25

PRESS ON REGARDLESS

Commencement Address
The Owen School of Management,
Vanderbilt University
Nashville, Tennessee
May 8, 1992

I IMAGINE THAT it is a rare uncle who has served as the inspiration for a commencement address, but that is nonetheless the case today. My late uncle, Clifton Armstrong Hip-kins, was a model citizen, an integrity-laden investment banker, and, most relevant to my theme today, a dedicated sailor. I shall never forget the message captured in the name of his old New England lobsterboat, “Press On Regardless.” And that is the message that I shall urge on you today: press on, regardless.

One of my avocations is lexicography. I love to study the derivation of words and phrases, and a highlight of my life was my contribution to one of William Safire's “On Language” columns in The New York Times a few years ago. But I have been unable to discover a precise provenance for “Press On Regardless.” However, Calvin Coolidge—a taciturn Vermonter who seems to have wasted fewer words than any American President in the 20th century, perhaps because he engaged in the rapidly disappearing art of writing his own speeches—surely made a major contribution:

Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan “Press on” has solved, and always will solve, the problems of the human race.

Adding “regardless” is simply a reminder that we must press on under all circumstances. While it is commonplace to assume that it means something like “regardless of stormy seas, failure, or even disaster,” I suggest that it also means “regardless of smooth sailing, success, or even triumph.” Kipling reminded us of both in his wonderful poem, If:

If you can dream, and not make dreams your master,
If you can think, and not make thoughts your aim,
If you can meet both Triumph and Disaster,
And treat those two imposters just the same.

So the challenge is to persevere in times thick and times thin alike. Let me illustrate my point with some examples of large, successful American firms that ignored this advice, and an example of a small, faltering firm that heeded it. Then I shall conclude with some advice to you on your own careers as you begin them at this rite of passage that we properly call commencement.

Corporate America

Somewhere along the way, Corporate America—the nation's driving force and the envy of the civilized world during most of the 20th century—lost sight of the need to “press on” during its period of triumph. The list of leading American enterprises that have fallen on parlous times of late, or even vanished from the scene, reads like a who's who of our preeminent corporations of only a few decades ago. Consider these three companies that have tumbled from the pinnacle of success:

  • IBM—Once America's quintessential growth stock (it rose by 90 times during the 1950s and 1960s), the market price of its common stock today is less than it was in 1971. It was “blind-sided” by U.S. competition, as it lost its flexibility and capacity for innovation.
  • Citicorp—The largest bank in the world as recently as 1985, it now ranks number 21. The risk in its real estate loan portfolio came home to roost, as did its muscle-bound management style.
  • General Motors—It failed to treat product quality and global competition with determination. Fully one-third of GM's market share has evaporated, and last year's losses totaled an incredible $4.5 billion. (At long last, the Board of Directors revolted. To say the least, this is unusual in American business!)

These examples of the failure to press on in the face of success are not isolated. Consider American Express (unwise diversification), Travelers Insurance (unsound real estate investments), and Macy's (excessive leverage). At least these enterprises have survived. Many of yesterday's blue chips have not been so fortunate, and PanAmerican World Airways, Time Incorporated, The Pennsylvania Railroad, National Steel, and RCA are all, as it were, history. It almost seems as though “nothing fails like success.”

If there is a common thread in all of this, it is that too many corporations complacently fail to press on at the time of their greatest triumph. Too often, they relax and lose sight of their mission; they fail to deal with change, fail to realize that competition lurks around every corner, fail to adjust to the challenges of managing a large organization. Together, these failures are changing the establishments of American business into its dinosaurs.

I acknowledge, of course, that these examples have been selected to make my point. Nonetheless, it must also be noted that, in its entirety, Corporate America is failing in its mission. The operating earnings of America's 500 largest companies have grown at a compound annual rate of but 3% since 1984; or, adjusted for inflation of 3.6% and translated into constant 1984 dollars, a “growth” rate that is negative. If these figures don't indicate the need for a new generation of American management, I am not sure what would! Surely opportunities are rife to solve the problems that plague American business today, if only the generation you represent will press on, with persistence and determination.

The Vanguard Saga

Let me now turn, in this second section of my remarks, from the macrobusiness of American industry to the microbusiness of a single firm. In stark contrast to the failure of many leading American corporations to press on in the face of success, this small firm did press on. Facing failure, it had to do so. I am speaking of The Vanguard Group (though I shall not again identify it), and of myself (though I shall use “he” rather than “I”). Please forgive me for this personal note, but there is no firm that I know better.

The saga begins early in 1974. He was fired (with enthusiasm!) from his job as chief executive of a large mutual fund firm. Out of that heart-breaking upheaval, he founded and named a brand-new firm. It began by operating the business-side activities (administration, accounting, etc.) of his former firm, and within a few years, the portfolio management activities for many of the funds. Thus did a narrowly focused administrative enterprise quickly become a full-fledged mutual fund complex.

He was also “fired with enthusiasm” to make the new enterprise a success. But it was to take a long time and a lot of frustration. Each and every month from January 1974 to January 1978—four long years—more money was withdrawn from the mutual funds than was added. With this unremitting capital outflow, totaling more than $500 million, it was only through the grace of an improving stock market that the funds' assets, $2 billion at the beginning of the period, totaled $1.8 billion at the end. Success—or at least its putative proxy, growth—then followed. It was soon to become the fastest growing firm in the mutual fund industry.

Its growth resulted largely from three distressingly simple ideas: (1) that, in the long run, investors would seek out the highest sustainable returns, and that such returns would most likely be achieved by the firm with the lowest operating cost structure; (2) that, in a world of increasing financial knowledge, self-motivated investors would seek these returns directly, without demanding the help (or paying the cost) of a sales representative; and (3) that, as the industry blossomed from its common-stock-fund-only base into a more complex asset base, which included bond funds and money market funds as well, investors would demand, in their interaction with the mutual fund organization that they chose, the highest quality of service.

There is a old axiom that says: “treat the customer as an owner.” The firm's secret—such as it may be—was to go one step further: “treat the client as an owner … by making him an owner.” The firm was organized as the first mutual mutual fund complex, in which the fund shareholders actually own the management organization. As owners, they receive the truly awesome profits that are generated even by mediocre managements in these halcyon days when the mutual fund industry and the financial markets are burgeoning to all-time high levels. Confidence in this unique concept of mutuality, even after years of reversal and frustration, gave the firm the ability to press on.

A “Hot Tip” on Stocks

My final example of persistence and determination arises from the request, perhaps whimsical, that I give you some “hot tips” on stocks. Paradoxically, the hottest tip that I can give you, mirabile dictu, is to eschew hot tips, by using index funds as the core of your own personal investment programs. (Essentially, an index fund holds all of the stocks in the stock market.) The magic of indexing, if such it be, is that it virtually eliminates the usual expenses of investing, such as portfolio transaction costs and investment advisory fees.

In a nutshell, active investors in the aggregate and index funds alike earn identical gross returns, but index funds, by reason of their substantial cost advantage, earn higher net returns. The likely outcome is that those who adopt an indexing strategy should earn higher net returns than about seven out of every ten active investors here today. (One of the problems with supporting this thesis, of course, is that the seven will be silent about their lack of success, but the remaining three—who beat the index by virtue of skill, or perhaps luck—will be outspoken in their condemnation of indexing as a failed investment strategy.)

Our firm started the first index fund in the mutual fund industry back in 1976, partly to see if theory could be translated into practice. By proving that it could indeed match the market, the index fund was an artistic success; however, investors, in droves, ignored it, and it was a commercial failure. But, again, the firm knew that the notion was sound. With unshaken determination, unaffected by early failure in the marketplace, it stayed the course. With assets of $5 billion, the index fund is now America's sixth largest equity fund. “Press on, regardless” indeed!

Begun with a firing, inaugurated with failure, but sticking to a few commonsense principles, our microbusiness story ends on a note of triumph. With $83 billion of assets today, the firm is the third largest mutual fund complex in the world. But, as in history, a new chapter always follows. And this firm's main challenge today is to press on despite its success, to avoid becoming just another corporate dinosaur. Does the firm have the determination to keep its competitive edge? Can it avoid the mediocrity of maturity and the boredom of bureaucracy that often go hand in hand with massive growth? Will its sense of urgency persist? It will be fascinating to observe how the answers to these questions unfold in the chapter that lies ahead.

Advice to the MBA Graduate

In the tradition of the occasion, let me conclude with some advice to the MBA graduate. I was not favored with the priceless kind of business education that you have received here at Vanderbilt's fine Owen School of Management. (Full disclosure, however, compels me to acknowledge that my son graduated from the Owen School in 1983, and gained here at Vanderbilt an education that has been a major factor in his success as partner in a small, computer-intensive investment advisory firm.) But I do bring a lifetime of observations about myriad aspects of the world of business and finance.

From all of this experience, I could write a book (and perhaps I will … but not this morning!). What I would like to reiterate in these concluding remarks is the notion that persistence and determination are indeed the keys to success. Of course you need more than that: education, hard work, and dedication come quickly to mind. Working effectively with others—partners, superiors, and subordinates alike—must be a given. These are all necessary conditions for your success but not sufficient conditions, in and of themselves. It is your determination that will be the sine qua non.

So, let me offer my final words on just two subjects: integrity and learning. On the first of these, directly put, if you cannot pursue your career with integrity, go back and start all over again. Whatever the spotty record of the 1980s, corporate ethics are back in style, and our new world is properly intolerant of greed, shortcuts, rip-offs, perquisites, and less-than-candid disclosure. This intolerance applies to business at large, to education, to government, indeed to all American institutions. Good! And, as an incurable optimist, I'll wager that our national ethic is going to get stronger with each tomorrow.

A few years ago, one of the best-known Wall Street arbitrageurs gave a commencement speech at a respected university. His words were repeated in the film Wall Street, and I quote them to you here:

The point is, ladies and gentlemen, greed is good. Greed works, greed is right. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed for life, money, love, knowledge has marked the upward surge of mankind—greed will save that malfunctioning corporation called the U.S.A.

My respect for you new Owen graduates and your families demands that I not express the barnyard expletive that would otherwise be my response to this tomfoolery. So, let me just observe that the speaker, finally convicted for securities fraud, spent several years in a Federal penitentiary. The point is, ladies and gentlemen, greed is out. Integrity is in. And, if you seek success and fulfillment, please accept my advice to hold yourselves to the highest moral standards. It will be “good business,” but it will be good for your souls as well.

One's own words on a given subject, it seems, have often been said so much better by another. Thus it is with my words on the subject of learning. For, as far as I am concerned, the legendary John Gardner did my work for me when he gave the commencement address a year ago at Stanford University's centennial:

Learn all your life. Learn from your failures, from your successes, learn by taking risks, by suffering, by enjoying, by loving, by bearing life's indignities with dignity. Learn that self-pity and resentment are the most toxic of drugs. Learn that the world loves talent but pays off on character.

Self-knowledge isn't enough. You build meaning into your life through your commitments—whether to your religion, to your conception of an ethical order, to your loved ones, to your life work, to your community…. Make the world better … by the gift of kindness or courage or loyalty or integrity. Teach the truth by living it.

The test for this nation is whether in all the confusion and clash of interests, all the distracting conflicts and cross purposes, all the temptations to self-indulgence and self-exoneration, we have the strength of purpose, the guts, the conviction, the spiritual staying power to build a future worthy of our past. You can help.

And indeed you can help, each and every one of you. If that doesn't say it all, surely St. Paul does in his letter to Philippians:

This one thing I do, forgetting those things which are behind, and reaching forth unto those things which are before … I press toward the mark.

So, press!

Press on!

Press on, regardless!

Press on regardless!

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