Professor Robert Shiller: If we may begin.
Today we have a very special lecture.
I am very pleased to introduce Carl Icahn as our lecturer.
Mr. Icahn has a career that is
really relevant to some of the topics we have talked about in
this course. One theme that we've talked
about in this course is corporate democracy.
We've talked about a book written by Berle and Means
[Adolf A. Berle and Gardiner C.
Means, Modern Corporation and Private Property,
New York: Commerce Clearing House,
1932.] who said that shareholders are
so dispersed that they have really no control over a company
and boards of directors are self-perpetuating.
Well Carl Icahn has made a career of really opposing that
tendency in American business of self-perpetuating boards.
Carl Icahn graduated from Princeton University,
pre-med in 1957. In 1968, he founded Icahn and
Company. This company,
Icahn and Company, has taken substantial
shareholder positions in a number of major corporations,
including: RJR Nabisco, TWA, Texaco,
Phillips Petroleum, Time Warner,
Motorola. And when Icahn and Company
takes a position in a company it then becomes active in the
management of this company and in changing the way they do
business. And they have done this with
enormous success. So, Carl, I'm very pleased that
you could come and do this today.
Mr. Carl Icahn: Good to see
you, Bob. Professor Robert
Shiller: It would be really nice if you can give some clues
to our students here, who many of them are themselves
launching out on careers, of how you got started on this
and what your philosophy is and what you would recommend to
them. Mr.
Carl Icahn: The career you're asking about--I went down
to Wall Street back in--way back in the '60s and I thought I was
really--I had gone to Princeton, a really good school.
I had gotten in there from a tough high school;
I was the first to go from my high school.
Nobody believed I could do it--they never took an Ivy
League--the Ivy League never took anybody from this school I
went to. But anyway, I went;
got in and left there and I thought I was a real smart guy.
Cut it short--went down to Wall Street and worked with Jack
Dreyfus and then I was playing the market in 1961.
That shows how old I am. And in a bull market you make a
great deal of money by doing leverage.
It's a little bit like today with all the leverage that we
had and now might be coming to fruition.
I was borrowing money and bought all these convertibles
and I thought I was a genius and Jack Dreyfus said,
you're going to lose all your money.
I had made a few bucks playing poker and that's how I started
with about eight, ten thousand dollars and I made
all this money by borrowing at 90%.
I would go out and I was making a lot more in two weeks than my
father made in two years. My father said,
well you know, put the money away.
I said, no Dad, I'm really going to make a
fortune here. So, I went out--I remember
once--and bought a Galaxy convertible.
It was a beautiful car. I had a beautiful girlfriend;
she was a model--it was just pretty nice.
What happened? The crash came in 1962.
I was wiped out in one day; I didn't even have the poker
winnings left. I tell you, I can't recall if
the car left first or the girl left first, but it was pretty
close--maybe the same day actually.
After that, I learned you have to learn something and I became
an expert in options. After that, I built a following
and built a big following and a big commission base by just
learning one area very well. Probably, I knew that area
better than almost anyone on Wall Street.
Not to sound too presumptuous, but very few people knew it,
so it doesn't mean very much. But in any event,
I built up a big following and in 1968 bought a seat on the
stock exchange with the help of a one of my uncles.
By that time, I had saved a pretty big amount
of money for those days. Then, I got into arbitrage--but
not merger, bona fide. That's something else you
could--you can still do it today, but it's much tougher
with all these computers. So, I don't do it because I
don't understand the computers; they're beyond me,
so I don't work with them too well.
I'm being a little facetious, but not too facetious.
You could buy different convertible bonds and short the
stocks against them. You had no risk,
but you could make a lot of money and eventually we did real
well with that. What I do today still is pretty
much the same idea. You buy stocks in a company
that is cheap and you look at the asset value of the companies
that you buy the stocks in and it becomes a little more
complex. Basically, you look for the
reason that they're really cheap and the major reason is
often--and usually--very poor management.
In a sense, it's like an arbitrage.
You go in; you buy a lot of stock in a
company; and you then try to make
changes at the company. Today, if you read the
newspapers tomorrow, you'll read--we're trying to do
the same thing at Motorola and if you bother to read The
Wall Street Journal tomorrow--or maybe The
Times, I don't know--you'll see a
little bit of what we're trying to do there.
We're trying to get them to change the structure of the
company. We think the board is a very
poor board there and we're trying to change what happens.
The thing about corporate America--few people that go to
college, like where you are now, and most people in America
don't realize how poorly most of our companies are run in this
country, with many exceptions.
They're really very poor and when you get inside the company
you realize this. The real reason is there's no
accountability; there's no corporate democracy
and I've been saying that, prophesying it,
writing about it. The reason that we can make so
much money when we go into one of these is--I'm not even a
manager; I never took a course in
management and I wouldn't profess to really know much but
I don't micromanage--I put in a very good manager.
They cut the heck out of our costs, but they change the
structure of the companies. This is the problem in America
today, in my opinion--that we are basically undermanaged.
We can't compete because the best and the brightest don't get
to be at the top of the corporate ladder.
I have a sort of a metaphor that's a little facetious,
but not completely, about it.
I call it anti-Darwinian; it's anti-Darwinian in
America's corporations. That means, a guy goes to
college and this is the guy that gets to be the CEO and,
yet, he's in college and he's the kind of guy that was the
president of the fraternity. Now, all these presidents of
fraternities aren't bad guys, but basically the normal guy
that I remember at college was--he's always there at the
fraternity or the eating club. He's always there to be there.
If you have a bad day, you walk over to the club and
you're feeling bad--your girlfriend left you;
you did bad on a test score or whatever--and you go over there;
he's always there. He buys you a drink and you sit
around with him; he commiserates with you;
you play a little pool or whatever and he tells you
whatever it is. Yeah, my girl left me;
yeah well, they're all no good--usual conversation back
and forth. What would happen would
be--you'd like the guy. You can't help but like him;
you used to wonder a little bit, when the hell did he do any
work? But, he was always there for
you. He never made many waves;
he never said anything too obtrusive;
or, he never showed too much intelligence.
But, he was a good guy. He goes--that same guy goes out
into corporate America and politically he's astute.
He knows how to get along with people and he never really rocks
the boat. He never comes up with any
great idea; he's not a threat to his
superior and, as a result,
he moves up the ladder because, really, in corporate America,
there's really very little accountability.
What happens in corporate America--he moves up that
ladder. There's a good show,
"How to Succeed in Business," that was out many years ago that
sort of sums it up. If you say--if a genius has an
idea in corporate America--the genius has an idea;
the next idea is, they give him an idea to
resign. So, he moves along the ladder
and he gets up slowly up to the top.
Now he has two attributes: he's likeable,
he's politically astute and he's a survivor--he's not really
a threat and he gets to the top. These are the attributes of
today's CEOs for the most part, with exceptions.
He doesn't ruffle feathers; he doesn't get the board upset;
and as he moves up the ladder, he finally gets to be number
two to the CEO. Now, the CEO has the same
attributes--where he doesn't want to be threatened and he's a
survivor. The CEO will never let anybody
be number two who's smarter than he is.
So, by definition, the assistant to the CEO is a
little dumber than the CEO; now this guy now is the
assistant. The board likes him;
the CEO eventually retires and they make this guy the CEO--the
fraternity president we're talking about.
Now he's now the head guy--the CEO--and he'll bring in a number
two guy that's a little dumber than he is because he doesn't
want to be threatened. So, by definition,
we'll be run by morons pretty soon.
We're not too far from that right now--from that point in
our economic history. This is a problem that we have.
Now, we've been able to do okay in this country and pretty well
even with the fact that we're badly managed because over the
last twenty years we've had a pretty free ride.
We've gotten from all over the world--the whole global economy
has been booming and we've been able to get cheap goods and
these cheap goods kept us from having inflation.
Very simply put--if you don't have inflation,
it's easy for the Federal Reserve to keep pumping money
into an economy; so, money kept flowing.
You were sort of in a punchbowl. The country was at a party and
we kept drinking from this punchbowl, enjoying ourselves,
and the rest of the world would take our dollars.
They would take our dollars because everybody thought,
oh, America--it's great. It's a little bit like you came
from some town and there's one family in the town that doesn't
do much work--sort of propagates.
We'll all lie around the pool; have fun;
party; eat a lot;
have the big cars and have the good times.
The rest of the town works hard on the farms or wherever they
are and they keep bringing stuff to this rich family's estate.
They give them whatever they want;
they give them food; they give them clothing,
but, you know, anything.
The rich family just gives them IOUs and they keep taking the
IOUs, so the rich family doesn't do anything--just lie around the
pool and have fun and travel or whatever--and everybody's
working. Well, one day a few of these
people are going to say, I don't want your IOUs anymore.
What the hell am I going to take your IOUs?
They're worthless because you lost all your money.
Well, our country--think about it--is a bit in that situation.
We've been giving our IOUs, which are dollar bills,
to the rest of the world and taking their cheap goods.
However, we're reaching a point now where the dollar--as you've
been reading if you're attuned to it--the dollar's devaluating
as we speak. We've got, I believe,
a real problem on our hands in the economy.
The other thing we've done in the last five,
ten years--and I know Bob Shiller's been talking to you
about this--is housing. Housing is like tulip bulbs,
almost. There was a big crisis in
Holland in the 1600s on tulip bulbs--but I like reading about
this crisis, because everybody bought tulip
bulbs--thought it was the greatest until one guy looked
and says, hey what the hell am I doing
with this tulip bulb? And all of a sudden he had a
crisis. Well, I'm not going to get into
the depth of it, but our banks,
because they wanted to make more and more money--and our
investment bank, Wall Street--kept issuing
different paper against mortgages so it made it simple
to give a mortgage. These mortgages were given out
to people that couldn't afford them and today you have what you
call subprime mortgages--subprime paper.
They issued against this paper stuff called mortgage-backed
security. They securitized them and these
things are all floating around now.
There's maybe about three trillion dollars worth of stuff
backed by mortgages out there. Well, as you've seen,
these have produced crisis of confidence and I don't think
we've heard the last of it. The government sort of bailed
out the situation by having JP Morgan take over Bear Stearns
and I'm not going to get into the depth of it here,
but it's a real fascinating story.
In any event, we have problems in our economy
and I think that we are going to see more of these problems in
the next year or so. I think Bob can talk to you
more about what's going to happen in housing,
but a lot of it depends on that because if you can't have your
housing prices go back up, a lot of people that bought
them can't afford to pay the mortgages;
nor will they want to. If they see the homes go down
in value, they're going to just say--they're going to walk away.
Now, if that happens, these homes are the collateral
to the banks for all these mortgages and we're going to
have--and probably do have already--a recession.
That recession could become a lot more acute because
today--I'm not going--I'm going to open it for questions
soon--but today, there are six trillion dollars
more of debt in this economy than I believe it can sustain
because everyone--the middle class went on a borrowing binge
over the last few years to buy these homes and to buy for
any--with the credit cards and go buy anything they felt like
buying. As a result,
I'm not certain that they can pay that six trillion back.
But, even if they can, they're not going to be willing
to go buy more things. As you have that happening and
you have inflation, the earnings of our
corporations will go down. They estimate--I've talked to
one or two very good economists in the last few weeks.
They estimate that earnings of the S&P averages will go
down about 20% in the next year. With that, the stock market is
at, I would say, a precipice;
you don't know which way it's going to go.
With all that said, you have to worry about all
these things and I know you're studying this and you're
learning about it. But, I think there will be
great opportunities ahead for you and the ability for Wall
Street to again securitize and buy a lot of these companies.
If you have capital, you'll be able to buy these
bonds. So, I do tell you that I think
Wall Street is certainly a good area if you're thinking about a
career. I still think it's a very good
area, but I'm not going to tell you if you love to write or you
love to play the cello to go and come to Wall Street.
I do think it's a good career. I think it makes sense.
I think that corporate America is learning from this and I
think we're going to make our top management much more
accountable in the years ahead. There are tremendous abuses in
corporate America today. Your CEO makes 400 times what
the average worker makes and he's just simply not worth it.
The reason you have this is that you have no
accountability--that shareholders simply don't vote;
they don't care about voting and there's a whole reason for
that. You have an interesting
relation with the owners of a lot of our stocks,
which are the mutual funds and institutions that don't like to
vote against these managers. However, someone like me and a
few other activists do get a vote now and we do get a proxy
fight going and we'll see, for instance,
what happens to Motorola--that's what we're
doing as we speak. I think that that will give an
opportunity for young people like yourselves to get into
corporations in our country.
While I think Princeton is the--might be a little better
than Yale--I think Yale is a good school.
I think that all of you are really probably the top,
top, top of the student bodies in this country.
Going ahead in your lives, I think that the corporations
might be a good place to look or Wall Street for that matter
because I think there's going to be a need for bright people.
I think that you'll be able to be rewarded for it in the fact
that there will be accountability again.
Well, when I say "again"--there never really was accountability.
So, I think there will be a true corporate democracy that
will have to evolve so that we can become competitive with the
rest of the world again. With that, I'll just
basically--I think, Bob, just leave it open to
questions and see if anybody has any.
Student: You mentioned in 1962 you kind of blew up.
After that entire debacle ensued, how did you regain your
confidence? I guess, most importantly,
how did you regain--or gain--the confidence of future
investors? Mr.
Carl Icahn: Well, you asked a few questions.
I mean, how did you gain confidence?
I don't think I ever lost confidence in my ability to
understand what was going on. I just learned that you have to
really work at something and understand it and little by
little--I mean, it was sort of interesting.
I'm a sort of an obsessive guy and I work real hard all my
life. I really get into something and
I really delve into it and when I came up with what is a letter
there at that time to people who sold these options--they were
wealthy people across the country.
It was sort of interesting--it's not around
today--but they would sell options, calls on a stock.
So, if you--if you're someone who traded the market,
you'd like to buy an option on XYZ stock and wealthier people
across the country would sell these options--would you give
you right. Today, you have the CBOE;
it's much more computerized. But then, you would do what
these--over-the-counter transactions.
I was really one of the first to come in and say to people
across the country, rather than do it with your
broker who doesn't really understand this business,
rather than sell it, sell it with me.
I was a broker--just sell with me.
Little by little, people actually answered my ad.
I would put out an ad and say, get to see what the true prices
are and what the real value should be for that option if
you're selling through Merrill Lynch or you're selling with H,
in those days--or whoever. I'd get letters from all over
the country and literally I'd stay down on Wall Street until
midnight calling people in California that would write in
for this letter and we built up a big following because I was
really--the rich can be--The only real honest guy in that
business because everybody--I mean,
not that they were dishonest, but you know the brokers didn't
care. They'd get business back from
who you sell it to. I'm not saying that we did
anything criminal or anything, but nobody really cared to get
the right price for these people.
So, by getting them the right price, they would stay with me
as customers for years and years.
So, we built it up and built it up and then I got one assistant;
then I got another assistant and I kept moving up the ladder.
It took a lot of hard work and perseverance and that's really
where it went to. From there, it was arbitrage
and now what I do. What was the second part of
your question--I forgot? Student: How did you
regain confidence in your investors and people who gave
money to you? Did you feel confident that you
could get them to give you money after you had kind of washed
yourself out? Mr.
Carl Icahn: I told you that we had that letter and that we
were able to, after the letter,
have the--I don't know if you heard me because I was sort of
telling you that we put the letter out and we just gave them
a good thing. Student: Thank you.
Mr. Carl Icahn: Okay,
all right. Student: Hi, Mr. Icahn.
How are you? Mr. Carl Icahn: Hi.
Student: I'm Mark Kotter. How are you?
Actually, I have three questions for you,
but I'll start with the first one.
I watched the 60 Minutes special on you recently and they
tried to portray that there had been kind of an evolution in
your career. They showed some bad press from
the ‘80s with the TWA deal and then they showed some good
press recently with the so-called Icahn Uplift and some
of the political--I mean, the corporate activism that
you've been engaged in. In that interview,
you sort of insisted that you hadn't changed at all and I was
just curious if you had changed and you didn't want to tell the
reporter or if the media was giving you a bad rap?
Mr. Carl Icahn: I can't hear
the whole question, but I haven't changed.
I haven't changed at all. They call me a raider;
they call you an activist. I mean, I haven't really--I
think what we do though is very helpful to all investors.
I mean, I think that's the point because when we get into
the companies, the stock goes up for
everybody; so, it really works out,
but I've never changed what I do.
Student: Okay. Actually I have two more
questions. The second question was about
China and there was a special report in the recent Economist
talking about the ravenous appetite that China has for
natural resources right now. I was curious what you thought
the effect that would have on global financial markets and
your investing strategy? Mr.
Carl Icahn: Well, yeah.
I mean, China is a great buyer of all of these commodities.
The trouble with this country is we don't have a lot of that.
We don't have a lot of natural resources to sell them.
Your question really--what this country does?
We make software; we make technology;
we're innovative, but so are they.
So, what we really have to do is become a lot more productive
and we have to make our companies a lot more
competitive. Today, I feel we're losing that
edge. While China is going to
continue to buy things, it doesn't mean they're going
to buy them from us necessarily even though the dollar has gone
down a great deal. Student: Thank you.
This is my last question. New York Times
columnist, David Brooks, gave a great commencement
speech last year at Wake Forest and he said he was a journalist
who led a boring life and observed interesting
lives--people like you. I was curious--he mentioned
that a lot of the great people that he'd met--successful
people--had lots of pictures of dead people on the
walls--meaning that they had conversations.
He said nearly famous people had pictures of themselves on
the wall, truly famous people had pictures of dead people on
the walls. I was curious if you had any
pictures of great historical figures or what historical
figures inspired you or influenced you on a regular
basis? Mr.
Carl Icahn: That's a good question.
Well, one of the greatest philosophers I ever read was
Aristotle and I think his Nicomachean Ethics,
if you read it, makes a great deal of
sense--where you live with this golden mean but at the end use
your intellect. I mean, now you have to really
read him in depth to understand what he's saying.
Then there's a poem by Rudyard Kipling I like,
If; I'm sure a lot of you read it.
If you could keep your head about you when all you are
losing theirs. I read that every once in a
while and the code that we follow that's really important
to be able to meet the triumph and disaster and not let either
of those imposters--treat those imposters just the same--meaning
that if you're doing great, don't think you're a genius.
And if you're doing badly, don't think the world comes to
an end. If you work hard--maybe it
sounds trite--but if you work hard and don't let your ego get
ahead of you, as so many people do when
you're doing well, and don't let yourself become
too despondent if you're not doing well for a while,
then have faith in your own ability and really work hard at
whatever you do; give it everything you have.
If you can do all that, I think the chances are that
you're going to hit a lucky streak because luck comes and
goes. If you have your health,
luck comes and goes and realize when you're doing really well
that it's not just you. Then, when you're not,
it's not just you either. So, I think that kind of thing.
You should read that poem. Student: I like the line
where it's, if you can be in a crowd but not lose the common
touch--that's my favorite line. Mr.
Carl Icahn: That's right. Student: That's a good
one. Mr.
Carl Icahn: That's right. If you can walk in a crowd and
still not lose the--if you can walk with kings and not lose the
common touch. You know it.
I've never walked with kings though, so I don't have to worry
about losing the common touch because I'm not walking with
kings. Student: Hi, Mr. Icahn.
I have two questions. My first question is,
to what extent can investors like us adopt your strategy of
buying cheap and expecting the value of a company to go up?
Mr. Carl Icahn: Well,
I mean, that--I don't consider that being--that's barely a
strategy. I think that when you buy
something, the best is--that sounds simple.
It's not simple to buy, generally, when everybody
thinks you're wrong. The more people that think
you're wrong, the better you're going to do
in the long run. That's how it works because at
the end of the day, when everybody is against you,
everybody sort of stumbles. So, it's very hard to do it
psychologically, but at certain times you're in
between and you're not going to get the benefit of that.
It's the old gray but dark philosophy that you should just
look at value. But, one of the things is when
people have given up on a company--that's the perfect
time. But, it doesn't always work
because you have to be damn sure you're right.
I mean, sometimes everybody is right but generally it's not
true that they're right. Generally, if you look at the
total outlook on a company and if everybody sort of is down on
it, that's one to look at. Student: Thank you.
My second question is: what, in your opinion these
days, do CEOs need to do to be successful?
Do they need more education, experience, industry knowledge?
Mr. Carl Icahn: I think the
answer is that most of them have to leave the company.
To be a little fairer about it, the CEOs of a lot of companies
probably could do a good job, but they're more into building
up. It's like the royal "we."
It's more like the imperial CEO and they build up a huge amount
of people around them and they very rarely get to the nub of
the problem. Some of them are probably okay;
they're probably good guys, but there's no accountability.
It's like you go to school and if you never have tests and
nobody ever bothers you. That's what really happens
until they really hit the bad times.
I guess you could say I'm a bad time;
when I come in, they don't like it too much.
I think that the problem we have today is--very
simplistically--you don't have true elections,
so you can't--it's very hard to get rid of the CEO even though
you theoretically have the vote; it's very hard to use the vote.
I mean, can you imagine in a political race that the senator
is fighting--the incumbent is fighting--for an election and he
can take all the money out of Washington.
He can take it out of the Treasury of the United States
and the other guy can't. It's completely set up and
rigged for the CEO because anybody coming in to fight
them--they sue them to begin with.
They sue you to--they don't sue me anymore too much because they
know I'm not going away, but they sue--they do not let
you have--I could go into all the different shark repellents,
we call them, but it's very,
very difficult to beat off these guys.
I think that's going to change in the next four or five years.
That's what I was telling you. And I think we're going to have
a better corporate democracy, which gives people with real
talent who are really--with a work ethic--a chance to really
make it. Student: Mr.
Icahn, as you've touched upon, we may be in the worst credit
bubble in history, currently.
If you are right, the upcoming debt deflation
will be long and painful. How would you recommend that
investors protect their wealth during this period to take
advantage of upcoming investment opportunities?
Mr. Carl Icahn: Well,
it's hard to recommend how to invest at this time without
knowing how much capital you have.
I would be--again, I've been here at a different
arena. We invest and we look for these
opportunities now, but I feel that you have to be
certainly very careful right now.
You have to be very careful in your investments even though the
markets been going up the last few days.
I would be careful and not have all your money invested in
stocks. I would look at a lot of these
distressed debt--some of the distressed debt that has gone
down. I don't know if you understand
that, but some of the debt that--even bank debt,
which is the highest level, I think, has become very cheap.
So, that kind of stuff is something to look at,
but I'd be very careful in buying equities.
I mean, you certainly could make a fortune buying them.
I mean, I'm certainly not telling you it's not going to
work, but I think it's all risk-reward.
I would be looking at this--at the debt areas.
Student: You mentioned about the U.S.
dollar falling in value recently.
What kind of foreign currency vehicles or trading would you
recommend to kind of hedge a bet against a dollar,
assuming that it continues to fall?
Mr. Carl Icahn: Yeah,
I don't know much about currencies and I really don't
get into something I don't know something about--or generally
don't. I don't play the currency
market, unfortunately, because currency has gone down
so much. I don't necessarily think that
you should do that now because it could theoretically turn in
this country. But, I'm only saying that it
has become one of the manifestations of our
problem--the currency of the dollar has fallen.
You know you can't be that [inaudible]
about everything in Asia either.
Everybody loves Asia now and loves China and loves all these
countries, but you're going to have some global problems too.
So, I don't know that it's time to rush out of the dollar.
Student: Hi, Mr. Icahn. One major criticism that one
CEO against corporate activist that they think activists don't
think long-term interest of the corporation;
they just want to get money and get out.
How do you answer to that? Mr.
Carl Icahn: I would just say that the facts don't bear
that out as far as I'm concerned.
I mean, if you--I own quite a few companies.
Any company we got control of I put literally hundreds of
millions of dollars into them. I mean, I bought a company in
1985--a rail car company--we put hundreds of millions;
we still have the fleet. I bought casinos and energy
companies and over the years kept them;
sold them now, but that's after ten years.
So, any company that we've been able to get control of I
actually kept. Because getting control is a
great thing. If you really believe that
management's not doing well, you can go and clean them up
and put a good guy in, So, we--I know they criticize
you like that, but that's part of the
propaganda machine; but it's just not the facts.
Student: A related question is that,
what do you do when your activist spirit is not
appreciated, as in the case of Motorola when
you asked for a seat on the board but just get declined?
What's your next step? Mr.
Carl Icahn: Alright, you have patience and now it's
a year later and we'll see what happens now.
Motorola is a good example of what I'm talking about.
People don't like it; they don't like the cell phone
business, but I really think that that business,
if you look at Motorola and study it, you're buying that
whole business for nothing. It's not reflected in the stock
price, but they have to do it. As I said publicly,
take that business out of Motorola;
spin it off and give it to the shareholders.
I think, then, you've got a real good value.
What I'm saying is, nobody likes it now,
but hopefully I'm correct on that.
I really think by being an activist and putting pressure on
that board that has done nothing, really--I think
eventually that will happen, hopefully.
Professor Robert Shiller: Maybe we'll have
one or two more questions. Two more questions and then
we'll wrap up. Mr. Carl Icahn: Okay.
Student: Mr. Icahn, why does the United
States have bad corporate governance and which countries
have better models? Mr.
Carl Icahn: Alright, we have bad corporate
governance; it's evolved into this.
I don't think that Washington understands how bad it is;
nobody's really focused on it. The different states--the way
we're structured--the different states want corporations to
register and therefore the rules are such that they protect the
corporation with the poison pills.
I can't get into all these different things--stagnant
boards, poison pills--and I think if you just change some of
that we could be like, for instance,
England is much better. Canada is much better--where
you can--without getting into details;
I'll simplify this--where you can't have fewer elections.
The United States, because of the way that it's
structured in the states--the division between the federal and
the state governments--they have not been able to really curtail
some of the abuses. But I think it will occur
sooner or later, especially if you have a bad
recession. Student: Hi, Mr. Icahn.
You mentioned that you believe that many companies are poorly
managed. Obviously you don't invest in
every company, so I was wondering what factors
you look for in identifying companies that you want to
invest in and that you think are especially poorly managed?
Mr. Carl Icahn: Okay,
we look at a lot of the--we look at a lot of companies.
Obviously, I have a whole group of people here that do that and
I have a bunch of lawyers that look at all the covenants in
these companies and their bylaws and their charters.
But really, some of them become very apparent and when you look
at them you can understand. And you have to see that in
relation to the economy. Some of these companies--it's
just apparent that the value of these companies would be much
better if they were better run or they just simply did certain
things like breaking--like Motorola,
as an example, if they just broke it up.
In some biotech companies that we're involved now,
there's a need for them by the big Pharma.
The big Pharma hasn't really done research for years but then
he married in the biotech area and therefore biotech companies
aren't that well run, but they spent a great deal in
research for the large molecule drugs.
And so, therefore, you look at these and some of
them become quite apparent after you're doing them for years and
years. I've done them a lot of--it's
almost--after you do all the work, it's almost instinct.
The risk could be moderate. Just ask--it's like asking some
real great tennis player, well why did you move here
instead of there? Or a football player--when
you're running down the field, why did you go to this way
instead of that way when you're running down the field?
I don't think he could tell you; it's just sort of instinct why
you do it. That's after a lot of work on
it. Professor Robert
Shiller: Well I think this has been a very enlightening
talk and Carl, I want to thank you very much.
Mr. Carl Icahn: Thank you for
having me.
