Vanguard raises eyebrows in search for new CEO

Some Vanguard Group-watchers raised their eyebrows when last month Mortimer “Tim” Buckley announced, at 55, that he’s stepping down immediately as president and will retire as CEO and chair at year end.

“Surprise exit raises big questions,” wrote financial news publication Barron’s.

Early retirement is normal for executives at Malvern-based Vanguard, which is, after all, in the retirement-savings business. Founder John Bogle was 59 when he stepped aside as president in favor of Jack Brennan, who later retired at 54.

The less-usual move was that the company also declared a “comprehensive process to select a new CEO, evaluating both internal and external candidates.” Vanguard chief investment officer Greg Davis was named president, in the past a stepping stone to the CEO’s position. But the external search raises the question: Will the company hire an outsider as the fifth CEO in its 49-year history?

“Vanguard is an insular place and a tightly run organization,” said Charles Elson, a corporate-governance scholar who teaches a mergers course at University of Pennsylvania’s law school.

Vanguard’s board, led by CEO Buckley, seems designed to nurture consensus rather than chart bold new courses, Elson says. It includes academics and retired senior managers from a range of companies, but no current or former public company CEOs. (By contrast, Vanguard’s competitor BlackRock’s board includes Verizon CEO Hans Vestberg, Cisco chief executive Chuck Robbins, and Estee Lauder CEO Fabrizio Freda, among other top corporate bosses.)

”Their board is self-perpetuating and insulated from challenges. Up until now at least, they haven’t thought they needed a change,” Elson said. “If you are happy with the way things are going, you won’t change. Only if they have a radical cultural problem do you go outside for change agents.”

Lauren D’Innocenzo, associate professor of management at Drexel University’s LeBow business school, echoed that sentiment.

“An internal candidate has a shorter runway to get up to speed and will have more institutional knowledge, compared to an external candidate,” said D’Innocenzo. It is companies seeking change “in culture, innovation, or other areas” that seek outside candidates “as a catalyst.”

Vanguard’s next leader should be “someone who can fix their technology,” said Dan Wiener, a New York asset manager and cofounder of the Independent Adviser for Vanguard Investors newsletter.

“They need to fix their tech and service,” concurs the newsletter’s publisher and Wiener’s longtime chief of research, Jeff DeMaso, citing investor complaints.

John Marshall, a retired banker in Burlington County who has millions invested with Vanguard, plus his children’s accounts, says he’s been with the company since its early years but is bemused by automation complications. After spending many hours getting the company to resolve “glitches” such as balance-transfer failures and funds that vanished from his accounts summary, Marshall received a letter last month threatening “closure of your Vanguard retail account(s)” if he doesn’t stop calling for help so much.

“Poor Mr. Bogle must be spinning in his grave,” Marshall said.

Vanguard says internal and outside investor surveys show that it has improved response times and user satisfaction, especially in the last couple of years.

“A good part of Vanguard’s business can run on autopilot,” says Barry Ritholtz a New York money manager who hosted Buckley’s first public investor talk after he was tapped for the top job in 2017 and interviewed Davis last fall.

But the company has also benefited from a “firm hand” at its top, Ritholtz added. Even after he retired from day-to-day management, Bogle was Vanguard’s most visible salesman, with frequent media appearances extolling Vanguard’s menu of low fees and long-term index-fund investments, encouraging advisers like Ritholtz who recommend Vanguard funds to individual investors and retirement plans.

Ritholtz noted that Brennan, Bogle’s handpicked successor, was “a leader of men, who got the trains to run on time.” Bill McNabb, Brennan’s successor and Buckley’s immediate predecessor, was similarly “a guy you follow into battle.”

Buckley joined Vanguard out of Harvard Business School in 1991, working three years as founder Bogle’s research assistant. Buckley became Vanguard’s info tech chief after Robert A. DiStefano died in 2001. While Buckley served in that post, Vanguard automated many jobs and canceled plans to add a second Chester County office, while still adding employees to support rapid growth. Buckley headed the retail investor group division, became chief investment officer in 2013, and succeeded McNabb as chief executive in 2018 and chairman of the board the next year.

With Buckley in charge, Vanguard roughly doubled its customer base, to more than 50 million. By 2023 the company had boosted assets under management from $5 trillion to $9 trillion. That included $1.3 trillion in net new investments, the rest from market value rising.

The company added its first private-equity fund, managed by HarbourVest, a PE manager whose clients also include Pennsylvania state pension funds.

Under Buckley, Vanguard continued to grow more rapidly than its rivals, adding assets mostly in the United States but also Australia, the United Kingdom, Germany, Italy, Switzerland, Canada, and Latin America. The company added low-fee automated “robo-advisory” accounts and “hybrid” human adviser-assisted digital accounts totaling $300 billion, employing more than 1,000 human advisers and reporting rising customer satisfaction rates. But Buckley resisted calls to add cryptocurrency ETFs and cut some operations in China and Germany.

Buckley’s “unwavering commitment” left Vanguard well-positioned for growth, Vanguard’s lead independent board director, Mark Loughridge, said in a statement.

Buckley will stay with Vanguard through 2024.

Born in Germany to a U.S. military father and a German mother, Davis studied insurance at Pennsylvania State University, worked three years as a State Farm underwriter, then picked up a Wharton MBA and headed to Wall Street.

After a stint on Wall Street, Davis joined Vanguard in 1999 and soon attracted the attention of Buckley, who supported his rise in the leadership. He was assigned to Australia, then to the top bond job at Vanguard in Malvern, where 12,000 of the company’s 20,000 employees are based. He was named chief investment officer in 2017.

“He was intelligent, he was determined, he was passionate; he was extremely respectful, he wanted to learn, and he was not afraid to be inquisitive,” said Carmine Urciuoli, one of Davis’ bosses at Citibank’s trading, sales, and syndication desk in the late 1990s, whom Davis credits with steering him away from trading toward asset management. “I am not surprised they would choose him to take the reins. He earned it.”

But, Urciuoli added, there’s still big opportunity for “men and women that want to roll up their sleeves and dig in,” as Davis did.

Editor’s note: A previous version of this story mistakenly credited quotes from money manager Barry Ritholtz to another source. Also, a previous version had an incorrect figure for the amount of net new investments. The story has been updated.