T. Boone Pickens Delivers Gordon Grand Lecture at Yale SOM
As a child, T. Boone Pickens had a paper route with 28 subscribers. He had a great record collecting payment from his customers, and quickly built up to 156 subscribers. He expanded his route not by signing up new readers, but by absorbing the routes around him that came open and had suffered from bad collections. In essence, he built his route not through sales, but acquisitions. "Is this guy telling me this is the way he went into the takeover business?" he said to an audience at Yale SOM on March 24. He then answered his own question: "Sort of."
Pickens, who delivered this year's Gordon Grand Lecture, used the anecdote as an entry point to his career, which has taken the 82-year-old from geologist to oil wildcatter to corporate raider, and more recently, crusader for natural gas. Over the course of an hour, he spoke to the audience about his proposals for reforming corporate governance and the Pickens Plan, a blueprint for energy independence that focuses on using the United States' abundant natural gas resources to wean the country from foreign oil.
Throughout, he chatted with Dean Sharon Oster, who began the conversation by asking what has motivated him all these years. "I've always been interested in making money," Pickens said. "That's it."
One of the next questions Oster asked Pickens was about his proposals for reforming corporate governance. He prefaced his answer by remarking that over the years, he has benefitted from the poor governance of many companies. "If things are not going so hot, I take advantage," he said. "There's nothing easier to do than follow bad management." He added that the current structure of corporate boards poorly serves both the companies and their stockholders. Currently, management chooses the vast majority of corporate directors, creating a situation where the boards' incentives are more likely to align with the CEO than shareholders. Pickens proposes forcing prospective directors, who must hold stock in the company, to submit résumés to a head-hunting outfit, which produces a list of qualified candidates for shareholders to elect. This, he said, would insure that the directors would not be beholden to management and be more likely to make decisions in the best interest of the business itself. Pickens, who has been on many boards, said he's seen directors chosen for all kinds of reasons having nothing to do with business acumen, such as being a great duck hunter. "Honestly, some have been picked for that," he said. "We need to upgrade corporate America and get the board of directors working for the stockholders."
Over the last several years, it's been the Pickens Plan that has garnered Pickens the most attention. In 2008, he ran commercials urging people and politicians to get behind his prescription for weaning the U.S. from foreign oil. At his lecture, Pickens said that he sees this as a security issue. "We need to use our own resources. Why be dependent on people who don't like you?"
In early April, Pickens expects legislation to be introduced in Congress inspired by the Pickens Plan. The idea is to start converting the 18 million 18-wheelers in the country from diesel to natural gas. He said that the U.S. possesses so much natural gas that in terms of its oil equivalent, the country has three times as much as Saudi Arabia has oil. Tapping that gas, he said, would give the U.S. a voice at the global energy table. "With that we could pull up to the table and scoot them over," he said.
There is greater urgency now to do something than ever before, Pickens said. He predicted that as early as the end of this year, the world could reach the point where oil supply is no longer capable of keeping up with demand. If that happens, he expects the price of oil to soar. He doesn't see natural gas as the long-term answer to this problem, but a bridge while the country develops other energy sources. "There is a saying that the best day to plant a tree was 20 years ago, and if you didn't, the second-best day is today," he said. "We need a plan. We're the only country without one."