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REMARKS TO THE
CEO CLUB
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Than you, Joe (Mancuso).
[Handwritten addition: USA annual mtg.-table, non-profit, money back-]
I appreciate this opportunity to discuss the effects of [Text stricken: corporate] [Handwritten addition: the] restructuring[Text stricken: ,] [Handwritten addition: of Corporate America.]
The subject cries for public debate. . .[Text stricken: USA bringing it to forefront of national debate.]
You know where I stand on the issues of restructuring, [Text stricken: takeovers,] and shareholders rights.
[Text stricken: I’d like to talk today about what I see as a serious erosion of our free market system. . .departure from the basic principles of capitalism.]
[Text stricken: Two schools of thought have emerged surrounding public corporations. . .I’m from the free market side.]
[Handwritten addition: Let me give you some history on where I come from.]
Mesa founded in 1956 with $2,500. . .now America’s largest independent producer of domestic oil and gas.
When Mesa went public in 1964, it was clear the company had one mission. . .to create value for the new owners, the shareholders.
Mesa grew from that $2,500 start into a $2 billion company.
Went from 421 stockholders to 150,000. . .But the mission remains the same. . .maximize returns for shareholders.
[Handwritten addition: First and only co. that has confidential voting-USA is pushing this on the hill-]
In other words, size is [Text stricken: secondary;] [Handwritten addition: meaningless] results are [Text stricken: the primary objective.] [Handwritten addition: everything]
Mesa's mission hasn’t changed, but the means of accomplishing it has changed[Handwritten addition: .] [Text stricken: constantly.]
Mesa has continuously restructured its operations. . .major restructurings in ’70, ’73, ’79, ’82 and ’85. . .still doing it.
Change is the only constant. . .change is sometimes painful and there are always winners and losers. . .but it’s necessary for survival.
Nobody had to pressure Mesa to restructure. . .changed ahead of the times.
[Handwritten addition: It had tough parts—]
[Text stricken: It was tough. . .]downsized, cut employees. . .but the result is a strong company in a weak industry.
[Handwritten addition: 100 person life boat—]
Without the changes, we would now be a part of a major oil company. . .Mesa would have been acquired because we couldn’t have survived.
[Text stricken: The Free Market school has proven time and again. . .the system falls if you put anyone’s interests before the owners’.]
[Text stricken: The Capitalist system set up incentives that serve the whole. . .that’s the engine that built the greatest economy in the history of the world.]
Making money for stockholders is consistent with responsibilities to employees, communities, customers and suppliers.
As an example, Mesa distributes $310 million to its owners annually, and at the same time we pump $87 million directly into our local economy.
The more profitable we are for our owners, the more our employees and local communities benefit from our success.
[Text stricken: Corporate altruism makes the public feel good, but it doesn’t buy cars and houses, and it doesn’t pay taxes.]
To succeed. . .employees must be challenged and rewarded, customers must get the best product for the best price.
[Text stricken: But you do that only by first serving the owners’ interests. . .then communities, customers, employees and suppliers all thrive.]
By contrast, [Text stricken: the other school says] [Handwritten addition: there are others that believe] business is more complex than that.
They believe public companies exist to serve society instead of to focus on profits for their owners.
How much money do you think I would have raised to start Mesa in 1956 if I’d told people I was forming a company to serve society?
[Text stricken: Yet that school of thought is growing.]
[Text stricken: Look at] [Handwritten addition: Some what troubling was] 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 last December:
—“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:
—41 years, $1.25 mm annually, 10,000 shares. . .17-tenthousanths of 1%.
[Handwritten addition: Was the biggest seller in 1987.]
The current “society first” rhetoric is a smoke screen for a “management first” philosophy.
[Text stricken: This departure from the free market principles is what has caused the problems I see in Corporate America.]
[Handwritten addition: All]
Started after WW II. . .professional managers. . .[Handwritten addition: then came the] bureaucracies.
Activist shareholders have begun to recognize the problem. . .takeovers, LBOs, proxy fights and the like.
[Handwritten addition: Only one reason for deals. Weak management-undervalued assets in a public market place—]
[Handwritten addition: Will not end as long as those opportunities exist]
[Handwritten addition: Inv. bankers, deal makers thrive on weak managements.]
Not every deal is a good deal, but overall, today’s corporate restructuring reflects a return to the basic principles of capitalism.
We’re going back to Adam Smith:
—Create value for owners, not empires for management
Corporate America is now well into the process of change:
[Text stricken: —Some saw it coming, helped bring it about]
[Text stricken: —Others were nimble enough to adjust or were fortunate enough to have it forced on them]
[Text stricken: — Another group, the iron-headed crowd, is being run over by change.]
The data has been analyzed, the results are in and [Text stricken: the] restructuring [Text stricken: philosophy] has been almost universally adopted.
The results:
—16 mm new jobs since ’82, leading to lowest unemployment rate in 14 years
—R&D up 100% in the past decade, after no growth the decade before
—U.S. Industry at almost 83% capacity, highest in 8 years
—Fortune 500 profits highest ever [Handwritten addition: -1987 a record year-]
[Text stricken: But just like every period of change, there’s group that has to be dragged kicking and screaming into it. . .that’s the crowd that becomes vulnerable to takeovers.]
I’d like to close with a[Text stricken: n] [Handwritten addition: golf] [Text stricken: appropriate] story:
—Three iron backspin
[Text stricken: With all restructuring has done, why would anyone try to stop the movement?]
[Text stricken: Thank you.]
QUESTIONS & ANSWERS