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	REMARKS TO THE SALINA CHAMBER OF COMMERCE SALINA, KS, 22 February 1989

Thank you, Joe Warner.

I've been asked to talk to you today about entrepreneurship. Most of you are well aware of how important entrepreneurship has been for our economy in the past five or six years. The bonanza of small, entrepreneurial businesses has created a high percentage of the 19 million new jobs we've added since 1982.

But unfortunately, the entrepreneurial spirit is slow to spread to America's large corporations. So what I'm going to talk about today is not entrepreneurship, but the lack of entrepreneurship in Corporate America, in FORTUNE 500 companies.

Corporate America's problems started just after WW II when entrepreneurial founders began being replaced by professional managers; a no-risk mentality emerged. Thereby you saw the separation of ownership and control.

Many companies got away from core businesses and built huge bureaucracies... GM 14 layers, Japanese 5.

The expansion of inefficient corporate bureaucracies stifled entrepreneurship, destroyed morale. We need younger, entrepreneurial leaders in charge of Corporate America. People have asked me for a quick cure. I tell them to retire CEOs 55 and older (Including me). But there's no way that will happen, because corporate managements are self-perpetuating.

No matter how poorly management performs, there's little that shareholders can do about it. Managers are insulated with poison pills, golden parachutes, anti-shareholder legislation. There must be a system where a competing slate of directors can be offered and CEOs can be dismissed if they don't do an acceptable job... like football coaches, or like politicians who stand for re-election.

Accountability to owners is the key to restoring America's competitiveness. We must reestablish that shareholders are the owners of public companies, and managers are employees.

That's one of the reasons why my wife Bea and I formed the United Shareholders Association in August 1986, to upgrade shareholder awareness. And Corporate America is changing slowly. Shareholders are using the threat of takeovers to force managements to restructure America's businesses. Restructuring is making companies more profitable, more efficient, more competitive... more entrepreneurial.

What we are seeing is a transformation of American corporations. The goal should be that size becomes meaningless, results are everything. The first speech I made on restructuring was in Los Angeles in 1982. That was 7 years ago. The empirical evidence has now,been analyzed. We're off the rhetoric and on hard data.

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.

FORTUNE 500 CEOs scream that takeovers and restructuring are killing our economy, but the facts don't support their rhetoric:
— Lowest unemployment in 14 yrs
— R&D up 100% in the past decade, after no growth the decade before
— U.S. Industry operating at 84.4% capacity, highest in a decade

Managers give you the “short-term long-term” argument, saying long-term growth is being sacrificed for short-term profits. What they're really saying is “Give us more time to make the same mistakes.”

FORTUNE 500 CEOs are the real short-termers. They have big salaries, bonuses and perks, but little ownership.

Restructuring focuses management's attention on what the company does best, the core business. It returns companies to their entrepreneurial foundations. The threat of takeovers is forcing managements to think like entrepreneurs, to maximize returns to 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.

Another concern to be dealt with... retained earnings. Ford has a $10 billion cash hoard; Boeing, $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... average 3.6% yield.

The 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' $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 the past 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%:
— Dow would go above 3000
— Prevent a recession
— Upgrade 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. If you include pension funds and trusts, half of all American households are directly affected.

In conclusion... shareholder activism and restructuring are here to stay... this process will make our country more competitive and entrepreneurial than ever before. We have the blueprint for success.

Management must realize that its job is to perform for the stockholders. The formula is really that simple.

Thank you.