(00:00:00) Several weeks ago at this hour these stations broadcast the last in a series of programs on Law and the courts and their role in society that particular broadcast dealt with some aspects of corporate Behavior today for approximately the next hour or so. We're going to be looking at some of those same issues from the Viewpoint of corporate management. Our guests come from a fairly wide range of Minnesota corporations. Stephen Keating is the vice chairman of Honeywell Incorporated with 85 thousand employees in this country. Angus Wordle is the chairman of Valspar a company that employs about 1500 or 1600 people. Don Larson is the editor of corporate report, which is a magazine about business interests part of a publishing firm that employs about 50 people and build rake is the council for Medtronic Incorporated, which employs about 3,700 people all together. German one of the issues raised in the broadcast a few weeks ago had to do with with the boards of directors and their relationship to management their relationship to shareholders. The point that was brought out in the program was that Boards of directors really have very little influence over corporate policy as it is established by management and the boards have no responsibility. Whatever over day-to-day operations. Mr. Keating. Would you give us your viewpoint on that having served as a as a board member for number of Corporations? (00:01:34) Well, I would I would seriously disagree with that generalization. I think I think the people who Advocate that point of view are speaking about an American corporate seeing that's disappeared by and large long time ago. Most major company boards today are composed predominantly of outside in other words. And board members who don't have any personal relationships or in are not behold and to management most of the people that I'm familiar with on the major boards on which Isis serve our are independent people businessmen Educators, whatever who wouldn't serve unless they had some opportunity to determine corporate policy and really in a sense through their ability to choose and (00:02:24) dispose of chief (00:02:25) executive officers have an effective control over day-to-day. I don't mean they get into the nuts and bolts. I don't think that makes any sense, but I think good corporate boards today and I'd put in that category of vast majority of them. Are independent boards who serve a function of of establishing policy of monitoring the performance of their companies and of the executives of those companies (00:02:53) of your board members on the Honeywell Corporation. How many come from management itself? And how many come from outside Corporal (00:03:02) or come from management itself and nine at the moment come from outside that's been a ratio that we've had over recent times and it's one that we would certainly at least continue. And if anything we would tend to move toward more public members and fewer inside members of the board. (00:03:22) Mr. Were told how are the members of the board of your corporation chosen? Are they hand-picked by (00:03:28) management? Well, I think that's a fair statement that management does we have a nominating committee and management makes a selection of those members. We have evolved over the last few years from a privately held company to a publicly held company. And so we've seen a considerable transition in that we now have five outside members and for inside members and we believe that we want to continue the trend two more outside members and probably down to two or three inside members again in response to what Steve is said then I think a lot there has been a considerable change over the last 10 years in the way boards are appointed in the responsibilities that they feel they have and in their responsiveness to this. So I for one feel their hat there was room for legitimate criticism of the way a lot of boards operated. But my observation recently is there's been a considerable change in the way boards are are selected in the willingness of members to serve on boards as Steve mentioned that there is a considerable liability in serving on boards today and someone is not about to serve on a board if he doesn't have the opportunity to select management and to have some effective control over the policies of a company. So I feel that an awful lot of the continuing criticism is is aimed at some of the sins of yesteryear more than the actual practice today. (00:05:08) Will Drake what's the situation in Medtronic our board members pick their and how many inside (00:05:13) versus so-called outside people. Do you have we have a board of nine directors six (00:05:18) are in the pen of your outside Pro Management. Three are inside management, (00:05:22) which is typical. I think of most large corporations (00:05:25) today and we're moving as both Steve and Angus commented toward more outside directors on our (00:05:31) board. I think that's as a (00:05:33) trend recent Trend in corporations today. And I think there are very few that meet the old stereotype of a corporation where management controls the board and the board is a rubber stamp of action of management. Don Larson do the comments at these gentlemen have made about (00:05:50) their specific companies square with what you know about (00:05:52) corporations generally as editor of corporate report. We're definitely I think there's another important aspect of this though. That's that a chief executive officer of a smaller privately held company who perhaps can't has Interest in his company very definitely runs the company and can tell the board of directors to go jump in the lake and isn't concerned about shareholders and is running that company at his pleasure with the recent trend of companies to go public. They're no longer. Is that kind of control vested in anybody in management? Nobody has enough control to be able to call the shots and as management gets into this vulnerable position. I think that the board of directors is very definitely control the future especially the planning of a company. All you have to do is to ask some chief executive officer who was ousted by his board of directors to settle an argument about whether they have power or not. And I think that what you were referring to earlier is entirely wrong with the board's do control most of the The United States and they are answerable to the shareholders. Can you any of you from the experience that you have had on either your own boards or other boards think of examples of where the board has rejected a course of action proposed by (00:07:24) management. Oh, I can think of a number of them. I don't think indifference to the the individuals in the companies involved that it's appropriate in a session like this to talk about them but most of the companies which are with which I'm familiar present proposals to the board in embryonic stages in other words early in their development and certainly while of the majority of them are ultimately approved by the board I've both in my own company and Honeywell and on boards on which I serve as an outside director, the board has suggested that for various and Sundry reasons. It isn't a sound strategy or that the balance sheet of the company doesn't warrant. Going forth going forward with it. No, I think that's the basic subject of much of the discussion in boardrooms. Today is the evaluation of long-term plans and strategies and implementation of that on the part of management and and most management with which I'm familiar expects to get that from aboard. I guess. I've seen lots of propositions that look pretty good to management turned down. This (00:08:34) is especially true Bob and subject of mergers. I don't believe that there's any management around that would go ahead and sew up an entire acquisition process before it really started right from scratch with the board and let the decision of that acquisition fall on the shoulders of the directors and there have been instances in the last few months or boards have decided against a merger where it sounds like management was in favor of it. (00:09:06) I think it's confusing Bob that from the public point of view that there were a few times where the board actually gets a recommendation from management and then turns it down because if the board is performing its function properly (00:09:19) of being in the planning (00:09:20) process in the long range planning the corporation and policy and the management is keeping that board informed and getting feedback from that board. They will understand what will be acceptable to the board and not and usually they don't like to go to the board with unacceptable proposition. So they have a feel for what the board is wants and is rarely that there is a really showed out of the board meeting, but that doesn't mean the board doesn't influence what goes in comes up in front of the board. I'm aware of the situations where decisions have been made by management and the board has found about those after the fact and been very unhappy about that and it made it clear to management that those are the type of decisions that they want reviewed by the board prior to them being implemented. So the board does Act Make decisions on what management is proposing. (00:10:11) You've all talked about Boards of directors having outside members people who are not directly associated with the management of that particular company. Do you think that these outside directors (00:10:22) should come from specific interest groups? That is should there be a (00:10:25) consumer activist. Should there be (00:10:27) somebody perhaps from labor a minority person may be a woman whatever the situation might happen to be whatever category it might choose to look at. Mr. Keating. When you think in corporate terms the shareholders the thing that brings those people together is that their shareholders the fact that they represent various minority groups. It seems to me has nothing to do with the case. We'd like to have diversity on a board so that you might get different Expressions, but I think to have somebody on a board as a representative of some group as such with their Interest being that is a it does a disservice to the Shareholders who really only come together in their interest in any company as shareholders. They may have other side interests in other parts of life, but not as a corporate owner (00:11:19) Bill Drake of Medtronic. Let me ask you to respond to the question of the role that shareholders actually play in a corporation one hears frequently that companies are controlled by a very few shareholders, like two percent of the stock and essentially control the way the company operates. What's your view of that? Well, I think the analogy has been used that Corporation is like a small democracy in the shareholders elect representatives, which are on the board of directors which in turn elect the officer of the corporation. I think that would be nice if it worked that way but unfortunately, I don't think it works that way the shareholders usually have specific interests involved of a financial nature of performance of the company return on their investment and they Have a broad perspective to bring to the corporation's so they haven't been a good source of making sure that the corporation is responsive and accountable as far as the number of shareholders that can control a corporation. I think in a large publicly held Corporation the figures usually thrown out that I've heard from the financial community and maybe don you can support this or usually in a large corporation that 30% of the show shareholders can in effect control the corporation, but I haven't heard any figures much below that Mr. Larsen, I think another factor that a lot of the critics of shareholders overlooked and Ralph Nader was making a point in that other broadcast where they really haven't much influence. I've gone to thousands of annual meetings in the last 20 years and it invariably happens where the people who make the most noise and raise the most objections hold one or two shares of that company and bought it just on the basis of they could go in and and hear themselves subject and they very seldom represent the majority of shareholders and the people That get into annual meetings with the idea of raising a lot of Cain are doing it more for self-satisfaction and they are to further the company as it was pointed out here. That's it's kind of a of a democracy type of a thing and and companies should be run according to the dictates of the majority of shareholders. But the majority of them are usually in sympathy with management and it's very unusual when you find that to be untrue. What do you do in the case of a small number of shareholders who do have a particular issue that they want to bring to an annual (00:14:07) meeting though. Do they (00:14:10) usually get shut out or do they have a chance to say that easily not the annual meetings that I have attended a great amount of time is spent and much more patience than I would have of allowing these minorities. Or holders to say their piece and they usually will take a large portion of the entire annual meeting to bring up some very minor objections that the majority of shareholders obviously aren't in sympathy with and yet they're given all of the opportunity to stand up there and give a long speech and very seldom are they shut out and usually when that happens the reaction backfires and the next time the chairman of the board is much more liberal allowing the objections to be raised. So I don't think that's true at all. They're given great opportunity to express themselves. We've seen this happen over the past few years in a couple of areas of most recently, I guess with the University of Minnesota's investments in in corporations that have dealings in South Africa certainly corporations do have some They play some role in in shaping policy in this country. I wonder how is it that corporations decide how to deal with these with these controversial public issue kinds of questions. Mr. Wardle. Would you like to take a crack at (00:15:42) that? Well again, we're on a difficult issue and I think the shareholders role is probably more to dramatize the issue than to make the decision through their voting process. My observation. Is that shareholders who are presenting these issues rarely have a an impact at that meeting but longer term it usually gets Management's attention and management does reconsider in many cases their actions. The South Africa issue has been a well organized a campaign through the university endowment funds and I think it's going to Some am impact now whether this is a good or bad impact is a debatable issue, but my observation is that any company doing business in South Africa today. Thanks to thanks about it. And I think anybody who would be considering entering that market today would think about it twice because of all of this public pressure, but I again, I think it's a difficult question as to exactly what effect this will have on South Africa itself. (00:16:56) Mr. Keating Honeywell came in for some criticism for its defense Contracting work during the Vietnam war having had some years to look back on that now, what are your observations about that whole experience? (00:17:08) My observations are that I'm glad it was in the past but I would share a Don Larson's Viewpoint in that case. I respected certainly the people who for for moral reasons differed with the view in this country that we should continue to support our our fighting forces. And what was an increasingly unpopular War but the people who protested in the case of Honeywell held very few shares. They bought the shares is done suggests merely for the purpose of coming they came with friends and intended to disrupt the meetings. The the issues were presented were presented in a form of way to our meeting and they were overwhelmingly voted down. In other words the great consensus of our shareholders felt that the Decision made by our board and it was made by our board to continue to support American armed forces. They felt was a correct one and we did it. We were unhappy to all the emotion that surrounded it but nothing in the passage of 10 years or so has changed my view but what it was handled democratically from the standpoint of our shareholders and that the shareholders will was that we should continue to supply goods and we did (00:18:35) if that situation were to arise again. Would you make the same (00:18:38) recommendation? You mean with respect on the question of a (00:18:43) war on the question of an unpopular War? (00:18:46) Well, I we would do what we did before which was true. And we've done the same thing with respect to the issue of South Africa. We put the fact squarely to our board of directors and look to them to judge whether from a standpoint of our business as an American corporation. We should continue to do business or shut down and fire. The people we have in our board decided that we should continue to do business. Now time will tell whether that's a good thing or bad thing for South Africa, but looked at from the standpoint of Honeywell, we feel that it's an appropriate. It's an appropriate stand to take Yeah, Don Larson. (00:19:26) I think there's one area that the general public overlooks and regard to corporations. And that's that instead of being callous corporations are very sensitive to criticism a much more sensitive than I think they really should be but there is an over reaction on the part of a lot of major corporations, especially on such issues as South Africa and appointing special interest people to their boards. They do so on the basis of just not getting the criticism that they anticipate and this is probably a good in some areas. It's not so good for the corporations that but it is good probably for the country. Generally that they are sensitive. They don't get credit however for being sensitive to public desire and I think that's a fault we all have in telling the story of business. Mr. Drake, (00:20:22) but I'd like coming on I (00:20:23) think we had Medtronic do have six basic objectives that guide our Corporation in one of those six has to be a good corporate Citizen and I think that all corporations that I've dealt with whether it be in writing or Unwritten have a same corporate objective to be a good corporate Citizen. And so I think that on these moral issues that are brought to their attention by maybe a small minority shareholders or others. There are very sensitive to what these people have to say to make sure that they are acting properly and they definitely re-examine their position. They have their board advised them as to whether think it's appropriate decision. It may not change the decision but it definitely makes them at focuses attention on those issues and they get addressed whereas they might not have been aware of some of the issues of more facts are brought to bear on their decisions and they in some cases do modify the you way in which they operate and do business as result of that. To give it to you in their responsibilities to be good corporate citizens. One of the problems that corporations appear to have as far as Public Image is concerned as the reports that we read about from time to time of illegal activity on the part of either corporations as a whole or of individuals associated with corporations. There was a some time ago, of course the business ability legal corporate Camp political campaign contributions. We hear about corporations going before the well it is it must be this Federal Trade Commission or or whatever and while they don't admit wrongdoing in a certain area they do agree to recall the product or whatever. It might (00:22:05) be. (00:22:07) Is this a serious problem for you folks generally or is it something that is given more publicity than it is worth in your view. (00:22:17) Well, I don't think it's given a necessarily more. More attention that it should I think unfortunately in any facet of society, you've got a vast majority of people who live by the rules whether they're 55 miles an hour or whatever and you always got some people who take advantage of it to either intentionally or really because they're negligent. I I don't I don't think any corporate officer would feel that there ought to be any whitewash if there is ill doing I think unfortunately what's happened to some extent today and maybe it's our own fault and corporations because we don't communicate more effectively, but the sometimes I think that there's a feeling created because two or three companies cheat somehow that everybody is in the same position. I don't think that that's true as mr. Drake mentioned all of us have in one form or another we have in written form a code of ethics that we expect our people to live by we audit to ensure that they do live by we have no qualms about taking action against their own people if They don't live up to those to those criteria. So I think that it's unfortunate that the opinion is as broad as it is that that there is ill doing in corporate areas, but to the extent that it exists and is proven. I see no reason that it should be whitewashed. I think it's it's a fact of life and the public is entitled to no it certainly the shareholders are entitled to (00:23:46) know. Do you think that when corporate executives (00:23:49) are convicted of crime that they get off too easily? Well, I think that's a whole nother question. I think that there has always been a feeling in this country that so-called white level white collar crime is is winked at a little bit more. I wouldn't relate it. Just a corporate people. I think the all the crimes embezzlement all the kinds of white collar crimes. Did you think about probably don't get his harsh a look as the more violent crimes and to the extent that exist. I don't think corporate officers ought to be treated any differently than anybody else Angus (00:24:25) Wordle of Valspar. (00:24:26) You have any thoughts on that? Well, nothing new except that it clearly has been a problem for some companies again. Most companies have addressed it. The formation of the audit committees has has has kept companies has made companies develop much closer controls to assure that these these misdoings don't happen again. And I for one think that that's probably an area that certain public pressures and government regulations have been constructed in corporate Behavior. I think as Steve said it wasn't widespread but it was wide enough spread that it was of concern to all of us because it gives us all a bad name, but I think that some constructive steps have been taken to keep it to a minimum. Don Larson, (00:25:24) you mentioned something about whether or not this whole subject had been given too much publicity. I don't think and I've run into very few businessmen who feel that those instances of illegality. These have been blown out of proportion. I think they should be exposed and there should be a lot of attention given to it. Unfortunately the perspective is gone. And that's that dealing now with major corporations. There are very few instances in the overall scheme of things were a company is doing something illegal and has been caught and called to the attention of the public and word has its made quite a splash but it's such a minor part of the everyday life of Corporations my opinion there's far less violations of the law and major Operations in there isn't any other segment of our society and this is especially true. If you were to compare major corporations with government or with the one smaller companies where you will find more of this due to their feeling of survival, but you have such a small number of incidents that this is an area that I don't think the public realizes that major corporations is the cleanest game in town. I guess this morning I Steve Keating Vice chairman of Honeywell Angus Angus Wordle chairman of Valspar Don Larson editor of corporate report and Bill Drake Council for Medtronic. One of the issues that came up in the broadcast a couple of weeks ago had to do with mergers and it was suggested that mergers are occurring at a fairly rapid rate that companies are being taken over by others that don't and there's no necessary relation between the products of one of the products of another conglomerates is We're heading for in the future. The implication was that many of the assets of Corporations many of their profits will be controlled by a very few number of people if this trend continues in your observations, is is this true and is there any problem with it? Mr. (00:27:42) Drake? (00:27:44) Well, this is an issue that has come to the attention of the public recently. I think most dramatically in the form of the adverse or hostile takeover. And I think it is a major issue of social justice in our economic scheme today as to how these matters will be handled. I think myself that a very successful well-managed company that is taken over in an adverse take a take over. There is a loss of identity a loss of opportunity for employees. Other costs that may not be taken into consideration under our current legal and business environment. I'm really at a loss though as to how best to address this question and to correct it in our society. We do happen to have a lot of Corporations today that have a lot of excess cash and because of the market conditions, there are many well managed companies that I guess in my opinion and others opinions are undervalued on them on the market in this makes it inevitable that some of these takeovers will occur. I don't think though that any legislative remedy to this such as has been introduced into Congress Now by Senator Kennedy of having arbitrary rules assize per se is is not good in that they will not allow mergers because I think there is a place for companies merging and coming together to pool our resources and assets. I don't think that there's a concentration in business in the United. Snow that is going towards a few corporations. It's going to end up dominating us business primarily because in some areas, I think that foreign competition will come into play and I think it was Bill Norris commented that for instance in the u.s. Steel industry. It could well be that we do need more concentration in that industry in order to meet foreign competition in to develop the size and economies of scales needed for the u.s. Steel industry. So I don't think you can make any generalizations throughout our economy that size per se is is improper or not going to be responsive to the needs of our economy. Mr. Larsen, I think that although all mergers are not bad. Some of them are to the benefit of everybody as a private citizen. I'm very alarmed at the rash of mergers that we've had in the last year all over the country and I think in many instances, it's just not good for society as a whole to see this but what the public doesn't realize is you can't have your cake and eat it too. One of the reasons there are such a rash of mergers these days is because of the unprofitability of the companies being acquired we hear a lot of talk about the excess profits that companies are making but the real facts are that the prices that the stock of these companies are selling for in so many instances are so low because of the Performance of the companies involved that they become easy targets for a bigger company to gobble up for an amount of money that is much less than that company is worth the the way to correct. This many of mergers is not through legislation, but through ways of increasing investment in companies and in profit abilities of companies, so it's no longer economical for a big company to go buy a smaller one. No company of small to medium sized really wants to sell out to a larger company and lose its identity they do so do so through necessity and the necessity is usually brought about the fact that there just isn't enough Capital around to accomplish the things they want so you can't very well hold on profits and stem the tide of mergers. You can't have it both ways. Angus Wordle (00:32:08) there is some dispute over the facts of whether or not concentration has increased over the last 10 to 20 years. And I know the Kennedy committee has a set of facts that indicates that that would happen that that has happened but like any set of Statistics. There are a lot of ways of looking at them in the best statistics that I've seen would indicate that over the last 25 years economic concentration has not increased. In fact, you have to consider that our economy has grown tremendously over the last 25 years and so big companies are a lot bigger than they used to be but but in fact probably the top 200 companies don't control any more assets today as a percentage of the total private Capital than they did 25 years ago. I have two perspectives. I guess what has my own and one is it from our own company's point of view and we have made a number of Acquisitions over the last 15 years because we believe the economy of scale in the in the paint industry is changing and simply to survive. We had two choices. We either had to sell out or acquire other companies and we chose the route to to be one of the surviving companies and to acquire other Coatings companies. We have stayed in our own industry however in doing this and I believe that to meet the economy of scale Acquisitions generally are constructive, I as a private citizen though, I will voice some concern about major companies diversifying into areas that they have know that there are no economies of scale and in some cases I've seen some companies that that that I feel are getting into areas that in fact have not been constructive for the industries that they've entered one idea. I've had in the back of my mind for a number of years which most of my big my friends in big companies don't like very much as the idea of a graduated corporate income tax. I believe in some sense that if there was some graduation to the corporate income tax and if a company had to examine what it would do to their tax rate before they made an acquisition it bite it might help some (00:34:31) move on to some of these other issues and yeah sure. I just like had one (00:34:36) other perspective on Acquisitions. I think that unfortunately again because of to some extent the the press and emotionalism of it that the impression is aboard that all mergers are bad the great bulk of mergers in this country are friendly mergers. A matter of fact we at Honeywell have merged and or made a number of Acquisitions / R / R 85 plus years and existence every one of them was friendly and 90% of the cases the principles of the acquired company approached us to see if we'd be interested in acquiring one of the reasons for that of course is the unfortunate implications of our tax system in this country in which private owners the entrepreneurs of yesteryear really as they pass from one generation to the next can't afford to keep the stock and the family because of are prohibitive or tax inheritance tax laws. So I had to some extent share angus's view philosophically about certain kinds of mergers, but I think one of the one of the great stories of American industry has been the fact that a small guy can start out develop an idea and when he comes to a point that he feels he can't Finance it any longer he cashes out and go On perhaps the something else. So I think there are really some positive X aspects to mergers and that we shouldn't just out of hand indicate that that they're all bad. The other point that I would make is that we have to be careful that we wonder or we worry about when we say they're bad they're bad for whom an awful lot of mergers have been very good for the general public in terms of decreasing distribution costs, you know today if we didn't have a General Motors, which was the result of a whole bunch of emerges over the years automobiles in this country would cost a great deal more than they do today. So I think we have to be careful that we don't judge the fact that because some are bad all our bad (00:36:39) take the case of your own company and mergers if you have a lot of cash sitting around for one reason or another would it be your company's tendency to buy up the Of other companies would it be your tendency to invest that money in new plant and equipment for the future? (00:37:00) Oh, there's no simple answer to that. We've done both things in some cases. We've decided that it's more advantageous looked at from our standpoint to spend our money internally and new tools and equipment and so forth in certain other areas, particularly. Our Acquisitions have largely been in technology areas. We've decided that it might cost us so much or that it would be prohibitive from a Time standpoint to to get there. So we've gone both ways. I don't think there's any I don't think there's any simple answers to what way you do it but harking back to the point that Don Larson made if if if as a result of many things the tax situation regulation in this country, whatever if country if companies are valued if their stock is valued relatively modestly in many cases, they can't afford to use their own stock. It becomes prohibitively expensive to do it or it's impossible to do it. So, but I don't think there's any Lancer to which way you go (00:38:02) one of the problems with the economy that we hear about constantly is that there's not enough investment by business that the United States has one of the lowest investment ratios of any modern industrialized country West Germany, Japan way ahead of us. Do you see any any way out of that if it is a serious problem, mr. Drake? Well, I don't know if I can comment specifically on that. We as a company invest a tremendous amount of our resources back into research and development. I think one of where one of the highest companies in the country with about nine percent of our revenues invested back into research and development into new products in our current product lines, and of course we do invest in developing new products that are complementary to our present products. We're not a capital intensive industry so that I don't know if that question I can really respond to that question is to generally whether corporations are investing enough and replacement of their Capital base for the future by several things that companies can do with the money they make they can (00:39:09) turn it back to the shareholders in the form of dividends. They could invest it for the future they could use it to maybe pay their employees more money or whatever the situation might be. (00:39:20) How does your company decide which of those? (00:39:24) Among many routes to take (00:39:26) well, we currently have adopted a dividend policy. Whereby we return some of that money to our shareholders and it's a certain percentage rough percentage of what we earn each year the rest of it. We are reinvesting in our business to expand our product lines to introduce new products in research and development. So with our particular company, we are reinvesting the large portion of that back into our current businesses. Mr. Riddle, what does your company do about (00:39:57) investment? Well, I can speak specifically about our own company and the way we look at new investment our company like a lot of companies today are stock cells slightly below our book value. And so what would happen to us? If we if we build a new million dollar plant today and spent a million dollars for the market immediately values that at $800,000. We immediately have a discount on a of our investment in terms of market value. So our route has been quite clear. All of the Coatings companies have been valued at less than than Book value. So it's much cheaper for us to buy somebody else's fixed assets or productive capacity than it is for us to build it. And that is it's the market conditions that have created I think an awful lot of tender offers and mergers and acquisitions. but I think it is a national problem I think we do have a problem of new capital investment in our economy and there are a lot of proposed Solutions I'm not sure what what the right one is but I'm sure we're going to have to have a better depreciation recovery than we have now for us as a company to have an incentive to build a new plant and equipment Don Larson (00:41:25) on the subject of investment I don't believe the problem in our country is the way corporations investor money I think it's the way the public invests its money and I'm talking now in terms of not only the average investor on the street but the huge institutions the insurance companies and Pension funds there's not enough money being invested into corporations by these people and the reason is because the return and the is not great in the risk is high and we need to solve that problem in some manner to encourage people to invest their money and in common stocks of the corporations of this country I think that the step on improving the capital gains tax was in the right direction but there needs to be other things done so that people will want to invest money in corporations and I don't think that the There is much of a problem today and the way most corporations spend their money they do so as economics dictate. They have to put a certain amount of their money back to the shareholders for dividends to keep the interest up. They've got to invest a certain amount in plant and equipment to remain efficient. There isn't just an awful lot of options open for Corporation, but there are a lot of options for the general public and unfortunately today the most unfavorable option is to put the money in the stock market. I wonder why that is just kidding. (00:43:00) Well, I there's no simple answer to it. But certainly in my view one of the major reasons is the uncertainty created by the very high inflation rates in this country. The it may not be all that logical. But all you have to do is read the papers and find out that people are much more interested in buying gold and bearing it in their backyard or putting it in Saving accounts where they presume there's no risk and this country was built during a time of relatively little inflation people were willing to risk it because they the chances were reasonably good that they were going to get their return back now if they get it back, even if they get it back the dollars they get it back in that are going to be worth less than the dollars they put in so it seems to me we really Inflation to me is overwhelming cause of lack of it may not be logical but it's one of the overwhelming causes of lack of equity investment and of uncertainty in the whole fabric of American society (00:44:01) stock market used to be viewed as a good way of keeping up with inflation, but we see are (00:44:05) still people who believe that I think and you can make a real case for the fact that well-managed accompanies. The equity of those companies will prevail but I think there's such a syndrome of uncertainty in the country. And in the world today that people are not inclined to do that there on the sideline the most sophisticated managers who might believe philosophically that Equity over the long term is a safer hedge against inflation and then the fixed income securities are not prepared to commit it in a time in which there is so much uncertainty really surrounding the whole issue of inflation. (00:44:42) How about you? What do you do? (00:44:44) What do I do until I've stayed in the stock market largely through my own company because that's that's really the primary asset that I have. I still remain convinced that that that Equity dream will come true but I must say there are days when I begin to wonder (00:45:02) we are ya Don Larsen just one thing. I don't quite agree that it's a complex problem. I think it's a rather simple problem. I agree with Steve that the major reason stock market Investments aren't attractive today is because of inflation and the major reason for inflation is government spending. I think if you can reduce government spending you then can reduce taxes and introduce incentives for people to invest money in corporations and you will accomplish two things by that the government spending would help the capital. Months and it would help reduce the inflation and that means the key if we can get our politicians instead of just talk about cutting taxes of cutting expenditures on federal state and local levels. I think we would be starting on a downward slope gentlemen, the hour is getting on I think we may have time to delve a little bit into one final issue here in one of those philosophical ones again, how have corporations perspectives on their own rules changed over the years 25 years ago. Somebody said what's good for General Motors is good for the country. Is that true number one and do corporations? Believe it? If so, why if not why not thing is Wordle? (00:46:27) Well, I believe that that the Public's expectations from corporations have changed fairly dramatically over the last 20 years and I think originally the public expected reasonable goods and services from our corporations, but increasingly the demands of increased and they've expected the corporations to help solve some of our broader social problems and in the country and then I have observed over the last seven or eight years a growing awareness and corporate Executives that indeed their traditional role of just providing goods and services at a reasonable cost is really not enough for them and a number of groups around the country have begun to address this and here in Minnesota. We have a group called the Minnesota project on corporate responsibility whose mission is to educate and to share ideas amongst the major corporations here on just what the appropriate role of a corporation is today. And then again, I was a Critic of some of corporate Behavior over the last decade but my observation has been that there's a much greater awareness of of the problem and the corporation's do have to respond in a more responsible way. A lot of us aren't sure exactly how to respond but there's a growing Dialogue on the problems and I've seen an awful lot of Of movement by a management in responding to a problems and I think Minnesota samples. Well, I think Honeywell has done has had a number of projects that are noteworthy in terms of right in there. And in their backyard, they have made a commitment to improve their neighborhood. I for one think their commitment to stay at their at their current headquarters as their corporate headquarters was a commitment to address the social problem of the Urban Decay and then and I think people tend to overlook these but that's a significant event. We Face the same issue. We have an old factory in town. And in fact production is moving out of that and we've made a commitment to stay with Technical and office facilities in the city. We think it's good for us and good for the city in the long run companies have have through their involvement of their employees and through their Tribulations have begun to address a number of problems. Again. We have a new company just form called City Venture Corporation by whose major supporter has been controlled data and they are their mission is to is to address some of the social problems particularly in the inner city and to put plants in the inner city where unemployment is the highest and these are this is a whole new realm of thinking the corporations are beginning to address. I don't think it's is Broad or as committed maybe as it should be today, but there's been a dramatic change in the last seven or eight years and I'm very encouraged by what I see him, Don Larsen. (00:49:54) I'd like to get back to the incident. I agree entirely with Angus on his view of the that situation but getting back to the statement of what's good for General Motors is good for the country. I believe that that's thicken slightly on a context. It was said by Charles Wilson. I think it was a Cabinet member in the Eisenhower Administration back in about 1950 for and what he really said was that the objectives of General Motors are the same as the objectives of the general public and what he's talking about is an improved standard of living and that a prosperous General Motors would reflect a prosperous economy and good times were the citizens of this country. But it more or less was blown a lot of proportion on the basis that it was a A derogatory interpretation due to an adversary relation with the general public in corporations, and I have never been able to understand why there exists this adversary relationship there shouldn't because the majority of things done by corporations, even though there are not designed to benefit the public they do as a matter of fact and in why people seem to look upon major corporations as an enemy is is really a little ridiculous and it's a case that I think business itself is not done a very good job of really telling its story and it's explanation of their free enterprise system to the General Public. Bill Drake (00:51:36) agree with (00:51:37) Angus that there's been a great change in corporates attitude and they do have a broader perspective of what is in their self-interest in this includes a social issues and other matters beyond the traditional business profit making concerns that we associated with a past. I'm not so sure that in the past they didn't have those objectives as well. I think it's again they were characterized as being less concerned with that. I'm not sure that the businesses have gone as far as the critics would hope them to go and I think that in many cases it's a question of different terminology that may be used and the realities haven't changed as much as we had hoped. I think though that the direction is clearly toward a broader responsiveness to public needs. I think all of the corporations that I've been exposed to very much are Learned about their goods and services that they provide meeting basic needs in the society. Otherwise, they as a corporation will not survive long term and I think that that perspective is very very much reflected in board Decisions by the major corporations Steve Keating. (00:52:54) Well, I think I would find myself in agreement with most of what's been said I think there has been a dramatic change in the attitude of Corporations. I think it's a reflection of what makes up corporations and most of the management of Corporations today are professional people. They're not owners their product of our schools our universities of our Farms, whatever and I think that what you're seeing is an evolutionary change, that's really for the good. I think the idea of the robber barons of yesteryear was probably overdone but to the extended existed it's long since it's a long since disappeared I would say that I think my experience a corporations are really pretty much reflect the ethics of the of the country themselves or the great vast majority of our people are I think are good solid citizens. They want to go out of their way volunteerism and whatever I think to the extent that there are problems. It's It's relatively there are relatively few we all get tired with that but I do think there is a change of foot just I know you're running out of time I would just say I think unfortunately one of the reasons there is this if you will some adversary relation today is this is a terribly complex world. It's clear to the average citizen that big government can't solve his problems and I think unfortunately you now assumes that big business can and I think a big business aren't magicians. I think we can make steps and I think we all should make steps, but I think we have to recognize that when we're living in this Century with the complexities of inflation and energy shortages and so forth. We're dealing in Monumental system problems that aren't going to be easy of solution and to assume that corporations can solve them all as a maybe complimentary, but I think it's over stating the facts. (00:54:47) Gentlemen, thank you all very much for coming in today our guest this morning have been Stephen Keating Vice chairman of Honeywell Angus Wordle chairman of Valspar Don Larson editor of corporate report and Bill Drake Council for Medtronic. This program was produced by niknash and this is Bob Potter speaking.