Vanguard Is Popular With Investors, but Not All Its Employees

Editors' Pick: Originally Published Thursday, Dec. 17.

These are heady times for the  Vanguard Group, the financial behemoth that runs $3.4 trillion out of a tiny Pennsylvania borough just northwest of Philadelphia. 

Barron's projected in an article last month that Vanguard would have a "monster year" in 2015, breaking the record for new money coming into a mutual fund complex. The company is taking $16 billion a year away from the rest of the financial industry in fees alone, according to a recent Bloomberg analysis

Over the years, Vanguard has had no peer among financial companies when it comes to goodwill from customers and the media. It regularly dominates various "best" mutual fund lists put together by financial publications. Founder John C. Bogle is so celebrated for his focus on low costs and doing the right thing for the small investor that he's frequently referred to as "Saint Jack."

So why is a vocal collection of current and former employees putting so much energy into blasting the heralded operation?

Two whistleblowers who went public with grievances have been fired over the past two and a half years. One of them had complained about Vanguard's tax policies and the other had criticized its online customer security. On the employment Web site, hundreds of anonymous employees have expressed misgivings: As of Dec. 16, only 57% of 1,100 current and former workers posting comments said they'd recommend Vanguard to a friend.

That compares to 75% at Fidelity Investments and 70% at T. Rowe Price. Among 12 investment companies, only E*Trade and Scottrade did worse than Vanguard.

And while the company has been a standout for its progressive LGBT policies, it otherwise has been a lightning rod for discrimination complaints. In the past five years, more than a dozen lawsuits have been filed by employees who allege gender, race, agereligious and disability discrimination, according to federal court records.

"If you don't drink the Kool-Aid at Vanguard, you're not long for that place," said Daniel P. Wiener, who has been writing about Vanguard for 25 years as editor of The Independent Adviser for Vanguard Investors. "There's a dogma there, and you just don't question the dogma."

Wiener and others say Vanguard is coasting on the outdated image of the company that Bogle built.

"This is not Jack Bogle's Vanguard, just people benefiting from it," wrote a former employee of 10 years in a post on last month.

It was designated a Fortune Magazine "Best Place to Work" six times between 2001 and 2007, but has not been on the list since.

Vanguard said it would not make an official available to comment for this story. When I subsequently sent a five-page list of questions, spokeswoman Arianna Stefanoni Sherlock said in an email that most of my questions were "highly speculative and/or based on suspect sources" and that the firm would not attempt to refute "inaccurate accusations."

Bogle, who was pushed off Vanguard's board in 1999 when he reached the mandatory retirement age of 70, said in a telephone interview that while he can't speak for current management, he believes the firm still has "a strong, honorable culture."

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