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	REMARKS FOR THE USA TAMPA EVENT TAMPA FL MARCH 31, 1989

Thank you, Roger (Robson).

It’s great to see such a large turn-out... especially the FSU students, because you are the future leaders who will soon be fighting for shareholder rights from inside of corporations.

I need to thank Roger and Kidder Peabody for co-sponsoring this event.

The involvement of brokers like [Handwritten addition: Kidder] [Text stricken: Peabody] and thier clients is critical in spreading the message on shareholders rights.

I’ll talk today about the problems I see in Corporate America, and offer some solutions.

I want to leave plenty of time for questions, so I’ll keep my remarks short (Dad’s remark).

You have to go back a long way to see where Corporate America’s problems began.

It was just after WW II... entrepreneurial founders were replaced by professional managers; a no-risk mentality emerged:
— 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.

The owner/manager had a piece of the action as well as the financial risk. [Handwritten addition: explain owner/mgr.]

I say in my book managers should have at least 50% of their net worth in the company.

I have 90% in Mesa [Text stricken: (Book; executive who explained why he couldn’t do it)].

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... distribute the profits to his partners and himself.

If the business prospered, so did the owners, the employees, the suppliers and the surrounding communities:
— Simple and rather easy to understand

But professional managers had another agenda... The 4 Ps: Pay, Perks, Power, and Prestige.

Stockholders, the owners, didn’t get any of these perks.

[Handwritten addition: Everyday WSJ — Fruehart 70’ yacht & canadian hunting lodge.]

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

And because the salary was based on the company’s size, rather than its profitability, managers diversified into businesses they knew nothing about... Almost all of these [Handwritten addition: proved] [Text stricken: were] disastrous.

Goodyear example:
— Celeron... Paid too much... Like Mesa making tires
— The Aerospace unit (Blimp)
— A $220 million resort in Arizona, where the managers could spend their vacations

Phillips had a similar resort, Pier 66 in Fort Lauderdale.

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

No matter how bad management was, there was nothing the small shareholder could do.

Then along came entrepreneurs who showed that the value of the company’s assets was not reflected in the stock price:
— The stock was discounted because of poor management (definition of a going concern)

[Handwritten addition: Not every deal is a good deal — that is our system.]

Active shareholders are forcing a transformation of American corporations:
— Size will become meaningless, results will be everything

That is the idea behind USA’s Corporate 1000 Ratings, which we just released for the first time on Tuesday.

Traditional corporate ratings such as the FORTUNE 500 and the Business Week 1000 are based strictly on the size of the companies, using sales and revenue data.

But they don’t say anything about the companies’ performance for shareholders.

USA’s Corporate 1000 Ratings measure a company’s performance in three critical areas:
— Stock price and dividend performance
— Shareholder rights
— and Management’s ownership

Those areas accurately reflect how well management is performing for the shareholders.

There were 16 Florida-based companies in USA’s ratings, none of which did particularly well... Some, such as Ryder System, scored near the bottom of the list.

Five Tampa-area companies made it on the list, ranging from First Florida Banks at 117th, [Handwritten addition: not bad] to TECO Energy at 663rd. [Handwritten addition: not good]

USA’s ratings are meant to be constructive criticism, to give managements a better idea of what shareholders are looking for. [Handwritten addition: and what the deserve.]

And the ratings give shareholders an idea of how managements have performed in the past.

[Handwritten addition: The game has changed be careful not to have seen the change]

But despite shareholders’ efforts to change management’s focus, FORTUNE 500 CEOs are still fighting to maintain the status quo:
— Poison pills, golden parachutes, anti-shareholder legislation

They are selling the shareholders down the river.

There must be a system where CEOs can be replaced if they don’t do an acceptable job... like football coaches, or like politicians who stand for re-election.

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

[Handwritten addition: Stockholders have been leathargic and must assume their role — Senators — Congressmen have asked me [Text illegible: ]]

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 was would be to have a million shareholders with just 100 shares apiece... No accountability.

You may remember last year, Campeau’s takeover of Federated Department Stores.

Federated CEO Howard Goldfeder... 37 years, $800,000 salary, big bonus... owned 3,000 shares of stock in the company he was running.

Why won’t managers buy stock in the companie they run? Because it’s a poor investment! (Phillips’ Bill Douce stock option story).

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 unwise diversifications...

And they would have returned profits to the owners... themselves included because of their stock [Handwritten addition: ownership].

[Handwritten addition: managements and stockholders on the same side of the table.]

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.

Restructucturing 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%... 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.

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, $245 mm; Phillips, $175 mm; Unocal, $115; and Goodyear, $100 mm.

Fred Hartly on dividends... Fred is not an isolated case.

Distributing a higher percentage of cash flow for corporate growth.

Again, look at Mesa... distributed nearly $1 billion to our stockholders and doubled reserves in 3 years... and 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

And the extra billions of dollars pumped into the economy would upgrade the standard of living for millions of Americans.

This is a populist issue: 50 mm shareholders... Florida is ranked 5th in the nation, with almost 2.5 mm shareholders.

[Handwritten addition: 400 thousand in the Tampa area]

If you include pension funds and trusts, half of all American households are directly affected.

In conclusion, shareholder activism is here to stay, and USA will continue to lead the movement.

We are making progress in retuning management accountability and shareholder rights... The result will be a more competitive Corporate America and a more prosperous economy than ever before.

Thank you.

Q & A