Does everyone have a copy of the Proxy Statement that I have cleared with the SEC in connection with my candidacy for Director of Sears, Roebuck and Co.? If not, we will get you one forthwith. It is essential, before I begin to speak, that we all can witness that everyone hearing my remarks has previously been furnished with the SEC approved form of proxy statement.

Good Afternoon

This is an important occasion. It marks the end of the beginning of the first phase of modern corporate governance, during which it has become widely known that great corporations really have owners; that these owners are capable of watchfulness and of understanding their own long-term interest; and that these owners could use the machinery of corporate governance to express their wishes. This is a great accomplishment, one in which the Council itself and its members in this room can take substantial pride. Institutional owners have acted with restraint -- they have asked, not demanded; they have been willing to talk, rather than force confrontation.

We are not ready to begin the next phase -- that of knowledgeable participation by shareholders. In focusing attention on those companies that indisputably are "poor performers," institutional investors should initiate binding resolutions when managements will not participate in constructive discussion. The most important focal point is the process of selection for the board of directors. Institutional investors have no interest in or competency to manage companies, their only satisfactory mode of expression is to assure the existence of a competent, independent board of directors.

"Independence" is a concept that I want to define precisely. Much fine work has been done to define what are the legal attributes of an "independent" director, many institutions have struggled to win agreement for a board a majority of whose members will be "independent." In my view, these efforts are not adequate to accomplish the desired results. So long as an individual "owes" his membership on a board uniquely to personal selection by the Chief Executive Officer, he cannot be considered to be "independent." Is an individual to be handpicked by incumbent management and "invited" to be a member of a board or is he/she to be chosen pursuant to a process in which owners have significant input and are elected to the board . The difference between the words "invite" and "elect" are all-important, as they reveal to whom the director will be loyal.

I ask you to consider reviving the idea originated by the SEC in 1977 and supported by The Business Roundtable of proposing to a company the adoption of a by-law permitting shareholders (above a threshold %) to nominate individuals for the board, who will then be entitled to appear on the company proxy. J. Paul Austin, CEO of Coca Cola, as Chairman of the Corporation Organization Policy Committee of The Business Roundtable wrote in response to Securities Exchange Act Release No. 13482, on August 1, 1977 (at p. 34 et seq.):

"We recommend that, if necessary, the proxy rules be amended to permit shareholders to propose charter or by-law amendments to establish general procedures by which they may nominate candidates for election as directors, provided such matters are proper subjects for shareholder action under applicable state law. Although we have not undertaken a state by state review, we believe that it is universal doctrine that shareholders have the exclusive right to elect directors at annual meetings. We also believe that '...as a corollary to their right to elect the board, the shareholders have the right to nominate candidates for directorships' although not necessarily an exclusive right."¹

It is also essential to continue the work begun by the Public Employee Retirement System of California to develop a national registry of qualified candidates to serve as independent directors. As I will comment on in more detail later, Sears, Roebuck has recently noted the difficulty of locating qualified directors . There is need for this right now.

When institutional investors get to the point where you have the capacity to nominate a director, what can you expect? Let me give you a preview based on my candidacy to be a director of Sears, Roebuck and Co.

1. Although many companies, including Sears, allow nominations by shareholders, my experience is that this is really a sham. At no time did anyone from Sears ever contact me or the half dozen CEOs on whose boards I am serving to inform themselves of my capacity to contribute.

2. The process of nominating a director is surprisingly difficult. After some thousands of dollars of legal expense, I still really don't know what the by-law provision means when it requires the nomination letter to include "all information related to such person that is required to be disclosed in solicitations of proxies, or is otherwise required , in each case pursuant to Regulation 14A...(emphasis added)". In any event, Arthur Dubow's nomination of me was accepted on our second try.

3. There are mechanical problems. For example -- following months of discussion with the SEC, we are still unable to produce a form of proxy that will permit you to vote for me and two other persons to fill the three vacancies to be filled at this year's Sears Annual Meeting. As it happens, thank goodness, in the case of Sears, there is cumulative voting, so you can use your full voting powers by giving them all to me -- but it is indicative of the way in which the proxy system is strewed with obstacles that I am not allowed to circulate a proxy card with my name and two blank lines on it.

4. Speaking of circulation, I asked for a Sears' shareholders list and I got a law suit instead. Litigation seems to be a part of the proxy process, even when control of the corporation is not at issue.

5. I asked the management to adopt a policy of confidential voting in this election, because of the obvious potential for coercion. They have declined to do so.

6. I asked Sears' Chairman, Ed Brennan, on February 28th to provide me fair opportunity to communicate with Sears' employees who are by far the largest shareholder in the company. On March 25th, 1991, I was informed that it was too late to include my materials in the packets going to employees. The company offered, however, to circulate my proxy if I would advance $300,000. for costs.

7. Sears startled the financial world by reducing the size of their board from 15 to 10 on March 12th. On the 13th they issued a press release and company officials were voluble in communicating why my candidacy was unsuitable. From that day to this, I have been prevented by SEC rules from responding to press inquiry about the various statements and innuendo about me that have been forthcoming, because my proxy statement had not been cleared.

8. Sears changed its board structure on March 12, and yet was able to get a Proxy Statement approved by the SEC and in the mails so as to be received by Arthur Dubow in Patagonia, Arizona on March 25th. By contrast, I "early filed" with the SEC on March 1st and was only able to obtain clearance at the close of business on March 29th.

9. The SEC's interpretation of what constitutes illegal "solicitation" means that you cannot go around in advance and talk with shareholders so as to make an intelligent decision as to whether your candidacy has a realistic chance. Talking to more than ten institutions exposes you to the threat of both SEC and private legal action, so from a legal point of view it is best to do what I have done here -- "fly blind." I leave it to you to characterize whether this makes sense.

10. The "hard ball" tactics that developed in the context of hostile takeovers appear to be the standard now in proxy contests based on what happened to me when I asked for a shareholder list. I am frankly apprehensive of what the future may bring in light of my determination to continue my candidacy.

11. From Sears' proxy (at p. 15): "The Company estimates that the total amount to be spent by the Company for this solicitation is approximately $5,500,000... The foregoing estimate of expenses excludes amounts normally expended for a solicitation for an election of directors in the absence of a contest, and costs represented by salaries and wages of regular employees and officers of the Company [30 specially designated employees]."

I will return to this use of corporate resources later, but, for now, just think -- Sears' management is committing substantially in excess of $5.5 million of shareholder dollars for the exclusive purpose of preventing the election of an individual to the board, whose ability to contribute they would not even make a phone call intelligently to assess.

When I met with Ed Brennan on March 11 in Chicago I looked him in the eye and said I respected his stewardship of Sears and I wanted him to acknowledge that my candidacy was respectful. Respectfully, I ask Ed Brennan and the members of the Sears' board -- "how can you justify the expenditure of over $5.5 million of company funds to defeat a board candidate whose worst failing is "independence" at the same time as literally tens of thousands of Sears' employees are being laid off?"

What threat is a single individual on a board? He/she cannot second his own motions. All he can do is raise subjects that wouldn't otherwise be brought up. Isn't it the nature of a healthy board to encourage the involvement of a wide range of experience and free discussion on matters of benefit to the corporation?

My candidacy is not for personal financial gain, I have no interest in economic control of Sears. I'm running because I believe my voice and views will help to make Sears a more successful company. I intend to achieve this through offering the board a shareholder's perspective and by bringing about greater board access to concerned shareholders.

I would like to also take a moment to address the tone and style of my campaign. As I mentioned, on February 28, 1991, I requested, respectfully I thought, the list of the shareholders of Sears so that I might send materials to those shareholders regarding my campaign. Not only did Sears refuse this request but it also sued me in New York. Among other things, that law suit claims that my interest in running for a seat as director of Sears "lies in the advancement of [my] career as a professional publicist, author and consultant on proxy fights and other corporate governance matters." The law suit goes on to state that my purpose is to "use Sears' corporate machinery to engage in a proxy contest that would no doubt be widely covered in the press in order to obtain personal publicity."

In the words of a past president -- let me say this about that. I am, or course, flattered to think that I am so important that my personal interests and motivations are so clearly understood by third parties, including Sears, Roebuck and its attorneys. I would, however, like to set the record straight. My interest lies in obtaining a seat on the board of directors of Sears, Roebuck and Co. My purpose is to help an American company that has fallen on hard times. My hope is that through my hard work, inquisitive and independent attitude and talents I can put a valuable oar in the water. I am not interested in promoting myself as a publicist, author or consultant. My purpose is not to obtain personal publicity; my purpose is to obtain votes. I am not interested in seeing my name in the press; I am interested in seeing my name on your proxy cards.

What seems to be at stake here is turf, prerogative, power -- the absolute power to control a corporation. I believe Sears' management is spending $5.5 million of the shareholders' money purely to defend their "right" to self-perpetuation and to avoid being accountable to their shareholders.

Note carefully, I believe I have been an excellent director of large corporations. I have specific experience that would be valuable to Sears. I spoke with Ed Brennan about the coincidence that at the very same time I was dealing with questions about the future of the financial sector of the American economy as Chairman of the Boston Company, merging into Shearson and American Express Co., Sears was involved in the same issues through acquiring Dean Witter. I believe I have added value to each of the companies on whose boards I have served -- this is the basis of my candidacy for director of Sears. The record is clear that my candidacy was rejected by Sears at a time (February 13th) when neither the CEO, any officer, any member of the nominating committee nor any member of the board had met me. Of course, any corporation is free to reject any candidate, and I don't foreclose the possibility that Sears may have conducted a reputable investigation of my qualifications, but the facts in this situation suggest that what was being rejected was a candidate produced other than through the board's self-perpetuating process.

The law plainly contemplates that shareholders will elect a board; what we have here is confirmation of a process that the CEO, who is also Chairman of the Nominating Committee, selects the nominees -- and manages the size of the board, if necessary; that only company nominees get their names on the proxy; and that the only choice voters have is the company slate. I think that this is wrong and that is another of the reasons for my candidacy.

Governance is the central element underlying the relationship between shareholders and management; who is responsible to whom. To whom is management accountable? These are questions that must be raised particularly in the context of a company whose performance has been as disappointing as that of Sears for such a long time.

What alternatives are available to a permanent shareholder who is disappointed in the management of Sears? We have been told that he should look to the board of directors as they bear primary responsibility both for selecting top management and for over-all monitoring of the business. How can shareholders become effectively involved with a board, whose composition is based entirely on "appointment"?

Ultimately shareholders must be able to nominate persons for director. This is a further reason for my candidacy -- to provide a mechanism through which shareholders can indicate to management their desire for change. Maybe, the five and a half million dollars are intended to drown or frighten out this voice, and I will admit to you that I am frightened. I do not look forward to being exposed to law suits whose objective is to financially cripple me or to the predictable distortions about my self and my candidacy that five and a half million dollars can buy.

Chairman Brennan stated at a recent press conference that Sears intends to seek additional outside directors..."individuals whose experience, expertise and objective perspectives can be significant strengths in our effort to build greater value for our shareholder." He further expressed concern at the difficulty of finding suitable directors. I intend to consult with a large number of institutional shareholders of Sears and will propose several candidates meeting Sears' stated criteria for election to the Sears' board. Hopefully, my earlier suggestion regarding your taking a role in producing a national registry of qualified director candidates will produce some results.

It would be presumptuous to assert that voting for me will turn Sears around. As a director, my function will be to bring to the attention of the board those matters that I consider essential to the optimal functioning of the company. I am not yet in a position to have formulated definitive policy, but the following issues are indicative of my present areas of concern:

#1 - The company has consistently set a target of a 15% return on equity, which it has failed to achieve in recent years. The board must insist either that these targets be achieved within a reasonable time or that the company be restructured.

#2 - The long term answer to the company's problems cannot be to dump all responsibilities on to a single individual -- no matter how dedicated and talented. I would, therefore, propose that the officer presiding over the board should be a different person than the chief executive officer.

#3 - The Nominating Committee should be comprised exclusively of non-management directors. Thus, the chief executive officer would no longer be the Chairman of the Nominating Committee with the result of opening up the process of director selection.

#4 - Provide a mechanism by which a broad list of potential board candidates -- independent, unaffiliated and uninfluenced -- can be developed from which board vacancies, and additional board seats I will propose, can be filled.

#5 - Turn Sears' investor relations operations from a reactive mechanism into a forum for information interchange with investors and the translation of shareholder ideas into proposals or board and management consideration.

I come to the end -- and I will ask for the sale. I want your votes, I need your votes. I need your help. I believe that I am acting in your interest in an unequal struggle. I believe that to the extent that I succeed, you will benefit and I believe the converse to be true, as well.

Corporate America learned so well to defend itself against hostile takeovers, it is now using that experience to insulate itself from its own stockholders. I think that the present situation is grotesque -- for a major organization that is thought to have a sense of proportion and decency: first, to refuse to inform itself about a potential director simply because he is "independent"; second, at the last possible minute to convolute its board structure admittedly for the purpose of obstructing the candidacy; and finally to authorize the expenditure of an enormous amount of money principally for the purpose of entrenchment raises the most fundamental questions. Can you permit your company to do this? Thank you - thank you.

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