Boone Pickens Homepage           Electronic Publishing Center
	REMARKS TO THE TEXAS BANKERS ASSOCIATION DALLAS TX MAY 12, 1988

Thank you, Stretch (Lowell Smith, Jr.).

Texas bankers going through a rough time... like oilmen.

[Handwritten addition: Making a few speeches selling a few books]

Mesa stockholders here today?

Here to talk about Corporate America’s problems. . .offer solutions.

Corporate America is in the middle of a major overhaul. . .long overdue. . .hard part just beginning.

We’re seeing a transformation of American corporations:
          —Focus on results, not size;
          —Create value, not empires

Problems started just after WWII. . .professional manager.

Separation of ownership and control.

Managements seemed intent on building huge bureaucracies. . .GM 14 layers, Japanese 5:
          —Perot’s snake story in Fortune in March

Now, managers are insulated. . .poison pills, golden parachutes, anti-shareholder legislation.

[Handwritten addition: Pendulum swung too far!]

No matter how poorly management performs, there’s little that shareholders can do about it.

That’s one of the reasons [Text stricken: my wife Bea and] I formed USA in August ’86. . .upgrade shareholder awareness.

[Handwritten addition: It was not for TBP to do takeovers.]

Things slowly starting to change. . .shareholders are making a difference, forcing restructuring.

First speech I made on restructuring. . .L.A. in 1982. . .guy said he wasn’t sure what I was talking about. . .Symphony.

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

Managements understood all too well; empires were threatened. . .being forced to downsize, manage for shareholder value.

Restructuring is not a passing trend. . .an ongoing process. . .(Explain MLP restructuring).

[Handwritten addition: ’70, ’72, ’79, ’82, ’85 still doing it]

It’s a rethinking of the old conglomerate theory... size syndrome... Goodyear example.

Five years from now, Corporate America may need to take another direction... restructuring gives flexibility to change with the times, stay competitive.

With current restructuring, we’ve returned to the basic principles of capitalism. . .based on creating value for owners.

Why has this happened? Stockholders are realizing they are owners, not passive investors.

[Handwritten addition: Stockholders have been lethargic—they have a responsibility as owners—they need to force accountability by their employees—the management of the co.—no other way to get the job done.]

Recent Fortune. . .Fortune 500 companies restructured, cut fat and dramatically increased productivity and efficiency:
          —Profits soared to all-time highs in 1987

[Handwritten addition: This] Should be no surprise.

Countless studies show restructuring helped Corporate America and economy. . .47 million shareholders.

But there’s a crowd out there fighting change. . .being left behind at the station. . .Iron—headed CEOs won’t accept change, won’t take advantage of it.

This crowd is easy to identify. . .No stock; Big salary; Big bonus; Big mouth:
          —And [Handwritten addition: they have] one other thing. . .anti-shareholder amendments in the bylaws

Go back to the ownership point:
          —BRT. . .3 tenths of 1%

Example; Campeau’s takeover of Federated Department Stores.

Federated CEO Howard Goldfeder. . .37 years, $800,000 salary (before bonuses). . .owns only 3,000 shares; 32 ten-thousandths of 1% of the company.

[Handwritten addition: Gordon Parker—406 shares]

Management ownership is linked to performance. . .April Fortune studied the 25 best performing companies of ’87. Fortune quote:
          —“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.”

[Handwritten addition: [Text stricken: Step up your]} All of us should inc. our ownership but not like GM. They responded to our speech at Detroit Eco Club.]

The next battlefield. . .retained earnings.

Corporate profits have soared. . .But what are they going to do with the profits?
          —Dividends at all-time low. . .average 3.5% yield
          —Average dividends for Fortune 500; 20% of cash flow. . .that’s $65 billion of $325 billion annual cash flow

[Handwritten addition: Explain the mtg. where the dividend is decided annually.]

Remaining $260 billion is left to managements’ discretion.

I’m talking about 500 CEOs, with virtually no accountability to owners, 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.

[Handwritten addition: Oh, I know what the CEO’s say, we need the money to expand. . . .]

[Handwritten addition: 10% at most 20% equity on a plant. . . .]

With today’s 28% tax rate, there’s every reason to push out a higher percentage of cash flow.

[Text stricken: Push out] [Handwritten addition: How about] 50% of cash flow instead of 20%: [Handwritten addition: —Change the game up]
          —Dow would go to 3000
          —Prevent a 1989 recession
          —Upgrade standard of living [Handwritten addition: for a lot of people—]

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.

Resisting it will only postpone the cure. . .not a matter of now or never; it’s inevitable!

[Handwritten addition: You] Can’t legislate against it. . .it’s driven by economics!

It may be painful at times, but our country will be [Handwritten addition: a lot] better off as a result.

Thank you.

QUESTIONS & ANSWERS