Management Society

1

“Enough”

Commencement Address

MBA Graduates of the McDonough School of Business

by

John C. Bogle, founder, The Vanguard Group

Upon receiving the Honorary Degree of Doctor of Humane Letters

from Georgetown University

May 18, 2007

Here’s how I recall the wonderful story that sets the theme for my remarks today: At a

party given by a billionaire on Shelter Island, the late Kurt Vonnegut informs his pal, the author

Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than

Heller had earned from his wildly popular novel Catch 22 over its whole history. Heller

responds, “Yes, but I have something he will never have . . . Enough.”

Enough. I was stunned by its simple eloquence, to say nothing of its relevance to some

of the vital issues arising in American society today. Many of them revolve around money—yes,

money—increasingly, in our “bottom line” society, the Great God of prestige, the Great Measure

of the Man (and Woman). So this morning I have the temerity to ask you soon-to-be-minted

MBA graduates, most of whom will enter the world of commerce, to consider with me the role of

“enough” in business and entrepreneurship in our society, “enough” in the dominant role of the

financial system in our economy, and “enough” in the values you will bring to the fields you

choose for your careers.

Kurt Vonnegut loved to speak to college students. He believed, if I may paraphrase here,

that “we should catch young people before they become CEOs, investment bankers, consultants,

and money managers (and especially hedge fund managers), and do our best to poison their minds

with humanity.” And in my remarks this morning, I’ll try to poison your minds with a little bit of

that humanity.

_________

Note: The opinions expressed in these remarks do not necessarily represent the views of Vanguard’s present management.

2

Over the past two centuries, our nation has moved from being an agricultural economy, to

a manufacturing economy, to a service economy, and now to a predominantly financial economy.

But our financial economy, by definition, subtracts from the value created by our productive

businesses. Think about it: while the owners of business enjoy the dividend yields and earnings

growth that our capitalistic system creates, those who play in the financial markets capture those

investment gains only after the costs of financial intermediation are deducted. Thus, while

investing in American business is a winner’s game, beating the stock market before those costs is

a zero-sum game. But after intermediation costs are deducted, beating the market—for all of us

as a group—becomes a loser’s game.

Yes, the more that our financial system takes, the less our investors make. Yet the

financial field is where the money is made in modern-day America, the breeding ground for the

wealthiest of our citizens. (If you made less than $140 million dollars last year, you didn’t make

enough to rank among the 25 highest-paid hedge fund managers.) When we add up all those

hedge fund fees, all those mutual fund management fees and operating expenses; all those

commissions to brokerage firms and fees to financial advisors; investment banking and legal fees

for all those mergers and IPOs; and the enormous marketing and advertising expenses entailed in

the distribution of financial products, we’re talking about some $500 billion dollars per year.

That sum, extracted from whatever returns the stock and bond markets are generous enough to

deliver to investors, is surely enough, if you will, to seriously undermine the odds in favor of

success for our citizens who are accumulating savings for retirement.

Yet the fact is that the finance sector has become by far our nation’s largest generator of

corporate profits, larger even than the combined profits of our huge energy and health care

sectors, and almost three times as much as either manufacturing or information technology.1

Twenty–five years ago, financials accounted for only about 6 percent of the earnings of the 500

giant corporations that compose the Standard & Poor’s 500 Stock Index. Ten years ago, the

financial sector share had risen to 20 percent. And last year, the financial sector profits had

soared to an all-time high of 27 percent. If we add the earnings of the financial affiliates of our

giant manufacturers (think General Electric Capital, for example, or the auto financing arms of

1 For the record, the 2006 operating earnings of the S&P 500 totaled $787 billion. The earnings of the major sectors (in billions) were: Financials $215; Energy $121; Health Care $79; Manufacturing and Technology each $81.

3

General Motors and Ford) to this total, financial earnings now likely exceed 33 percent of the

earnings of the S&P 500. While that share may or may not be enough, it seems likely to continue

to grow, at least for a while.

We’re moving, or so it seems, to a world where we’re no longer making anything in this

country; we’re merely trading pieces of paper, swapping stocks and bonds back and forth with

one another, and paying our financial croupiers a veritable fortune. We’re also adding even more

costs by creating ever more complex financial derivatives in which huge and unfathomable risks

are being built into our financial system. “When enterprise becomes a mere bubble on a

whirlpool of speculation,” as the great British economist John Maynard Keynes warned us 70

years ago, the consequences may be dire. “When the capital development of a country becomes a

by-product of the activities of a casino, the job of capitalism is likely to be ill-done.”

Once a profession in which business was subservient, the field of money management

and Wall Street has become a business in which the profession is subservient. Harvard Business

School Professor Rakesh Khurana was right when he defined the conduct of a true professional

with these words: “I will create value for society, rather than extract it.” And yet money

management, by definition, extracts value from the returns earned by our business enterprises.

Warren Buffett’s wise partner Charlie Munger lays it on the line:

“Most money-making activity contains profoundly antisocial effects . . . As high- cost modalities become ever more popular . . . the activity exacerbates the current harmful trend in which ever more of the nation’s ethical young brain-power is attracted into lucrative money-management and its attendant modern frictions, as distinguished from work providing much more value to others.”

But I’m not telling you not to go into the highly-profitable field of managing

money. Rather, I present three caveats:

* One, if you do enter this field, do so with your eyes wide open, recognizing that

any endeavor that extracts value from its clients may, in times more troubled than these,

find that it has been hoist by its own petard. It is said on Wall Street, correctly, that

“money has no conscience,” but don’t allow that truism to let you ignore your own

conscience, nor to alter your own conduct and character.

4

* Two, when you begin to invest so that you will have enough for your own

retirement many decades hence, do so in a way that minimizes the extraction by the

financial community of the returns generated by business. This is, yes, a sort of self-

serving2 recommendation to invest in low-cost all-U.S.—and global—stock market index

funds, the only way to guarantee your fair share of whatever returns our financial markets

are generous enough to provide.

* Three, no matter what career you choose, do your best to hold high its traditional

professional values, now swiftly eroding, in which serving the client is always the highest

priority. And don’t ignore the greater good of your community, your nation, and your

world. After William Penn, “we pass through this world but once, so do now any good

you can do, and show now any kindness you can show, for we shall not pass this way

again.”

Most commencement speakers like to sum up by citing some eminent

philosopher to endorse his message. I’m no exception. So I now offer to you new Masters

of Business Administration these words from Socrates, spoken 2500 years ago, as he

challenged the citizens of Athens.

“I honor and love you: but why do you who are citizens of this great and mighty nation care so much about laying up the greatest amount of money and honor and reputation, and so little about wisdom and truth and the greatest improvement of the soul. Are you not ashamed of this? . . . I do nothing but go about persuading you all, not to take thought for your persons and your properties, but first and chiefly to care about the greatest improvement of the soul. I tell you that virtue is not given by money, but that from virtue comes money and every other good of man.”

I close by returning to Kurt Vonnegut’s story, which, when I finally tracked it down,

turned out to be a poem. It’s delightful; even better, it’s only 92 words long:

True story, Word of Honor: Joseph Heller, an important and funny writer now dead, and I were at a party given by a billionaire on Shelter Island. I said, “Joe, how does it make you feel

2 Self-serving because I created, in 1975, the world’s first index mutual fund.

5

to know that our host only yesterday may have made more money than your novel ‘Catch-22’ has earned in its entire history?” And Joe said, “I’ve got something he can never have.” And I said, “What on earth could that be, Joe?” And Joe said, “The knowledge that I’ve got enough.” Not bad! Rest in Peace!

But it’s not time for any of you to rest in peace, or to rest in any other way. Bright

futures lie before you. There’s the world’s work to be done, and there are never enough citizens

with determined hearts, courageous character, intelligent minds, and idealistic souls to do it. Yes,

our world already has quite enough guns, political platitudes, arrogance, disingenuousness, self-

interest, snobbishness, superficiality, war, and the certainty that God is on one side or the other.

But it never has enough conscience, nor enough tolerance, idealism, justice, compassion, wisdom,

humility, self-sacrifice for the greater good, integrity, courtesy, poetry, laughter, and generosity of

substance and spirit. It is these elements that I urge you to carry into your careers, and remember

that the great game of life is not about money; it is about doing your best to build the world anew.

And that’s enough . . . at least for today.