Boone Pickens Homepage           Electronic Publishing Center
	REMARKS FOR THE USA SPEECH given at San Francisco, CA 1 February 1989

[Handwritten addition: Gov. Comment]
[Handwritten addition: Gary—need BCP]
Thank you, Jim (Milner) ,and I want to thank Gary Shemano from Bear Sterns, which is co-sponsoring this event.

[Handwritten addition: Intro BCP]

Before I get started ... Any Mesa shareholders here this evening?
[Handwritten addition: If you aren't you should be]

Here to talk about Corporate America's problems ... offer a few solutions.
[Handwritten addition: No Crash
Ace
Very senior partner
Henry Kravis
TBP—
BCP—]
The cause of Corporate America's competitive problems can be described in one word: management ... It's not the workers, it's the leadership.

Problems started just after WWII ... entrepreneurial founders were replaced by professional managers; a no-risk mentality emerged.
Separation of ownership and control.
Many companies got away from core businesses, built huge bureaucracies ... GM 14 layers, Japanese 5.

No matter how poorly management performs, there's little that shareholders can do about it.
Managers are insulated ... poison pills, golden parachutes, anti shareholder legislation.
[Handwritten addition: They have gone too far— That is good— (explain)]
There must be a system where CEOs can be dismissed if they don't do an acceptable job ... like football coaches, or like politicians who stand for re-election (Compare how stockholders and voters are treated).
That's why I formed USA in August'86 ... upgrade shareholder awareness ... $1 mm in honorariums and another $1.3 mm from my book (Non-profit deal).
[Handwritten addition: Presently cost Bea and me $50,000 a month]

A new era of shareholder rights has begun ... shareholders are forcing management accountability, re-establishing that shareholders are owners, managers are employees
What we are seeing is a transformation of American corporations:
—The goal ... size is meaningless, results are everything
Active shareholders are forcing restructuring, which is trimming Corporate America's fat and is providing vitality for the entire economy.

There's a new study out by Steven Kaplan at the University of Chicago ...
Companies that restructured are proving to be substantially more profitable than their industry peers.
That's good for the country ... productivity and efficiency create more jobs, higher wages and increased tax revenues.
I'm not saying every deal is going to be a good deal:
[Text stricken: — RJR Nabisco offer by KKR, $25 billion ... Good deal (explain)]
[Text stricken: — Philip Morris for Kraft, $13.1 billion ... Bad deal (explain) ]
Some of the deals will be good, some not so good ... but the market will weed out the bad ones:
—New study by SEC chief economist Kenneth Lehn (Lane) show companies that make [Text stricken: bad] [Handwritten addition: poor] acquisitions become targets themselves

Other studies show that, despite the rhetoric, restructuring has been a phenomenal success.
Joe Grundfest at the SEC has shown how jobs can actually be saved by takeovers; Michael Jensen at Harvard estimates that shareholders have gained more than $400 billion from restructuring since 1982; and Bronwyn Hall at Stanford found that R&D spending is not affected by takeovers.
Just look at our economic performance since 1982, when restructuring heated up:
— Lowest unemployment in 14yrs
— R&D up 100% in the past decade, after no growth the decade before
— Capital spending on new equipment doubled, boosting productivity in heavily restructured industries
— And U.S. Industry is operating at 84.4% capacity, highest in almost a decade
But management still gives you the "short-term long-term" argument ... long-term growth sacrificed for short-term profits.

[Handwritten addition: Today PPCo— WSJ— same crap. [line drawn down to following statement:] explain what would have happened if we had gotten PPCO.]
What they're really saying is "Give us more time to make the same mistakes."
FORTUNE 500 CEOs are the real short-termers ... big salary, bonuses and perks, little ownership.
[Text stricken: Look at Campeau's takeover of Federated Department Stores.
Federated CEO Howard Goldfeder ... 37 years, $800,000 salary, big bonus ... owned only 3,000 shares; 32 ten-thousandths of 1 % of the company.
The best of all was Newmont's Gordon Parker... had 406 shares ... not even round lots.]

[Text stricken: Jack Reichert, chairman of Brunswick Corp., has a unique theory of why managers don't need to own stock. He told the Chicago Sun-Times:]
[Text stricken: —"The question really becomes one of 'Do you believe you own the company?' I feel I own the company because I own it spiritually."]
[Text stricken: A lot of people out there wish they owned stock spiritually when the market crashed.]

Managers don't think like shareholders because they don't take the same financial risks ... So [Text stricken: active] shareholders have to force management to perform.
The fact is, there would be no takeovers if management did its job ... (Definition of a going concern).
It's really that simple ... keep stock price near asset value and there will be no takeover.

[Handwritten addition: Deals will continue— (explain why)]
The latest target of public concern is corporate debt, but the fears are unfounded.
Over-lever age assumes two things that I won't accept ... dumb borrowers and dumber lenders— Maybe one, but not both.
Imposing limits on corporate debt would very likely prove disastrous to the stock market.
If Congress is genuinely worried about corporate debt, it should put equity financing on level footing with debt ... eliminate the double taxation of dividends.
Which brings me to the next battleground, retained earnings ... Ford, $10 billion; Boeing, $5 billion ... More money than they know what to do with, which has historically been a disaster.

Restructuring has helped FORTUNE 500 companies have the best profits ever, but dividends are still near an all-time low ... average 3.6% yield.
Average dividends for Fortune 500 companies are only 20% of cash flow ... that's $65 billion of $325 billion annually.
I'll give you an indication of how much they could distribute if they wanted to ... Mesa, started in 1956 with $2,500, distributes more than $300 million annually.
Compare that to Boeing, $245 mm; Unocal, $115 mm; Phillips $175 mm and Goodyear, $100 mm.
[Handwritten addition: WSJ yesterday— Heard on the street.]
Fred Hartley on dividends ...
Want to avoid another market collapse? Distribute 50% of cash flow instead of 20%:
—Dow would go above 3000
—Prevent a recession
—Upgrade standard of living for millions of Americans

This is a populist issue ... There are 50 mm U.S. shareholders; California has the most, with more than 6mm.
If you include pension funds and trusts, half of all American households are directly affected.
Distributing 50% of cash flow would leave plenty of cash available for corporate growth.
Look at Mesa ... distributed nearly $1 billion to our stockholders, doubled reserves in 3 years, and still growing.

In conclusion ... shareholder activism and restructuring are here to stay ... this process will make our country more competitive than ever before.
We have the blueprint for success.
Both stockholders and management have a responsibility to make sure restructuring continues ... Stockholders must continue their activism.
Management must realize that its job is to perform for the stockholders.
The formula is really that simple.
I'll be doing my part ... too old to change.
And there is plenty that you can do, besides joining USA.

Make and support proposals to stop greenmail, remove golden parachutes and poison pills ... [Handwritten addition: [line drawn to following statement:] Raise dividends]USA can help you.
Write or call Congressmen.
USA is your watchdog ... Advocate ... 58,000 members.

We have no conflicts ... we have guts; we'll take action!
By joining USA, you are doing your part in putting corporate control and wealth back in the hands of the owners, the shareholders.
Thank you.

QUESTIONS & ANSWERS