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	Speech given at SALINA, KS 22 FEBRUARY 1989

[Handwritten addition: PBS Geologist
Cool tonite but not enough — Ann Arbor 2 yrs ago.
Ben Vidrickson no rubber chicken at Salina —]
Thank you, Joe (Warner).
I've been asked to talk to you today about entrepreneurship.
[Handwritten addition: Entrepreneur — Ed Sleeman — Don't ever discourage them]
Most of you are well aware of how important entrepreneurship has been for our economy:
— Created thousands of small businesses
— Small businesses created most of the 19 million new jobs we've added since 1982
[Handwritten addition: — Lowest unemployment in our country in 20 yrs.]
But unfortunately, the entrepreneurial spirit is slow to spread to America's large corporations.
So what I'm going to talk about [Text stricken: today][Handwritten addition: tonite]is not entrepreneurship, but the lack of entrepreneurship in Corporate America, in FORTUNE 500 companies.
Corporate America's problems started just after WW II entrepreneurial founders replaced by professional managers; a no-risk mentality emerged.
Separation of ownership and control (Explain).
Many companies diversified out of the businesses they knew, built huge bureaucracies... GM 14 layers, Japanese 5.
These inefficient corporate bureaucracies stifled entrepreneurship, destroyed morale.
We need younger, entrepreneurial leaders in charge of Corporate America:
— Quick cure... retire CEOs 55 and older (including me)
But there's no way that will happen, because corporate managements have too much to lose.[Handwritten addition: Personally -]
No matter how poorly management performs, there's little that shareholders can do about it.
[Text stricken: Let's remember that shareholders own the company, not the managers:
— Corner Filling Station
But managers have insulated themselves... poison pills, golden parachutes, anti-shareholder legislation:
— Boeing example... 50 Banana Republics]
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 reelection (Compare how stockholders and voters are treated).
[Handwritten addition: Russia —]
The way to restore America's competitiveness... make managers accountable to the owners.
We must reestablish that shareholders are the owners of public companies, and managers are employees.
That's one of the reasons why I formed the United Shareholders Association in August '86... upgrade shareholder awareness.[Handwritten addition: & protects sharholders rights in Wash.
I sincerely believe in United Shareholders Assoc. Let me tell you how much I believe in it. - - -]
I've given $1 million in honorariums (I've never kept an honorarium):
— Another $1.3 million from my book (Non-profit deal).
[Handwritten addition: USA is non-profit]
Corporate America is changing slowly... Shareholders are[Text stricken: using the threat of takeovers to force][Handwritten addition: forcing]managements to perform.
Managers are working harder, making companies more profitable, more efficient, more competitive.
[Handwritten addition: 1987 most profitable for Fortune 500 - 1988 will be better when all the results are in.]
What we are seeing is a transformation of American corporations:
— The goal should be that size becomes meaningless, results are everything
First speech I made on restructuring... L.A. in 1982.
Back then my arguments were rhetorical... Now the empirical evidence is in, and it supports [Text stricken: shareholder activism][Handwritten addition: restructuring is making a difference led by shareholder activism]
FORTUNE 500 CEOs scream that [Text stricken: takeovers and]shareholder activism [Text stricken: are][Handwritten addition: is]hurting their business.
They give you the “short-term long-term” argument... long-term growth sacrificed for short-term profits.
[Handwritten addition: [Text stricken: shortest of short term players —]]
What they're really saying is “Give us more time to make the same mistakes.”
FORTUNE 500 CEOs are the short-termers... big salary, bonuses and perks, little ownership.
[Text stricken: Look at][Handwritten addition: You may remember last year]Campeau's takeover of Federated Department Stores.
Federated CEO Howard Goldfeder... 37 years, $800,000 salary, big bonus..[Text stricken: owned only 32 ten-thousandths of 1 % of the company.][Handwritten addition: owned 3000 shares of stock in the company he was running.]
Restructuring focuses management's attention on what the company does best, the core business:
— Goodyear example
[Text stricken: The fact is, there would be no takeovers if management did its job... (Definition of a going concern).
It's really that simple... keep stock price near asset value and there will be no takeover.]
Another concern to be dealt with... retained earnings... Ford, $10 billion; Boeing, $5 billion... 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:
— They're not returning profits to the owners
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, $245 mm; Unocal, $115 mm; Phillips $175 mm and Goodyear, $100 mm.
Fred Hartley on dividends...
Distributing a higher percentage of cash flow [Handwritten addition: still]leaves plenty of cash for corporate growth.
Look at Mesa... distributed nearly $1 billion to our stockholders... 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
— Upgrade standard of living for millions of Americans
You say, “How does this affect me, I don't own stock?”
If you include pension funds and trusts, half of all American households are directly affected... 50 mm shareholders.
In conclusion... shareholder activism is here to stay... this process will make our country more competitive [Text stricken: and entrepreneurial] than ever before.
[Handwritten addition: Thank you]
[Text stricken: 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.]

NO Q&A