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	PRESS COPY OF REMARKS TO THE ECONOMIC CLUB OF DETROIT DETROIT MI MAY 2, 1988

Thank you, Karl (Gregory). Are there any Mesa stockholders here today?

Here to talk about Corporate America’s problems. . .and to suggest solutions. Corporate America is in the middle of a major overhaul, one that’s long overdue. We’ve done the easy part, now the hard part is just beginning.

What we’re seeing is a transformation of Corporate America. The new focus is on results instead of size, on creating value rather than empires.

Corporate America’s problems started just after WWII with the emergence of the professional manager. Managements seemed intent on building huge bureaucracies. It seemed like no matter how poorly management performed, there was nothing shareholders could do about it.

That’s all slowly starting to change. Large shareholders are making a difference by forcing a restructuring of Corporate America.

The first speech I made on restructuring was in L.A. in 1982. A guy sitting next to my wife Bea during the speech said he wasn’t sure what I was talking about, but that he was sure the L.A. Symphony could use my help.

He wasn’t the only one who didn’t understand the restructuring issue back then. . .many people still don’t.

Restructuring includes takeovers, leveraged buyouts, recapitalizations and selling off unproductive units, among other things.

Restructuring is not a passing trend. . .it’s an ongoing process. Five years from now, Corporate America may need to take another direction. Restructuring gives companies the flexibility to do creative things to makes them competitive.

With restructuring, we’ve returned to the basic principles of capitalism. . .based on creating value for owners. Why has this happened? Stockholders, especially large shareholders and institutions, are realizing that they are owners, not passive investors.

A recent Fortune article shows how Fortune 500 companies restructured, cutting the fat and dramatically increasing productivity and efficiency. Their profits soared to all-time highs in 1987. That should be no surprise. Countless studies show restructuring has helped Corporate America and the entire U.S. economy.

Restructuring represents a rethinking of the old conglomerate theory, which created the size syndrome. Restructuring is making America more competitive. . .more efficient, productive, profitable. But it’s not just a matter of competitiveness. It had to happen for survival.

There’s a crowd out there fighting change. They’re being left behind at the station. They’re easy to identify; they own no stock, they receive a big salary, they get a big bonus regardless of the company’s performance, and they have a big mouth. And one other thing; they’ve all put anti-shareholder amendments in the bylaws.

Management ownership is linked to performance. An article in the April Fortune studied the 25 best performing companies of ’87 and found, “These outfits share a striking characteristic: Management and members of the board of directors own significant chunks of the stock, giving them a strong voice in running the show and a stake in the outcome.”

The next battlefield will be retained earnings. Corporate profits have soared. But what are they going to do with the profits? Dividends are at an all-time low, at an average 3.5% yield. The average dividends for Fortune 500 companies is 20% of cash flow. . .that’s $65 billion of a $325 billion annual cash flow.

The remaining $260 billion is left to managements’ discretion. . .that can be worse than giving Congress a surplus. I’m talking about 500 CEOs, with virtually no accountability, holding the purse-strings on $325 billion; $650 million each!

Mesa distributed $310 million in 1987; Boeing $217 mm; Unocal $117 mm; Goodyear $91 mm.

With today’s 28% tax rate, there’s every reason to push out a higher percentage of cash flow. Push out 50% of cash flow instead of 20% and the Dow would go to 3000, we would prevent the 1989 recession that everyone’s predicting, and we would upgrade the standard of living for millions of Americans.

Doing so would have a significant impact on Michigan, since there are about 3 million shareholders in this state, 1.5 million of which are right here in Detroit.

In conclusion, restructuring is here to stay. The data has been analyzed, the results are in and the restructuring philosophy has been almost universally adopted. Managements that don’t adjust to the change are going to be run over by it.

Thank you.