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	REMARKS FOR THE USA NEW YORK EVENT NEW YORK NY May 18, 1989

Thank you, Tom.

Before I begin my remarks, I’d like to give a special thanks to all the members of the host committee who are here tonight:
Don Carter
John Chalsty
Keith Gollust
Ace Greenberg
Fred Joseph
Carl Icahn
Arthur Levitt
Drew Lewis
Arthur Lipper

Tonight, I want to talk about the emergence of a new era for the shareholder rights movement.

We’re seeing shareholders —both large and small, individual and institutional — exerting their influence on the management of American corporations.

We’ve seen historic victories this proxy season.

The momentum for shareholder rights is building.

Since World War II, when entrepreneurial corporate founders were replaced by professional managers, there has been a wide separation of ownership and control.

The owner and manager had a piece of the action, as well as the financial risk.

They had a totally different set of incentives than professional managers.That’s the key. Virtually every problem in Corporate America can be traced back to one issue: Managers do not think like owners.

An owner and manager looked to make the company the best it could possibly be.

If the business prospered, so did other owners, employees, suppliers and surrounding communities.

That’s simple and rather easy to understand, but professional managers had another agenda.

They had large salaries but little ownership. And, since compensation was based on company size rather than the return to shareholders, managers often diversified into businesses they knew nothing about.

A lot of these were disastrous.

Here’s a good example: Goodyear bought Celeron oil. It paid more than anyone else in the oil business was willing to pay.

The company’s stock price plunged, and they finally sold it as part of a restructuring to prevent a takeover.

That was the way corporate America operated.

Bloated, bureaucratic, unaccountable and — by the early 1980’s — losing market share every quarter.

No matter how badly management performed, there was very little shareholders could do.

That started to change when entrepreneurs demonstrated that the full value of corporate assets was not reflected in the stock price. The stock market discounted share prices because of poor management performance.

But active shareholders areforcing a transformation ofAmerican corporations.Corporate restructuring is creating more efficient, valuableand competitive American corporations.

Now, management is being forced to answer directly to shareholders in the proxy voting process.

This proxy season has been a watershed.

Just last Friday, Honeywell revealed that it was unable to pass two anti-shareholder charter amendments because of the opposition of a group of shareholders.

This was a monumental victory for shareholder rights.

Another big victory is in the works at Pittston. There, the United Mine Workers launched a proxy fight for three proposals.

It looks like they’re going to win two of them:
— A shareholder vote on the company’s poison pill
— A confidential vote proposal

Six companies agreed to confidential voting in response to shareholder proposals in this proxy season
American Home Products
Continental Corp.
First Interstate Bancorp
J. C. Penney
TRW
Unocal

Two of these confidential voting agreements at TRW and Unocal were negotiated by USA members who submitted proposals through USA’s corporate activism program, including Kurt Wulff at Unocal.

The institutional investors, particularly the public pension funds, are our great allies in this fight.

The New York City employees pension fund, for one, has been a leading proponent of confidential proxy voting.

I said five years ago that institutions were the wave of the future.

With their research capability and fiduciary responsibility, institutional investors are helping bring accountability back to corporate America.

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

3,000 CEOs cannot hold 47 million shareholders hostage forever.

If managers were truly accountable, dividend payments would increase sharply.

Right now, corporate managers are sitting on one of the biggest hoards of retained earnings in corporate history:
Ford, $10 billion
Boeing, $5 billion
Even Chrysler has $3.3 billion. That’s more money than they know what to do with, which historically has been a disaster.

Restructuring has helpedFortune 500 companies torecord profits the past two years.

Their earnings were up 42 percent in 1988, yet dividends rose only 11 %, yielding just 3.6 percent, which is near an alltime low.

Looked at another way, Fortune 500 companies pay out only 20 percent 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, $245million; Phillips, $175 million;Unocal, $115 million; andGoodyear, $100 million.

[Handwritten addition: Fred Hartley on dividends]

Fred is not an isolated case.Distributing a higher percentage of cash flow still leaves plenty of cash for corporate growth.

Again, let’s look at Mesa. We distributed nearly $1 billion to our stockholders and doubled reserves in three years, and we’re still growing.

If we want to avoid another market collapse and keep a strong economy, we can distribute 50% of cash flow instead of 20%.Dow would go above 3,000

Prevent a recession
— The extra billions of dollars pumped into the economy would upgrade the standard of living for millions of Americans.

We’re pointing the way to a healthier, more competitivecorporate America through management accountability and shareholder rights.

Thank you. Now I look forward to your questions.