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	PRESS COPY OF REMARKS TO THE ABILENE CHRISTIAN UNIVERSITY COLLEGE OF BUSINESS ABILENE TX MARCH 29, 1989

Thank you, Bill (Teague).

I’ve been asked to talk to you today about the competitive problems in Corporate America. But first, there has been a lot of talk about an ethics crisis in Corporate America. There is no ethics crisis; it’s a leadership crisis. The problems are at the top of the corporate structure, not in our MBA schools, as some claim.

You have to go back a long way to see where Corporate America’s problems began. It was just after WW II, when entrepreneurial founders began being replaced by professional managers. A no-risk mentality emerged and you saw the separation of ownership and control.

That is the key. Virtually every problem Corporate America has can be traced back to that one issue: Managers do not think like owners.

Owner/managers had a totally different set of incentives than professional managers had. An owner/manager looked to make the company the best in the business and to distribute the profits to his partners and himself. If the business prospered, so did the owners, the employees, the suppliers and the surrounding communities. It’s really a very simple concept and is rather easy to understand.

But professional managers had another agenda... they worked for the 4 Ps: Pay, Perks, Power and Prestige. Stockholders, the owners, didn’t get to participate in any of these perks.

The professional manager got a salary instead of a cut of the profits.

The salary was based on the company’s size, rather than its profitability, so managers created huge, inefficient conglomerates. Instead of distributing the profits to the owners, managers hoarded the money and used it to diversify into businesses they knew nothing about.

And that’s where Corporate America was by the early 1980s: bloated, becoming less competitive, more bureaucratic and barely accountable to anyone... and losing market share every quarter.

But no matter how bad management was, there was nothing the small shareholder could do. Then along came the takeover entrepreneur, who showed that the value of the company’s assets was not reflected in the stock price.

The stock was discounted because of one simple reason; poor management. The stock price is management’s report card. If they keep their grades up, nobody is going to try and throw them out.

Shareholder activism is slowly forcing managements to perform, and to restructure companies. What we are seeing is a transformation of American corporations, where size is meaningless, and results are everything.

The first speech I made on restructuring was in L.A. back in 1982. Back then my arguments were rhetorical. Now the empirical evidence is in and it all supports restructuring.

But some FORTUNE 500 managements are still fighting to maintain the status quo. They’ve adopted poison pills, golden parachutes and anti-shareholder legislation, all without shareholder approval and at shareholder expense. They are selling the shareholders down the river to protect their own parochial interests.

There must be a system where CEOs can be replaced if they don’t do an acceptable job, just like football coaches, or like politicians who stand for re-election.The way to restore America’s competitiveness is to make managers accountable to the owners.

We must reestablish that shareholders are the owners of public companies, and managers are employees.

That’s why I formed the United Shareholders Association in August 186, to upgrade shareholder awareness and protect shareholders, interests in Washington.

I sincerely believe in USA. Let me tell you how much I believe in it: I’ve given USA more than $1 million in honorariums, and another $1.3 million from my book.FORTUNE 500 CEOs scream that shareholder activism is hurting their business. They give you the “short-term long-term” argument, saying long-term growth is 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: big salary, bonuses and perks, but little ownership. That gets back to the point I made about the separation of ownership and control. I had one CEO tell me that his idea of the perfect company would be to have a million shareholders with just 100 shares apiece. The idea behind that is management will have no accountability to anyone.

You may remember last year, 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, yet he owned just 3,000 shares of stock in the company he was running.

Why won’t managers buy stock in the companies they run? Because it’s a bad investment! If management owned a significant amount of stock in the companies they run, they would think like shareholders. They wouldn’t have wasted shareholders’ money on silly diversifications, and they would have returned profits to the owners... themselves included because of their stock.

Instead, look at the retained earnings they’re still hoarding... Ford, $10 billion; Boeing, $5 billion... Even Chrysler has $3.3 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 record profits for the past two years.

Their earnings were up 42% in 1988, yet dividends rose only 11%. And because the market gained 13% in 1988, the stocks are yielding just 3.6%, which is an all-time low. Looked at another way, Fortune 500 companies pay out only 20% of cash flow... that’s $65 billion of $325 billion annually.So, despite shareholder pressure, managements still aren’t returning profits to the owners.

I’ll give you an indication of how much they could distribute if they wanted to. Mesa, started in 1956 with $2,500, distributes about $300 million annually. Compare that to Boeing’s $245 million; Phillips’ $175 million; Unocal’s $115 million; and Goodyear’s $100 million.

Distributing a higher percentage of cash flow still 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%. The Dow would go above 3000, you would prevent the recession that so many economists are predicting, and you would upgrade the standard of living for millions of Americans.

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 is here to stay. It is returning management accountability, and this process will make our country more competitive than ever before. And one more thing; you will be the ones to effect the turn-around. You are Corporate America’s future, not 60-year-olds like me. And I’m very encouraged by what I see in the new generation of business people.

Thank you.