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Author: cejhals Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1162  
Subject: Time to change Management! Date: 12/9/1999 12:13 AM
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My conclusions are:

1. GT has a tremendous franchise in a growing business possibly suffering from pockets of over capacity.

2. GT has not at present got the management capable of exploiting the impressive strategic position it has. Consequently, the time has come for a radical change of management.

I assume sufficient is known about GT's market position, particularly following the joint venture with Sumitomo earlier this year.

On the second point I want to offer some support:

- Today GT's shares closed at a new multiyear low, reaching levels it was treading at back in 1992/93!
- During this time GT has retained more than $15/share from retained earnings. This additional investment of shareholder's money has in other words been lost!
- The present low level of the shares has been reached at the peak of the US automotive market, which by far is GT's largest market!

Where is GT's management in this - for shareholders - desperate situation?

- I have checked the press releases from the company during the last few months. Asside from the Sumitome deal, there is nothing on strategy. Basically only releases about new products, the blimps, and rutine changes in management. Of course there are quarterly result releases, which generally offer limited insight into managements thinking.
- The source of information about the closure of GT's plant in Argentine was - as far as I can see - a union leader in Argentine
- GT invites shareholders to ask questions, which I have done, still without getting any answers! - Not even: "We do not want to answer that question".
- One could get the impression that GT's management has hired J P Morgan to communicate bad news, which they did again last week, further hurting the shares!
- How should shareholders feel about this? Hope the board will read chapter and verse for management to get them to behave more responsible? I do not think this is likely. This is what a board should do, but look at this!
- GT has 10 non-executive directors. The average age is more than 64 years (I have nothing against experience - on the contrary, however, I am also a firm believer in balance!).
- GT state that 3 of its directors by the end of 1998 were retired, I actually believe the number was 4, as Mr. Hudson from AMP, now taken over by Tyco, at that time was a non-executive director at AMP. So 40% of the directors are retired. Again, I have nothing against retired people, on the contrary, however, the balance must be right!
- Of the rest 1 is from a property developer, 1 from a community trust, 1 from a University, and 1 from a consulting firm, I have been unable to locate.
- The remaining 2 are both Chairman and CEO, one for Sherwin Williams, a paint manufacturer with activities predominantly in North and South America. Sales of $5 billion and market capitalisation of $3.5 bn. The other Chairman and CEO is from M.A.Hanna Company, which is in the polymer busines. Sales of $2.3bn and market capitalisation of $0.5bn. Both companies shares are trading at - or close to - multi year lows! _ At least they can all cry - or laugh (see later) - at each other sholders when they get together.

I have no knowledge of these individuals, who I am sure all are people of substance, however, I just feel unconvinced, that they, collectively or individually, represent the expertise required by a globally active company like GT. Nor do I feel confident that they are prepared to stand up to Mr. Gibara.

As shareholders do we believe the board we have chosen, and who is responsible for management, is making tough demands of GT's management? Do we think they are a vibrant sounding board for management to discuss the problems they are facing? Do we think they clearly can see, articulate and confront GT's management with inadequacies in their approach to the challenges facing the business? Do we think the board has managed to align managements finacial compensation to the investment returns of GT's shareholders? Do we think they have the capability to confront and handle a situation were they might feel management at GT is inadequate?

Now what about Mr. Samir G. Gibara, Chairman and CEO of GT. He assumed this role in 1996. This followed a year as President and COO, which again was preseede by a brief period as GT's head of North America. So he assended quickly to the top job. Unfortunately to this day he has destroyed considerable value for shareholders, as the company's share price basically remains where it was when he took control. Does Mr. Gibara own a lot of GT shares? I do not think so - I have asked the company about this, however, I have only been able to verify ownership of approximately 15,000 shares. Lately this holding appears to have accumulated through the exercise of options granted as part of compensation, such exercise is then followed by sales sufficient to cover cost of exercising options leaving rest effectively at no cost to Mr. Gibara. He together with CFO of GT sold shares in April and May of this year latest at $65.66/share.
- Another interesting event happened when Mr. Gibara in March of this year accepts an appointment to IP's board. This is about one month after GT has agreed to enter into its largest ever corporate transaction with Sumitomo. So when management demands are going to be greater than ever, he decided to make less time available. This appears to reflect very poor judgment on his part, but also on the part of the board of GT. - Today we know how mismanagement lately has caused GT to barely make a profit in its largest market, North America!

So what is next?

- I believe GT must change management urgently. The record of Mr. Gibara is dismal over the course of his tenure as CEO!
- I only believe this can happen if substantial changes are made to GT's board, introducing people with a scope of experience compatible with GT's business. In addition shareholders want board members to start reflecting shareholders interests. 4 board members are up for election in 2000.

This is not a quick cure, as these things take time, and the only way it can happen is if a sufficient number of institutional investors can see an interest in assuming this active role in relation to GT. Unfortunately, what is happening now is, that these institutions have decided to sell their shares, rather than going through the trouble. This also is because of the small relative capitalisation of GT at this point, another consequence of Mr. Gibara's effort. Still it is not clear that someone is starting to accumulate GT shares with an intend to take a more active role in relation to GT. Unfortunately before this happens the fortune of shareholders who hold on to their GT investment might not change.

There is always the possibility that a financial investor will make an offer for GT. Unfortunately for GT shareholders this - most likely - will not be at a very attractive price.

Any suggestions to what could be done to at least ensure that the process of changing board and management get started?
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