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REMARKS FOR THE RUTGERS CONFERENCE ON
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Thank you, David (Kay). [Handwritten addition: David’s hair color black—doing the same things—little different.]
[Handwritten addition: I knew he would tell the SRO story.]
Thank Jim Bickler and all at Rutgers who helped put this conference together. . .the subject of corporate restructuring cries for public debate.
The other speakers are addressing specific issues of restructuring. . .I’ll talk more generally about Corporate America’s problems. . .offer solutions.
[Handwritten addition: Gulf 1984 (Jan) we did have the fire power to own 13%—and additional funds to go up to 25% without Drexel.]
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. . .founder’s entrepreneurial spirit destroyed when companies were put in the hands of professional managers.
Managements seemed intent on building huge bureaucracies. . .GM 14 layers, Japanese 5:
—Perot’s snake story in Fortune in March
Now, managers are insulated from owners. . .poison pills, golden parachutes, anti-shareholder legislation.
[Handwritten addition: Pendelum swings too far—watch out]
No matter how poorly management performs, there’s little that shareholders can do about it.
That’s one of the reasons why I formed the United Shareholders Association in August ’86. . .Non-profit. . .not much experience with non-profit.
[Handwritten addition: USA does nothing for Boone P. in takeovers—]
USA was formed to upgrade shareholder awareness. . .[Text stricken: not a method to help TBP; contributions plus honorariums now well over $1 million.]
Corporate America is slowly starting to change. . .active 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.
Some CEOs understood all too well; empires were threatened. . .forced to downsize, forced to manage for shareholder value.
Restructuring is not a passing trend. . .an ongoing process. . .Major MLP restructurings in ’70, ’72, ’79, ’82, ’85. . .still doing it!
Restructuring is a rethinking of the old conglomerate theory. . .size syndrome. . .Goodyear example.
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.
Stockholders have been lethargic; they have a responsibility as owners.
They must demand accountability of managements. . .there’s no other way to get the job done.
Active shareholders are getting results.
Recent Fortune. . .Fortune 500 companies restructured, cut fat and dramatically increased productivity and efficiency:
—Profits soared to all-time highs in 1987
This should be no surprise.
Countless studies show restructuring helped Corporate America and economy. . .47 million shareholders.
[Text stricken: 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.]
[Handwritten addition: Many CEO’s continue to try to turn the tide.]
[Text stricken: This crowd is] [Handwritten addition: These guys are] easy to identify. . .No stock; Big salary; Big bonus; Big mouth:
—And 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.
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.”
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
Remaining $260 billion is left to managements’ discretion. . .flip chart story.
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.
CEOs say they need the money to expand. . .only need 10%, at most 20% equity to build a plant.
With today’s 28% tax rate, there’s every reason to push out a higher percentage of cash flow.
How about 50% instead of 20%. . .change the game up:
—Dow would go to 3000
—Prevent a 1989 recession
—Upgrade standard of living for millions of Americans
[Handwritten addition: —Can you imagine what that would do for pension accounts?]
The shareholders rights movement is here to stay. . .managements that don’t adjust will be left in a cloud of dust.
CEOs who work on behalf of owners have nothing to fear.
But CEOs who resist change are going to be run over by it.
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!
You can’t legislate against it. . .it’s driven by economics!
It may be painful at times, but our country will be a lot better off as a result.
Thank you.
QUESTIONS & ANSWERS