in my career and when people asked about me, I hadn’t done as much. Now, there might have been one or two people that said I was the best thing that happened to their career. But by and large, I hadn’t done enough.

And so I spent the next, you know, 22 years, saying, okay, well, how do I develop talent? And I would tell you that, for me, my proudest moments at Vanguard are when someone that I’ve mentored ends up on our senior leadership team. And fully half of that team, I can say I had a hand in mentoring them along. So it takes concerted effort. And for a leader, there’s nothing more rewarding because that’s the way you have exponential impact. If you can pass on your lessons and someone else builds on them, and they teach them to somebody else, that’s where a leader can have true impact.

RITHOLTZ: How does a company of the size of Vanguard institutionalize that sort of mentoring, leadership, grooming, bringing up the next generation, getting people to reach outside their comfort zone and become better colleagues, workers and eventually leaders?

BUCKLEY: At every leadership level, we do talent oversight. You should know your teams, and you’ll know your leader. Everyone will know their leadership team, people in their group, where they’re strong, their competencies, where they need to develop. And we constantly rotate talent to develop them and —


BUCKLEY: Rotate.

RITHOLTZ: How do you rotate talent?

BUCKLEY: Well, look, I mean, the same way that I was rotated between, you know, what would be corporate area to a service area, to an IT, to investments, and you give up your best talent. And it’s odd. Most companies don’t it. You want to hold on to your best talent. But at Vanguard, you’re rewarded when you give up your best talent and make sure they develop. And how do you develop them? We rotate people based off of their competencies. Think of them as buckets that you need to fill.

And it may be, okay, well, what someone’s vision and strategic thinking, and it might be how well they know operations management. How good are they developing crew? These are buckets that you’re trying to fill along the way. You can’t fill them all in one job or with one boss. Some bosses will be better than others. So if we understand those about our people, then we rotate, we know what the next one or two or three rotations will be. And we do it around their competencies.

As we rotate them, there’s a give-up. Someone loses their expertise in a role. But what they’re gaining is context. They’re gaining context and becoming a better leader, better decision-maker. It’s a system you have to balance because you can’t have everyone rotate to a new area. You have to keep institutional knowledge and really sandwich people like experience on the top, experience on the bottom, and you end up with someone fresh in the middle.

RITHOLTZ: So you mentioned Bill McNabb, who was your predecessor, as well as Jack Brennan, his predecessor.


RITHOLTZ: Those are two rock star finance CEOs. What’s it like for you as a CEO, still having access to their expertise and experience? You said you just bumped into Brennan —


RITHOLTZ: — as always. Tell us a little bit about how you use the legacy of former CEOs who are still around?

BUCKLEY: And how cool it is, I mean, two very different leaders and two fabulous mentors and great friends, both of them. And they have a different way to see the world and see leadership. And I would encourage everyone out there that often people come into a role, oh, I got to put my imprimatur on there. I can’t talk to the past leaders.

Look, whenever we make a big decision at Vanguard, I talked about some of them. I would actually talk to Bill and talk to Jack. First, I would understand, you know, why didn’t we make this decision before? How do we get to this point? They would give me the historical context. And often they’d give you information that, oh, I didn’t think about that. You might adjust, you might not. And they are accessible. They made us leave our phones backstage, but I could text right now. You got yours? I could take bill right now. He’ll get back to me in five minutes. But neither one will ever reach out to me and —


BUCKLEY: — give me unsolicited advice.

RITHOLTZ: They’re not like, hey, Tim, what are you doing?


RITHOLTZ: This is a mistake.

BUCKLEY: This is one way. If I reach out to them, they get back to me. But they don’t reach out and go, hey, what are you thinking about? Why did you do that for? You know, it’s great. You know, I mentioned that tough decision on the retirement business. Both them said, hey, we should have done that earlier.


BUCKLEY: And so it’s reinforcing to have that. And we’re lucky and they’re proud that we just became in that business, number one and competitive NPS. So that business has totally shifted and turned around. But they were 100 percent behind it.

RITHOLTZ: Let’s go back one more CEO, to Jack Bogle, obviously —

BUCKLEY: He might give me some unsolicited advice.

RITHOLTZ: Well, I was going to say, for sure, he never was shy about sharing his opinion. And clearly, a lot of his philosophy is in the DNA of Vanguard, put the client first, keep costs as low as possible, always try and make the investor better. But when we look at Vanguard today, there’s a lot of things that Jack would have kicked and screamed about. ETFs to begin with, he was not a big fan. Why do we have to invest overseas? American companies participate in that. And then, lastly, the possibility of putting private equity in retirement accounts, he would be furious, I would imagine.

BUCKLEY: He pushed back on me on the web, and we’d have good debates on that. Look, I think his vision, though, that’s what was so powerful. And that’s what remains, is this idea of putting the client first and giving them a fair shake. You know, that’s what defines us. People want to define us as a low cost index fund, which Jack Bogle should be and was incredibly proud of. I mean, he brought this idea that existed out there and brought it mainstream.

And you know, so many people have done something so much to extend that. But he was the visionary behind indexing for the main street investor. And so we want to remember that, but that’s not all he was. He was that vision of how do you put the client first? How do you let them keep more of their return? So we look at what are other ways to do it, because it started with low cost active, but how do you do it through advice? You know, how do you do it directly advising clients? How do you help advisors become better at what they’re doing so people keep more of the return, to have a better chance of raising the investment success of their clients? So that’s how we define what we do.

Private equity is just one of those. In private equity, look, I said it’s not an easy game. First, the average return is typically a little bit below the S&P, and there’s a wide dispersion of returns. So we’re going into that, how do we make sure that our clients are on the right side of that distribution? And you know, relative fees matter and their access matters, and we had to vet all of those. That’s very consistent with the original vision of Vanguard.

RITHOLTZ: So let me throw a quote of yours back at you and let you —

BUCKLEY: This could be dangerous.

RITHOLTZ: — pursue this, quote, “Our clients should not only expect change, but demand change.” Explain that.

BUCKLEY: Well, there are our owners, and you never want to be complacent as a business. So as our owners, they should actually demand that we get better and better. And the other one is, look, if a company wants to lead, if you want to lead, you don’t get to set the pace that you’d go out. Now, most people would think that, okay, if you’re the lead, you’re the one setting the pace of the race.

But the truth of the matter, no, it’s set by, like, the performance of your competitors, you have to stay ahead of them, and the expectations of your clients. If our clients have high expectations, we will keep our pace high. And we have to exceed both of those year after year. And so we always have to make sure we have the team, the plan and the capabilities to do just that.

RITHOLTZ: So before we take questions from the audience, let me ask you, you’ve been at Vanguard for 32 years. You’ve been CEO for just over five years. What’s next? What comes next for the Vanguard Group?

BUCKLEY: Hey, Barry, whatever one could expect from us is to continue what we’d find a straightforward but compelling strategy, and it’s to make sure we’re producing the top performing funds, that we have the top performing funds and ETFs out there. We’ll wrap them with low cost, scalable advice, and deliver them on a world-class digitally-enabled platform. Now, it sounds simple to do, but you got to bring those all together. And if you do that well and you can keep improving it, you’ll create value into the future.

RITHOLTZ: Good answer. Let’s go to some of the audience questions. The finance industry’s record on diversity is not so great. What is Vanguard doing to lead the industry to a faster change?

BUCKLEY: First, you’ve got to have a big goal out there. So for us, we’ll continue to grow the diversity of Vanguard. But by 2028, we’ll put the goal out there that every level of leadership should look just like the rest of Vanguard. And so we looked at that and said that is a goal that is attainable, but you need to have a distinct strategy around it.

So we have a chief diversity officer that works with all of our division heads to make sure that we have the right strategy, the right practices around how we do, you know, attraction and retention, but critically development. You bring people in, you’ve worked hard recruiting, but you making sure they’re developing in the way that we talked about. And success for us in the past five years, we’ve seen, you know, both our diversity in our leadership go up 6 percentage points.

RITHOLTZ: So I like this question, what’s one of the biggest lessons you learned in how to develop that talent?

BUCKLEY: You’ve, you got to figure out how to be candid. And people shy from giving people feedback, and everyone wants it. It never feels good, so you have to figure out how will someone receive that feedback. And you’ve got to make it about getting them to the next level. And you can give feedback to anybody if they believe you’re on their side. And so how do you put it in a way that they’re going to say, okay, well, this is to help you get to the next level, one of my observations is, or how can we work on that. And that is a great way to get someone to receive feedback.

And then my advice to other people, if you want to develop yourself, something I’ve always done is I asked for feedback. And gosh, that makes it so much easier on a boss. Poor Bill McNabb would do a review and say, hey, great year, Tim. I’m like, all right, tell me what I need to do better. Now tell me, like, what would the team say, and I would stay after him until he gave me something to grow on. And at any level, like, I don’t care what level you’re at, you should have two or three things you can grow on.

RITHOLTZ: And you’re asking for feedback even as a CEO?

BUCKLEY: I ask for feedback. And I make sure my team, even Greg Davis, a more accomplished CIO, Greg Davis is going to hear where he’s great, but he’s always going to hear, Greg, your next level leadership, here’s what you would work on. And so it’s going to be that for him or for Karin Risi, or for whomever is on the team.

RITHOLTZ: What was your biggest career mistake and what did you learn from it?

BUCKLEY: Oh, which one do we want to choose here? I would say I got a few of them. But let’s go with conviction. A lesson here that I’ll go back in time that, you know, I mentioned the hype. And I was the web guy, and I was convinced the world was going to change overnight, and online advice was going to take off and aggregation would be a key element of it. And I was selling hard, and we invested a lot of money in it. And nothing happened, right?

I remember talking to my boss at that time, he said, I knew that wasn’t going to work out. And I said, well, Jack, why didn’t you say something or do something? And he said, Tim, you had to learn that just having conviction doesn’t make it true.

RITHOLTZ: It’s not enough.

BUCKLEY: It’s not enough. But I also learned all those things that I have conviction about, like, there’s another lesson there, overtime, you stay with it. Look, digital advice is accepted now and those things. Also, just because it didn’t work doesn’t mean you leave it behind.

RITHOLTZ: You know, when we were talking about the things Jack Bogle wouldn’t have loved, I meant to ask you about direct indexing. This is a big new push you guys are doing.


RITHOLTZ: Tell us a little bit about that. Does that fit into the sphere of digital, or how does that work within Vanguard?

BUCKLEY: We looked at direct indexing years ago. We started thinking about it. What’s a way that you could disrupt the ETF or the mutual fund? Like, you always should be looking is there a better way to do it? And direct indexing existed for a while. It was reserved for the ultra-ultra-high net worth. And we could see that there’s huge tax benefits for a lot of investors in using direct indexing.

What we started to see in customization is people care more about the values of how they invest. And could you create portfolios where you’re not going to undermine someone’s retirement, but let them invest the core to their values? And we got very interested and then said, rather than hope that it goes away or doesn’t undermine, why don’t we embrace it and see if we can grow it, and see if it is a better way to do something? And we’ll find out over time, but we’ll be investing heavily in it.

RITHOLTZ: And this is our final question, if you could go back to your early days of senior leadership and give yourself a piece of advice, what would that be?

BUCKLEY: One, I’ve learned through time and it’s always ask more questions. Fewer statements, more questions. And listen to the answers and encourage the debate. I catch myself still doing it today. I have to do it. And you’re going to learn so much more if you let that team go. And one thing I’ve learned, you’ve always heard, and I grew up with us, you may not be the smartest in the room, Tim, but you can be the hardest working. And that’s how I grew up.

And I came to learn something else, which is, you know, even if you think you’re the smartest in the room, you’re never smarter than the whole room. So in time, I’ve learned, okay, like, you were not going to be smarter than the room, how do we bring out the best in that room? How do we get them to collaborate? How do we get them build knowledge on each other? And you’ll produce great things as a team.

RITHOLTZ: Wow. That was really quite an hour of fascinating conversation with Tim Buckley, Vanguard’s CEO. If you enjoy this conversation, well, feel free to check out any of our previous 500 discussions we’ve had over the past eight years. You can find that at iTunes, Spotify, YouTube, wherever you get your podcasts. Sign up for my daily reading list at Follow me on Twitter @ritholtz. You can follow all of the Bloomberg family of podcasts on Twitter at podcasts.

I would be remiss if I did not thank the crack team that helps us put this conversation together each week. Robert Bragg is our audio engineer. Paris Wald is my producer. Sean Russo is my head of Research. Atika Valbrun is our project manager.

I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.





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