The Clash of the Cultures by John C. Bogle – Notes and Quotes
A Froogal Stoodent Review
Third in a series of book reviews by The Froogal Stoodent
If you told me 10 years ago that I’d be reading a book about agency problems, corporate governance, and financial stewardship, I wouldn’t have believed you. Or understood what you were talking about.
If you then told me that I’d actually enjoy that book, I would have laughed you out of the room!
But here I am, in 2021, reading Bogle’s The Clash of the Cultures (2012). And enjoying it, despite the infuriating problems unmasked therein.
Bogle’s style is clear but dense, even academic. Although Bogle frequently notes in the text that he’s not overly intelligent, I think that’s mostly humility. His level of clear thinking is rare, even among intelligent people! But he was clearly far from dumb, and that comes across in his writing.
In my academic career, I had to read plenty of writing that was dense—that is, filled with information, and didn’t have a lot of paragraph breaks. Bogle’s style is similar, though it’s certainly more readable than most of the journal articles I had to read (and re-read).
Bogle may not have had the highest analytical intelligence, but what he did have was an uncommon level of wisdom. He saw things clearly and with a long-term view. And his writing frequently conveyed an undertone of moral indignation toward those situations he saw as improper.
Verdict: I’m a fan of Bogle, but my best judgment of Clash of the Cultures is that it’s best-suited for advanced investors. Or for people who work in the field of finance. Or perhaps high-level corporate management. There are some basic principles, and some jargon, that Bogle assumes the reader already knows.
Don’t get me wrong; I don’t mean to be critical of this book. I definitely enjoyed it! The writing is good, Bogle’s thinking is crystal-clear, and the book is well worth reading.
But it’s not meant for a mainstream audience. This is a serious work for people with relatively advanced knowledge of the investing and business worlds.
Reading this is like diving into the deep end of the pool: if you’re already a solid swimmer, it’s a good experience. But if your skills are shaky, you could find yourself overwhelmed.
Here are some of the best quotes, which will give you a flavor of what the book is like.
“It is impossible to deny the logic of the Jensen-Meckling thesis that posits that managers rarely maximize the interests of the shareholders they are duty-bound to serve, and instead mainly look out for themselves. More important, its truth has been confirmed, over and over again, by actual experience in the functioning of our giant corporate and investment institutions.”
—John C. Bogle
The Clash of the Cultures (2012), p. 34
“American corporations today are like the great European monarchies of yore: They have the power to control the rules under which they function…Retirement risk has been transferred to employees. During the same period that CEOs were doubling their own compensation, the ‘best’ CEOs of the ‘best’ companies abrogated the century-old commitment by employers to provide pensions to their workers…CEOs are enriched, while all other corporate constituencies, including government, are left with liabilities.”
—Robert A.G. Monks
as cited in The Clash of the Cultures, p. 81
“The median compensation for the 100 highest-paid CEOs was $14.4 million, 320 times the average American salary of $45,320. Ironically if CEOs are able to increase profits by holding the lid on the compensation of their workers, they win and their millions of employees who produce what the company makes and sells are the losers.
That 320/1 ratio of the compensation of CEOs relative to the average worker’s pay in 2011 compares with a ratio of just 42/1 in 1980…Measured in real 1980 dollars, CEO compensation rose at a rate of 6.5 percent annually, increasing by more than 560 percent in real terms during the period. In comparison, the compensation of the average worker increased by only 0.7 percent per year, leading to an insignificant cumulative increase (compounded over 30 years, an increase of only 14 percent) in family living standards. I find this change shocking, and virtually inexplicable.
The rationale of today’s ratio is that these executives had “created wealth” for their shareholders. But were CEOs actually creating value commensurate with this huge increase in compensation? Certainly the average CEO was not. During the past 24 years, corporations had projected their earnings growth at an average annual rate of 11.5 percent. But they actually delivered growth of 6 percent per year—only half of their goal, and even less than the 6.2 percent nominal growth rate of the economy. In real terms, profits grew at an annual rate of just 2.9 percent, compared to 3.1 percent for our nation’s economy, as represented by the Gross Domestic Product. How that somewhat dispiriting lag can drive average CEO compensation to a cool $9.8 million in 2004, and then to $11.4 in 2010, is one of the great anomalies of the age.”
—John C. Bogle
The Clash of the Cultures, p. 89-90
“...But the CEOs are paid by directors, not out of their own pockets but with other people’s money.9”
And the associated footnote 9: “9When CEO compensation exceeds federal standards, one is subject to a tax surcharge. The corporation often then “grosses-up” the compensation to make the executives whole. Isn’t it grand to be indemnified for one’s taxes! As I’ve often noted, it’s amazing how cheap something is if you can buy it with other people’s money!”
—John C. Bogle
The Clash of the Cultures, p. 90
“When a board finds that its own CEO’s pay reposes in the fourth quartile, it is all too likely to raise his or her compensation to bring it into, say, the second quartile. (Directors rarely seem to jump it all the way into the first quartile.) This leap, of course, drops another CEO into the fourth quartile. Eventually, he’ll be moved to a higher quartile, too. And so the cycle repeats, onward and upward over the years, almost always with the encouragement of an ostensibly impartial overseer [that is, an executive compensation consultant] retained by the board of directors, who is at least tacitly endorsed by the CEO. So the so-called “free market” that sets CEO compensation doesn’t exist. Rather it is a controlled market essentially created by compensation consultants.”
—John C. Bogle
The Clash of the Cultures, p. 92
You can support this blog—at no cost to you—by buying it on Amazon here.
Or, check out my other book reviews in this series:
1. Debt: The First 5000 Years by David Graeber
2. Rich Dad Poor Dad by Robert Kiyosaki
3. The Clash of the Cultures by John C. Bogle
4. Principles (Life and Work) by Ray Dalio
5. When Genius Failed by Roger Lowenstein
6. The Practicing Stoic by Ward Farnsworth
7. Gold: The Once and Future Money by Nathan Lewis
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