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	REMARKS TO THE ECONOMIC CLUB OF DETROIT DETROIT MI MAY 2, 1988

Thank you, Karl (Gregory).

[Handwritten addition: Somebody said Bea pretty]

[Text stricken: Introduce Bea.]

[Handwritten addition: and I said she is also smarter.]

Mesa stockholders here today?

Here to talk about Corporate America’s problems. . .and to suggest solutions.

Corporate America is in the middle of a major overhaul. . .long overdue. . .hard part just beginning.

We’re seeing a transformation of Corporate America:
—Focus on results, not size;
—Create value, not empires

Problems started just after WWII. . .professional manager.

Managements seemed intent on building huge bureaucracies.

[Handwritten addition: For years] It seemed like no matter how poorly management performed, there was nothing shareholders could do about it.

Slowly starting to change. . .Large shareholders are making a difference. . .forcing restructuring.

First speech I made on restructuring. . .L.A. in 1982. . .guy said he wasn’t sure what I was talking about. . .Symphony.

He wasn’t the only one who didn’t understand the restructuring issue back then. . .many people still don’t.

Restructuring includes. . .takeovers. . .LBOs. . .Recaps. . .selling off unproductive units.

Restructuring is not a passing trend. . .an ongoing process.

[Handwritten addition: Explain MLP—on going]

Five years from now, Corporate America may need to take another direction. . .restructuring gives flexibility to do creative things. . .makes you competitive.

With restructuring, we’ve returned to the basic principles of capitalism. . .based on creating value for owners.

Why has this happened? Stockholders, especially large shareholders and institutions, are realizing that they are owners, not passive investors.

Recent Fortune. . .shows how Fortune 500 companies restructured, cutting the fat and dramatically increasing productivity and efficiency:
—Profits soared to all-time highs in 1987

Should be no surprise.

Countless studies show restructuring helped Corporate America and economy.

Restructuring. . .a rethinking of the old conglomerate theory. . .size syndrome. . .Goodyear example.

Restructuring is making America more competitive. . .more efficient, productive, profitable.

Not just a matter of competitiveness. . .Had to happen for survival.

Quick fix. . .CEOs 55 to 65. No CEO should serve over 65.

There’s a crowd out there fighting change. . .being left behind at the station.

Easy to identify. . .No stock. . .Big salary. . .Big bonus. . .Big mouth:
—And one other thing. . .anti-shareholder amendments in bylaws

Go back to the ownership point:
—BRT. . .3 tenths of 1%

Example: Campeau’s takeover of Federated Department Stores.

Federated CEO Howard Goldfeder. . .37 years, $800,000 salary (before bonuses). . .owns only 3,000 shares; 32 ten-thousandths of 1% of the company.

Gordon Parker with Newmont. . .back then owned 406 shares (Not even a round lot); [Text stricken: 6 tenthousandths of 1%.]

Management ownership is linked to performance. . .April Fortune studied the 25 best performing companies of ’87. Fortune quote:
—“These outfits share a striking characteristic: Management and members of the board of directors own significant chunks of the stock, giving them a strong voice in running the show and a stake in the outcome.”

The next battlefield. . .retained earnings.

Corporate profits have soared. . .But what are they going to do with the profits?
—Dividends at all-time low. . .average 3.5% yield
—Average dividends for Fortune 500; 20% of cash flow. . .that’s $65 billion of $325 billion annual cash flow

Remaining $260 billion is left to managements’ discretion. . .can be worse than giving Congress a surplus.

I’m talking about 500 CEOs, with virtually no accountability, holding the purse-strings on $325 billion; $650 million each!

Mesa distributed $310 million in 1987; Boeing $217 mm; Unocal $117 mm; Goodyear $91 mm.

With today’s 28% tax rate, there’s every reason to push out a higher percentage of cash flow.

Push out 50% of cash flow instead of 20%:
—Dow would go to 3000
—Prevent a 1989 recession
—Upgrade standard of living

Significant impact on Michigan. . .about 3 million shareholders in Michigan, 1.5 million in Detroit.

In conclusion. . .restructuring is here to stay.

The data has been analyzed, the results are in and the restructuring philosophy has been almost universally adopted.

[Handwritten addition: Resisting it will only postpone the cure—it’s not a matter of now or never, it’s inevitable—can’t legislate against it—economics!]

[Handwritten addition: It may be painful at times but America will be stronger.]

[Text stricken: Managements that don’t adjust to the change are going to be run over by it.]

[Handwritten addition: Better for our children.]

Thank you.

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