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Chicago, IL
Annual Meeting
May 9, 1991
I am proud to be with you on this historic occasion. This is the first time in American economic history that an independent qualified individual has solicited proxies for election to the board of a major corporation in opposition to management's incumbent slate. We - the company and I - will be judged by how we react to the challenge of change. Of one thing I can assure you, whatever else happens here today - Sears, Roebuck and Company has changed. There can be no turning back.
I am asking for your vote essentially so that I can ask questions. If you remember one thing I say today, I want it to be that. Because that is what my candidacy is about--I want a system that asks hard questions of management, especially management of companies with poor returns. I'd like to be able to ask those questions myself, on the board of Sears because I believe that is the only way to assure acceptable results for all of Sears' constituencies. But if I can't have that, my second choice is to demonstrate the way that our system prevents those questions from being asked, and to get you, the shareholders, to ask some of your own.
Here are five of mine.
1. Are the businesses now combined in Sears manageable as a single unit? Is there a strategy for the effective interaction, or--to use that overused word--synergy of these businesses, or is Sears simply a conglomerate. Is Sears just the sum of its parts, or can there be more?
If management cannot find a way to add value to the enterprise as a whole, doesn't it make more sense to spin the individual business units off to the shareholders? Over and over, throughout corporate history, it has been demonstrated that holding essentially unrelated businesses within a single corporate structure creates extra costs that inevitably reduce shareholder values. Will people buy stocks where they buy socks? If not, aren't we better off using that store space for more socks?
The problem is that, with regard to this question, more important than any other to the future of Sears--and Sears' shareholders--Mr. Brennan has not just cut off the questions, he has cut off the answers. Just to stop me, he has dropped from the Board those experienced executives of All State, Dean Witter and Coldwell Banker. These
are the people who (1) have delivered splendid financial results to the parent company in recent years, and (2) are better situated than anyone to evaluate any synergies that exist with other Sears' divisions. But it was more important to cut me off than to keep them on.
That leaves Sears, at this critical time, without any directors who are specialists in brokerage, banking, real estate, investments and management. Who is left to ask the right questions? In recent days I have read articles in Forbes and other financial press that the company's long time investment bankers are investigating this subject - again - and that Mr. Brennan opposes a spin off. It is not credible that Goldman Sachs will publicly disagree with the CEO of Sears. This is exactly the kind of situation that cries for outside directors to protect shareholder opportunities. As a director I would move to engage a truly independent investment banker to consider this vital question.
During my brief meeting with Jim Denny and Ed Brennan on March 11, I told them of the extraordinary coincidence that during precisely those early autumn months in 1981 when Sears was acquiring Dean Witter and Coldwell Banker, I was dealing with the same issues that Sears was, as principal stockholder and strategist of The Boston Company effecting our own merger into Shearson and American Express. As Chairman of the Boston Company, and director of Shearson and later Jefferies & Company, I have substantial experience in the financial service industries.
2. Next question: Can a company year after year for over a decade fail to achieve its own criteria of earning 15% on equity without somebody insisting that something be done about it?
It is plain to one and all that this company has lost focus. Its financial performance has steadily declined since 1983. The Company's stock price has consistently underperformed the market as well as its industry peers. Its management is one of the least respected in America according to Fortune magazine's recent annual poll.
If a Board of Directors fails for such a sustained period of time to insist on effective remedial action, shareholders should send a message to the Board. I will carry that message.
3. Another question: Can one man fill three jobs? Can he fill them well?
It is apparent to even the most casual visitor, as I myself was on March 11, that EdBrennan is stretched. He is currently serving as Chairman of the Board, CEO, and head of the retail operation. A great company like Sears needs appropriate executive strength at all critical positions. Treating Ed Brennan as if he could be infinitely stretched to fill critical slots is not an acceptable organizational scheme.
The primary responsibility of any Board is to assure an appropriate structure within which the Chief Executive Officer can best function. You cannot take even the ablest person and expect him to perform three full-time jobs, especially these three jobs--the Chairman of the Board is supposed to evaluate the CEO, and the CEO is supposed to evaluate the heads of all of the operating divisions. They are supposed to communicate with each other, measure each other, ask questions of each other. All of that is lost if the same man is in all three jobs. On top of all of this, Mr. Brennan heads the board's Nominating Committee. I believe board nominating committees should be made up exclusively of outside directors. Otherwise, you are just allowing Mr. Brennan to pick his own bosses--just another way of making sure there will be no hard questions.
4. Next question: How does Sears' management see its duty to shareholders? Sears has not met its goals for shareholder returns. Let's look for a moment at what other indicators there are of their views on shareholders.
Sears' General Counsel said in the New York Times that he considers my corporate governance concerns a "distraction." Perhaps it is a distraction Sears could use more of. Corporate governance is who is responsible for running the company, how do they function and to whom they are accountable. I have already noted that Mr. Brennan has squeezed much of the accountability out of the system by arranging to report to himself and to pick his own board members.
As suggested by Sears' By-Laws, I wrote a simple letter asking to be considered as a director candidate. Sears did not discuss it at their November meeting because they said they did not have enough information about me. They did discuss it at the February meeting, though they did not have any additional information about me--until last week - 26 weeks after I had written of my interest - no one ever called the six CEOS on whose boards I had served to see what kind of a director I was. Why did they decide not to seek any more information about me? They said it was because my qualifications were so well known and I was clearly qualified. But I was missing one important qualification. I came to them; I did not wait for them to come to me. And when I took it a step further, and was formally nominated, it threw Sears into such a tizzy that they they brought a lawsuit to stop me and budgeted $5.5 million dollars (as Crain's Chicago Business pointed out, one out of every seven dollars made by the retail operation last year). Here's a hard question for you, the shareholders to answer. Is that how you want your money spent?
Sears is not giving shareholders the most fundamental requirement for the voting franchise, the right to vote in confidence, to protect themselves from reprisal. Sears would not allow its employees the information they asked for about how to cast a vote for me. Sears has mistreated its employees, and its shareholders, too.
Perhaps the most outrageous of all, Sears then played "Honey, I Shrunk the Board" and immediately got rid of three crucial members. They later said that these people will still come to meetings, they just won't be able to vote. If there was ever a question as to whether the board works for Brennan or Brennan works for the board, this answers it. But the answer is wrong--it should be the other way around.
By the way, if I should be elected today, I will immediately move that they be reinstated, along with whichever director I replace. It is not my intention to exclude anyone, as part of a precipitous response to my candidacy.
Let's think about this for a moment. Sears, like a lot of other companies, has a system for shareholder nomination of director candidates. Apparently this is a fine system, from their perspective, as long as no one tries to use it. (Here's a hint--watch and see if they use it next year.)
5. And I have one more hard question. The first four questions were about Sears' obligation to its shareholders. My last question is about Sears' obligation to its employees. What is Sears' record on protecting the rights of the employees who participate in its pension plan?
Sears has one of the greatest heritages in industrial America with respect to making provision for employees to share the profits of the enterprise. It was Julius Rosenwald in 1916 who established the profit sharing trust that has allowed generations of Sears' managers to retire rich.
These plans have now grown to enormous size. They are substantial owners of other American enterprises. The last decade has presented plan sponsors with a new range of issues, dangers, and opportunities in the management of the ownership rights of pension assets. If Sears wants to keep the pension promise, and if it wants to meet the responsibilities of corporate citizenship, Sears and other plan sponsors must turn their attention and managerial energies to their responsibilities as owners of themselves and each other. Just because the merchandising division is in trouble and needs primary focus is not an acceptable excuse for failure to organize to deal with the requirements of the employee benefit plans. A great company like Sears can afford to organize itself and to secure suitable executive help so as to discharge all of its responsibilities. And the Board should be asking questions until they are sure it is done.
Sears admits that I am qualified. I have served as a director of major American companies that have done very well. I am running as a single candidate; I won't even be able to second my own motions, so there is no chance of my being disruptive. What I can do is ask questions, the questions I have asked today. I will contribute to long term value for shareholders. Although the final totals are not yet available, it is clear that I have enough votes to have been elected if the size of the Board of Directors had not been manipulated. When you consider whose proxy card you are going to mark, think - voting for Bob Monks on the Blue Card may be the last chance that you have for some time to vote for a genuinely independent candidate for director --- at least until next year's Annual Meeting -- if I am not successful at this one.