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	REMARKS TO THE INDUSTRIAL LEAGUE OF ORANGE COUNTY Irvine, CA 2 February 1989

I'm here tonight to talk about the problems I see in Corporate America and to offer a few solutions.

Corporate America is in the middle of a major overhaul that is long overdue. The problems started just after WW II, as entrepreneurial founders began being replaced by professional managers; a no-risk mentality emerged. Therein began the separation of ownership and control. Now, no matter how poorly management performs, there's little that shareholders can do about it. Managers are insulated from the shareholders with things like poison pills, golden parachutes and anti-shareholder legislation.

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. That's why I formed the United Shareholders Association in August 1986, to upgrade shareholder awareness.

A new era of shareholder rights has begun. Shareholders are restoring management accountability, re-establishing that shareholders are owners, and that managers are employees. We are seeing a transformation of American corporations, with a new goal, where size is meaningless and results are everything. They are restructuring for efficiency, trimming Corporate America's fat and providing vitality for the entire economy.

There's a new study out by Steven Kaplan at the University of Chicago that shows how companies that have 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.

But restructuring is also creating a public outcry That happens when you force a change on the status quo. There will be a lot of Congressional hearings... they'll probably tinker with the tax codes and corporate regulations. But the deals will continue, because they are economically driven.

I'm not saying every deal is going to be a good deal. Some of the deals will be good, some not so good... but the market will weed out the bad ones. That was the determination of a new study by SEC chief economist Kenneth Lehn. The study shows how companies that make bad 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 14 years
— R & D up 100% in the past decade, after no growth the decade before
— And U.S. Industry is operating at 84.4% capacity, highest in almost a decade

But some managers are still fighting the restructuring movement because they don't have a significant financial stake in the companies they run. They've forgotten who owns the company. Look at NCR's recent PR campaign emphasizing the company's many "stakeholders;" stockholders are at the end of the list.

Goodyear CEO Robert Mercer is another good example. He told the L.A. Times recently: "Our No. 1 constituency is not the shareholder. You handle the customer first, then comes the shareholder, equally with employees, the communities where we operate and the suppliers... the whole litany of interests."

Who does he think owns the company? Who takes the financial risks? Not him. He's been with Goodyear 42 years, gets paid $1.25 million annually, yet he owns less than 10,000 shares... that's 17 ten-thousandths of 1% ownership of the company he controls.

Or look at Campeau's takeover of Federated Department Stores. Federated CEO Howard Goldfeder was with the company 37 years, had an $800,000 annual salary plus a big bonus... and he owned only 3,000 shares; 32 ten-thousandths of 1% of the company.

Jack Reichert, chairman of Brunswick Corp., has a unique theory of why managers don't need to own stock. He told the Chicago SunTimes: "The question really becomes one of 'Do you believe you own the company?' I feel I own the company because I own it spiritually."

Don't you wish you owned stock spiritually when the market crashed? If managers took the same financial risks, they would think like shareholders.

The fact is, there would be no takeovers if management did its job. It's really very simple... keep the stock price near asset value and there will be no takeover.

Restructuring for maximum efficiency is one way to get the stock price up. But also, companies must start distributing more of their earnings to the shareholders. Look at Ford, with $10 billion in retained earnings, and Boeing with $5 billion. That's 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 with an average yield of only 3.6%. 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's $245 million; Unocal's $115 million; Phillips Petroleum's $175 million; and Goodyear's $100 million.

Distributing a higher percentage of cash flow leaves plenty of cash for corporate growth. Again, look at Mesa. We've distributed nearly $1 billion to our stockholders and doubled reserves in 3 years, and we're still growing.

Want to avoid another market collapse and keep our economy moving forward? Distribute 50% of cash flow instead of 20%: The Dow would go above 3000, you would prevent the recession so many economists are predicting for 1990, and you would upgrade the standard of living for millions of Americans.

And if Congress would eliminate the double taxation of dividends, the amount of money that could be pumped into the economy would be phenomenal.

This is a populist issue.There are 50 million U.S. shareholders; California has the most, with more than 6 million. If you include pension funds and trusts, half of all U.S. households are directly affected by the stock market.

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.

Thank you.