CAHPTER 13

BRENNAN’S WAYS

Jack Brennan had a morale problem, wrote Hal Lux in a 1999 feature article for Institutional Investor:

It’s early April, an important season is fast approaching, and the Vanguard chairman is stuck with a team that won’t get to work. “They are all coming to me and saying, ‘I’ve got to go on vacation,’” mutters Brennan. “Give me a break.”

Most people would cut Brennan’s team some slack. They average, after all, just 14 years of age and are members of a youth lacrosse team. Spring break will soon be here. But Brennan, who runs the world’s [then] second-largest mutual fund purveyor when he isn’t demonstrating the finer points of stick handling in a Radnor, Pennsylvania youth league, doesn’t want to hear about it. He wants to go undefeated. “I told them the first day: There’s a big difference between being state champs and undefeated state champs,” says Brennan, matter-of-factly.

“Jack’s no piece of cake,” allows Philadelphia lawyer Peter Samson, who coaches the team’s defense. “I think at first some kids don’t think he’s a nice guy. He plays to win. There’s no question about it.” . . . One of the problems of coaching kids, notes Brennan pal Samson, is that you will sometimes upset their parents, and they will come complaining or screaming. “It can bother me for days.” Not Brennan. “It means nothing to him. It goes in one ear and out the other. He has no memory of it. If Jack thinks he’s doing the right thing, he doesn’t care what someone thinks of him.”¹

The article included a citation from Brennan’s booklet on leadership: “The facts of life in a dynamic, highly competitive and rapidly growing business like ours, are that democracy has no place here (another politically incorrect statement, I suppose!). Decisiveness, particularly when tempered with great judgment, is an asset that you won’t find on our balance sheet but has helped us conquer many obstacles and lead the way in this industry for years and years.”

The article concluded by noting that Brennan’s youth lacrosse team won the state championship—undefeated.

John J. “Jack” Brennan grew up in a Boston Irish Catholic family that stressed hard work and achievement. Jack, his two sisters, and one brother were raised in the Boston suburb of Winchester by their parents, Frank and Mary. The Brennan family story was nearly as upwardly mobile as the Bogle family’s story had been a slide. Jack Brennan graduated from Harvard Business School in 1980; his grandparents, Irish immigrants, had worked as janitors at that same university. Jack’s parents were the first in their family to complete elementary school. His father, Frank, went on to rank first in his high school class and planned to go to the Wentworth Institute and become an electrician, but his guidance counselor would have none of that. He tore up the Wentworth application and insisted Frank go to Boston College and “make something of yourself—something important.” Frank Brennan advanced to achieve the classic American dream. He excelled as CEO of the midsize Union Warren Savings Bank, increasing its scale tenfold, and as a leader of the Massachusetts Business Development Corporation, president of the Massachusetts Bankers Association and a director of other financial institutions. In his seventies, he was named chairman of Boston Company’s mutual fund division.

Frank Brennan was a great role model for his son Jack. In his nineties, he read and worked out a critique of the long, complex Dodd-Frank Act of 2010 and wanted to go over the key points about which he thought his son, as CEO of Vanguard, should do or say something. Frank mixed easily in the club world of Boston business and politics while always keeping the common touch. “All the important people in Massachusetts knew Frank Brennan,” recalled William Bulger, former president of the Massachusetts State Senate and former president of the University of Massachusetts. “If there was an Irish music festival, you would look up and there would be the Brennans. It was always good to run into him and hear the latest gossip, the latest stories.” Family friend Robert Sheridan, president of Savings Bank Life Insurance Co., said, “The father and mother were like the first couple of downtown Boston banking. Theirs was a high-quality, full-of-values family. All the children are successful.” Success aside, the Brennans were frugal: one car in the driveway and summer jobs, mostly manual labor, for the children.

As Peter Samson told Institutional Investor about Jack, “If you followed him around all day, you would think he was broke. He mows his own lawn. His kids do chores around the house. The only luxury I know of is that he drives an Audi. A devoted family man with two sons and a daughter, Brennan shuns social engagements, preferring to stay home and coach sports. On summer weekends he flies to Cape Cod to spend time with his extended family.” Even today, after a successful career with a seven-figure salary, Brennan lives a relatively modest life.

Quietly religious, Brennan is extremely close to his wife, Catherine. “It sounds corny,” said Samson, “but he’s really one of those rare American types who lives for God and family.” Brennan chairs the board of trustees of the University of Notre Dame, where his children studied. A good student and a star high school athlete, Jack played for his father, a demanding youth hockey coach. “We were a ‘5 o’clock at the hockey rink’ type family,” he said. Brennan entered Dartmouth in 1972, studying economics and playing varsity hockey and lacrosse. Though he wasn’t the most talented in these Division 1 sports, he was fiercely determined. “Selfless always wins in my view,” he said. “I taught my sons that in lacrosse, it’s always about the number of assists scored, never about the goals.” To prove the point, Brennan showed them an article from the Dartmouth student newspaper: Brennan 8 goals, 28 assists. “In lacrosse, as in other sports, and in life, it’s never your goals, but always the team’s score.”²

Brennan got a lot of his assertive style from his sports experience. He proposed putting together a Vanguard hockey team. “I have played golf with him,” said Vanguard’s then technology chief Robert DiStefano. “I’m not sure I would want to play hockey.”

After Dartmouth, Brennan worked for New York Bank for Savings in Manhattan before attending Harvard Business School. He moved to Racine, Wisconsin, after graduating to join S.C. Johnson & Son to work for a company that actually produced something—Windex and Pledge, among other products. “Coming out of HBS, I was going to go to Prudential, but then Mr. Johnson called with a chance to work with him and his leadership team for two or three years, so I took it instead. I couldn’t turn down that opportunity.” A few years later, Brennan was looking for a job in financial services.

Jeremy Duffield, then Bogle’s assistant at Vanguard, was looking for someone to take his position and contacted Brennan, whose résumé he had found in a Harvard Business School recruiting database. Brennan knew little about the company that then had $5 billion in assets. “I had my money in Fidelity Cash Reserves,” he says. “I had heard of Windsor. That was about it.” A first round of interviews by phone, including one with Bogle, was arranged because Vanguard wouldn’t spend the money to fly him to Philadelphia.

At Bogle’s insistence, a psychologist gave Brennan an inkblot test. Asked for an evaluation, Brennan was blunt: “That test is lousy.”

“How can you say that?” the psychologist asked. “You’ve just scored 100 percent and set a speed-to-completion record—outstanding compared to many, many others.”

“That’s not the point. It’s absolute, not relative, results I care about. It’s me versus my expectations. Besides, I could do better without you staring at me the whole time.”³

Fast-growing Vanguard needed management and administrative skills, and Brennan was a natural. His practical approach complemented Bogle’s visionary bent. “Jack Brennan is a very good manager,” said Bogle. “His big accomplishment wasn’t one thing. It was more continuous accomplishments as a manager.’”

When Brennan decided to join Vanguard, he told his wife it would only be a two-year diversion from their cherished dream-plan of living in New England. So, it came as a surprise to her when he announced one evening a few months later, “I’ve found the right organization to make my career.”

While most financial service organizations were boldly adding new services, hoping to gain elusive scale advantages or to diversify by product, market, or both, Vanguard maintained its singular focus on mutual funds. It only cautiously expanded into international markets, always with the same focus on low cost. Citing the writings of Harvard Business School professor Michael Porter, Brennan argued that most financial services firms were racing to arrive first at the same destination and would necessarily fight each other forever, while Vanguard sought a unique position that would be unusually defendable strategically.

On ethics, Brennan is absolute and made that clear to everyone: nobody ever gets a free pass. One senior executive was fired immediately when he did not respond well when confronted with a corner-cutting issue. As Mike Miller, a proud University of Virginia graduate, put it: “It’s like the UVA Honors Committee: no second chance! Early on, Brennan saw Legal and Compliance as expensive because he knew we always put our clients’ interests first, so who needs lots of lawyers and compliance people?”

As Miller knows well, that didn’t mean compliance would be neglected. “Our group began with about 100 crew members and four or five managers as my direct reports,” he recalled. “Now, after 20 years, there are 1,500 crew members and 14 different working groups covering government relations, compliance, enterprise risk, corporate strategy and portfolio review of all internal and external investment managers. Corporate Compliance alone has 80 crew members. With Brennan, we were always a team. I never worked for Brennan, it was always working with him. So it’s little wonder that after all those years of working together, I love him like a brother.”⁴

Brennan is quietly self-disciplined. At Vanguard, he ran five or six miles daily, was at his desk by six in the morning, never raised his voice, and moved quickly from item to item on his calendar. If he had agreed to discuss something for 20 minutes, the discussion might run only 18 minutes but would almost never extend to 21 minutes. Some would say, “He gets to the key points quickly”; others found him brusque.

But he changed gears when it came time to clarify his views on how to advance as a Vanguard leader. Here, Brennan was almost long-winded, because he had a lot to share and wanted everyone to take it in. He had many people he wanted to know his views. With 15,000 working at Vanguard, even 1 percent, let alone 5 percent, would be too many to tell individually which principles guide senior management in its perpetual search for leaders. Instead, he put together a handsomely printed 53-page guide for wide distribution within Vanguard.⁵ The guide is illustrated with nautical photos of halyards, cleats and lines, and adorned with short quotes from admired world leaders, authors, athletes, and historical figures. It centers on two insights:

•   We have no patents or proprietary processes that protect us from competition.

•   Our reputation and the trust that clients have in us represent Vanguard’s true net worth.

The table of contents shows by itself how much Brennan had to say. For each of the charges, he had a page or more of thought development on how and why the particular item mattered to him and to the people of Vanguard, particularly those who wanted to become leaders.

Brennan cited 26 items, all of which you can view in Appendix 2. Here’s a representative sampling, beginning with the one that summarizes all the others for Vanguard leaders:

Do the right thing: Vanguard people are allowed to make mistakes, but they are never allowed to make ethical mistakes. Violate the confidentiality of client information, and you’re out. Accept a gift of material value from a client or a vendor, and you’re out. Make investments that are forbidden because of your job responsibilities, and you’re out. Ours is a “no ifs, ands, or buts” policy. There are no gray areas. We make no apologies for that black and white view.

Lead by example: Our great leaders must:

•   Be the hardest workers.

•   Be the most client-focused.

•   Be the most driven to succeed.

•   Be the most caring and compassionate.

•   Be the most flexible.

•   Be the best role models with unquestioned integrity.

•   Be the most committed to excellence. . . .

Foster teamwork: In embracing this premise, the successful Vanguard leader “puts her ego in her pocket.” Effective leaders exhibit personal humility, a trait that is vital in the investment management business considering that we ply our trade in the financial markets, an unpredictable environment in which we have very little control over the results. . . . The dustbin of history is littered with examples of financial firms that failed to stay humble.

Accept paradox: To accomplish our mission, we must be both the highest-quality provider of services in our business and the lowest-cost producer in our business. It is difficult to name a second organization, in any business, that is accomplishing both of these goals. This is why a focus on continual improvement is so important to our current and future competitive success. . . .

Compete tenaciously: The drive to succeed has been a critical element in our success at both the personal and corporate levels. One of my coworkers said it profoundly some years back on the day after the stock market’s worst single-day setback in a decade. At the end of that day, when it was clear that our client service had been splendid and that all client transactions and requests had been handled, I asked, “How does this happen? How do we, alone in the industry, treat a day of surging volumes and great stress as a normal day, even an enjoyable one?” She responded, “Jack, you know as well as anyone, we’re the most competitive firm in the world; we simply won’t let someone be better than us on a day like today.”

Be decisive and accept responsibility: A great leader accepts all the blame and distributes all the credit. Being the leader is credit enough. Decisiveness—particularly when tempered with sound judgment—is an asset that you won’t find on our balance sheet but that has helped us conquer many obstacles and lead the way in this industry for years and years.

Value diversity: This is a people business, and we must have the best people working for us in all positions, at all locations, and at all times. It would be foolish for any of us to think that all of those people should look “just like me.” . . .

Embrace change: For years, I’ve heard people outside the company say Vanguard hasn’t changed much through the years. “Still dominated by mutual funds . . . still owned by the clients . . . still focused on low cost . . . still not too glitzy.” On the surface, it’s true. We haven’t changed much. Actually, this organization has changed frequently and the people who have embraced change are the ones who have led us to success and have thrived. Those who have resisted change have slowed our development and—not coincidentally—have hurt their own careers.

Be personal: One tremendous difference between good leaders and great leaders is this: The great ones are personal. By “personal,” I mean they work at being more than a boss, more than someone who guides a team. Vanguard’s great leaders open themselves up, letting their people in on their personal lives, their hobbies, their families, their likes and dislikes. In turn, our most effective leaders want to be let in on their team’s lives, too, so they can know the crew as people, not just employees.^* The personal can never get in the way of the professional, but it sure can enhance it. We want everyone on the crew to have both a professional relationship and care about you as a person and know about your children—or your partner if you’re gay.

Be positive: Face it. Work is work. Most people don’t choose to work; they must. . . .

That said, a leader’s job is to make work challenging, enjoyable, and rewarding. You cannot do that except in a positive environment. The need for a positive environment places a big burden on our leaders. The great ones recognize one simple fact: they can never have a bad day. Because if they have a bad day, their work unit has a bad day. And if that happens, the client will know it.

Brennan added one of his own most important beliefs: “A momentary lapse from the straight and narrow could be enough to ruin Vanguard’s reputation for many years to come, perhaps forever.” And that takes him back to Vanguard’s centrality: Do the right thing.

According to Brennan, “One of the big cultural improvements at Vanguard in this century was the notion of DAWAW: Don’t Ask Who—Ask Why! It forced us to approach problem solving in a new way, to search for root causes.” It also fit with his “no office politics” admonition. Brennan focused on making Vanguard a learning or continuous improvement organization by making both learning and teaching a focus for all leaders. “One of the greatest thrills that you can experience as a leader of an organization—especially at Vanguard—is to be told by a colleague that you are his or her mentor. A big part of attaining that exalted status is teaching. Teaching matches learning—as two hands clapping.”

Brennan had an effective way of clarifying decisions about people, particularly promotion decisions. He urged everyone to ask, “Would I want this person to be my child’s first boss?” With a quick smile of apparent surprise, he reflected briefly, “It’s remarkable how people react when I ask them that simple question.”⁶

His policy of rotating the most promising performers every few years into “stretch” jobs in different parts of the organization not only gave managers a greater understanding of the whole organization, but also greater respect for the achievements of predecessor leaders. Their management skills had room to improve, and Vanguard could see whether and to what extent each manager was able to continue growing. People decisions also challenged Brennan and other senior leaders to evaluate their own skills of assessing both people chosen and people not chosen, and of the difficulties or opportunities faced by newly assigned managers.

“Filling the pipeline with exceptional people is the biggest contribution any Vanguard leader can make to this organization,” Brennan emphasized. “First, hiring and developing great people will, without a doubt, make a leader look good in the eyes of other leaders at Vanguard. Second, having able successors in place frees the leader to move on to new challenges and assignments when opportunities arise.”

Brennan liked to bring the rigor of quantification to decisions, particularly when dealing with troubles. When he was still Bogle’s COO, he recalled, “We decided to survey the crew, asking about their experiences and attitudes. We were stunned by the results. Put simply, the strong conviction across the company was that, while senior management was fine, the line supervisors were not. This was a classic wake-up call. So we did two major things. First, we made clear that we accepted the findings as accurate, disturbing as they were, and declared that we in management now owned the problem. We did this by publishing the findings in our Crew’s News newsletter to the crew. Second, as you can well imagine, we went right after that reality to make major changes. Repeating the same survey one year later, the improvement was dramatic: turnover was cut in half.”⁷

Years later, with turnover again higher than expected, Brennan asked Kathy Gubanich, head of HR, to look into it. She conducted a bunch of exit interviews and soon knew what the key problem was: Vanguard’s dress code. To symbolize the professional work of the crew, Brennan insisted on professional attire: neckties and suits. But in IT, jeans and tees were a tribal uniform—what the best tech folks always wore. Brennan was adamant: “If they really feel a need to dress like they work in the mailroom, they can come to work . . . in the mail room.” But after further thought, through six long months and lots of advice, Brennan relented and allowed casual dress on Fridays. (Bill McNabb later made casual dress the norm. In 2019, Tim Buckley decided that Vanguard crew were allowed to wear jeans.)

Brennan saw hundreds of individual performance reviews of Vanguard leaders every year. Each review was rigorous, some might say almost neurotically so, because even with the organization’s huge, repeated expenditures on computers and communications technology, Vanguard is centered on and dependent on the crew. Both efficiency and effectiveness depend on the full integration of professional people and advanced technology.

One of Brennan’s most unusual practices was one of the most effective: do it yourself first. When an important managerial position was to be filled, Brennan took that job himself for a few months of rolling up his sleeves and getting his hands dirty—or as long as six months in areas like technology, where change was clearly needed so it would take longer to figure out the priorities. “While Vanguard’s core values and principles have never changed, the way we do business must continue to change. When changing a major unit’s leader, I like to take that job for a period of time, to learn what sort of leadership is needed, clean up some of the problems and then decide who will be best as that unit’s leader and who will grow the most as a result of taking that job.”⁸

Brennan’s lieutenants knew that he understood the realities they were facing and had chosen them to deal effectively with those realities. So did all the other unit heads the lieutenants would be working with. And so did others who were not chosen for this particular responsibility. The result was a remarkable kind of trust that permeated the senior staff.

Office politics at Vanguard is, and is clearly expected to be, very low—ideally, zero. As Brennan explained, “At Vanguard, it is never about you or me as individuals. It’s always about us and how we can better serve clients. We strive to get the right people on the bus with no assigned seats. We want great athletes who want to learn how to become the best players they can be.”⁹ Vanguard wants to continue having institutional humility.

Certain “No” decisions were also important during Brennan’s years as CEO:

•   No local sales offices

•   No “me too” decisions following others

•   No offering home mortgages

•   No paying for distribution

•   No major commitment to international distribution

Nobody’s perfect, and Jack Brennan’s record had strategic weaknesses. Vanguard was not a major factor in most international markets, in part because national governments notoriously protect their financial markets, and it had not yet figured out how to deliver investment advice or make advice a strategic priority (see Chapter 17). Operationally, the balance between cost-effectiveness and prompt response to clients’ calls sometimes wobbled. But when he retired in 2008 and Bill McNabb became CEO, Vanguard was incomparably stronger than when he took over from Jack Bogle. Nobody would ever describe Brennan as emotional, but he showed in his every behavior how much he cared about person-to-person connection. He set the example and has been clearly central to the development and maturation of today’s Vanguard culture.

^* “Do we have to go—again—to the company Christmas party?” When they were children, the young Brennans were hoping for an option. For their father, there was no option. “Of course! We all go. It’s important for everyone to see us and know us as normal, real people—as a husband and father, a wife and mother, and kids.”