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TREDYFFRIN ¡ª John "Jack" Brennan surprised employees of The Vanguard Group and industry observers Friday by announcing plans to step down as president and CEO of the nation's second-largest mutual fund company.

Brennan, 53, will be replaced by Vanguard veteran F. Williams McNabb III, who has been with the company since 1986 and was managing its institutional and international businesses before Friday's announcement.

"The surprise factor is probably my age; I'm 'only' 53, and I'm very healthy," Brennan said in an interview posted on Vanguard's Web site Friday. "What's not surprising is the orderly fashion in which our board of directors oversees the leadership succession process."

Brennan will remain board chairman for an undefined length of time.
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Vanguard, Chester County's largest employer with 9,200 employees at its headquarters and in buildings along Route 202, manages $1.25 trillion in mutual fund assets, including more than $350 billion in employer-sponsored retirement plans. The company has 12,000 employees nationwide, said company spokeswoman Rebecca Cohen.

"It was a surprise," Cohen said of the announcement. "No one heard about it until today."

Brennan has been a respected leader in the mutual fund industry, leading Vanguard from its entrepreneurial beginnings to its status as one of the largest mutual fund companies in the world, said Dan Culloton, senior mutual fund analyst for Morningstar, the national investment research company and mutual fund rater.

"Yes (it was a surprise)," Culloton said. "He's just 53 and is still very engaged in the industry. His reputation is very good as someone who managed the evolution of Vanguard from an entrepreneurial type of company to a very professionally run type of business."

Culloton described Brennan's management style as conventional when compared to his predecessor, founder Jack Bogle.

"Whereas Jack Bogle was an outspoken visionary who was willing to push the envelope, Brennan is much more of a roll up the sleeves, blocking and tackling type of manager, very brisk and efficient and very professional" Culloton said of Brennan's reputation within the industry.

Brennan also served as chairman of the Investment Company Institute, the mutual fund industry's national trade group, from 1998 to 2000.

"Jack Brennan has been not only an outstanding leader of The Vanguard Group for many years, but also an outstanding leader of the institute and of the fund industry," Paul Stevens, the organization's president and CEO, said in a statement Friday. "He has been a driving force in all our efforts to advance the interests of funds and their shareholders and to sustain the highest ethical and fiduciary standards in our business."

Brennan started at Vanguard in 1982 as assistant to Bogle when Vanguard had 360 crew members, as the company calls its employees.

He was named chief financial officer in 1985, elected to the board of directors in 1987, named president in 1989, and became CEO in 1996.

Listing Vanguard's accomplishments under Brennan's leadership, the company noted:

For the five- and 10-year periods ending Dec. 31, 2007, the majority of Vanguard funds outpaced its competitors, the company said, citing Lipper Inc. data.

As a result of the gains from technology enhancements, employee productivity and scale, Vanguard's expense ratio has declined by more than 30 percent over the past 12 years ¡ª from 0.31 percent at year-end 1995 to 0.20 percent at year-end 2007, saving clients in the aggregate $12.4 billion in 2007 alone, the company said, citing Lipper data.

New products were introduced. Among them were ETFs, which Vanguard began offering in 2001. The company has since broadened its family of ETFs to 37, covering both stock and bond markets. As of year-end 2007, ETF assets topped $41 billion ¡ª an 88 percent increase over the previous year.

Vangard also introduced Target Retirement Funds beginning in 2003. Aggregate assets in the Vanguard Target Retirement Funds exceeded $32 billion as of Dec. 31, an increase of nearly 100 percent over 2006.

Recognizing a growing client need for investment guidance, Vanguard introduced its first financial planning and wealth management services in 1996. Today, through Vanguard Financial Planning Services, the company develops personalized investment plans to individual clients for a flat fee (or no fee depending on account balance).

One-third of Vanguard's operating budget is devoted to technology-related initiatives, and nearly a quarter of Vanguard's employees work in the technology division. Vanguard was recognized as a recipient of the "CIO 100" award, which acknowledges 100 organizations for operational and strategic excellence in technology. Vanguard has been selected to the magazine's list for seven of the past eight years.

Vanguard expanded overseas in 1996, opening offices in Melbourne, Australia. Today, it has institutional investors in more than 80 countries.

Culloton, of Morningstar, said one of Vanguard's biggest accomplishments under Brennan has been its ability to maintain the public's trust despite the downs in the market, such as the tech bubble burst of the early 2000s and trading scandals.

"Their lineup has held up well over the years," Culloton said. "People got discouraged with actively managed funds. Trust, I would say Vanguard very much still has that brand."

In naming McNabb as Brennan's replacement, Vanguard probably was able to allay any fears that changes at the top might have caused investors, he said.

"It would have been alarming maybe if they had gone outside the organization," Culloton said. "Vanguard has always put a premium on homegrown talent, on promoting from within."

Efforts to reach Brennan and McNabb on Friday were unsuccessful. Bogle declined a request for comment, responding in an e-mail, "... all I know is what you know ..."