BusOrg (Fall 2013)

Chapter 15 – GE Scavenger Hunt

[updated 22 Oct 13]

Please answer the following questions using the proxy materials of GE:

  • GE Notice of 2013 Annual Meeting and Proxy Statement
  • GE 2013 Annual Meeting Proxy Card
  • GE 2012 Annual Report [pdf] [interactive]

If you’re curious, you can listen to the annual shareholders’ meeting – click here.

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  1. True or False? The GE proxy statement (cover page) is titled “Notice of 2013 Annual Meeting and Proxy Statement.” This is because it both satisfies the state law (New York) requirement of notice to shareholders of the annual meeting and the federal law requirements for the document accompanying a proxy solicitation.
  1. True or False? Pages i and ii of the GE proxy statement (the “proxy summary”) specify what matters will be voted on at the April 24, 2013 annual shareholders’ meeting. They include the election of one-third of the board (6 directors), 2 management proposals, and 6 shareholder proposals.
  1. True or False? Page 1 of the GE proxy statement notes that shares held by a broker cannot be voted by the broker without the beneficial owner’s instructions. This prohibition comes from an SEC rule meant to prevent close corporate votes from being decided by Wall Street.
  1. True or False? Page 1 (and later page 50-51) of the proxy statement specifies how GE shares can be voted. Shareholders can vote by internet, by telephone, or by mail. Once a shareholder sends in proxy instructions, they cannot be changed.
  1. True or False? Page 2 (and later page 50) of the proxy statement describes the election of GE directors. GE does not have a staggered board, but instead one where all directors are up for election. And GE has majority voting: each director must receive a majority of votes – meaning more votes for than against.
  1. True or False? Page 2 (and later page 17) of the proxy statement describes the qualifications GE directors are supposed to have. They should have leadership, technology, global, financial industry, marketing, and/or government experience. They need not own GE shares.
  1. True or False? Pages 3-9 of the proxy statement describe the director nominees to the GE board. Most of the nominees are actual or former CEOs, with a smattering of academics and government types. But if you were a GE shareholder, you could vote for those you thought were cute.
  1. True or False? Looking at the director nominees (pages 3-9), a GE shareholder could vote for some and against others. A shareholder could also write-in the shareholder’s nominee. See Proxy Card.
  1. True or False? Page 10 of the proxy statement lays out the board leadership structure. GE does not separate the CEO and chair position. But it does use a “lead director,” who is also the chair of Johnson & Johnson.
  1. True or False? Page 11 of the proxy statement discusses risk management by the board, one of the most important functions of modern corporate directors. For example, GE (and its subsidiary GE Capital) anticipated and were prepared for the financial crisis of 2008. In addition, the board has a committee that manages the risk of climate change.
  1. True or False? Pages 12 of the proxy statement describe director independence. GE says all of its directors going forward satisfy the independence standards of the New York Stock Exchange and the SEC. In fact, no member of the nominating and compensation committees can be member of a law firm, accounting firm or investment bank that does business with GE.
  1. True or False? Pages 13-15 of the proxy statement describe the GE board’s committee structure. There are five committees that include an executive committee that does most of the work of the board. The political responsibilities committee oversees lobbying and political contributions, but does not report these expenditures.
  1. True or False? Pages 15-17 of the proxy statement describe how non-management directors were compensated. Annual compensation was $250,000, in cash and deferred stock units (DSUs). Each DSU has the financial attributes of a share of stock, but are payable only after the director leaves the board. Directors received no additional “meeting fees.”
  1. True or False? Page 17 of the proxy statement mentions how much GE pays for directors and officers insurance. This is insurance against directors and officers being held liable in connection with their service with GE. Directors and officers themselves pay the annual premium, not the company. The premiums paid in 2012 for D&O insurance were $9.1 million.
  1. True or False? Page 18 of the proxy statement presents information on director stock ownership. The director with the most stock, James Tisch, owns more than 470,000 shares (including non-voting stock units). This represents more than $12 million in value, based on the current GE stock price.
  1. True or False? Page 18 of the proxy statement includes information on shareholders of GE that hold more than 5% of GE’s outstanding shares. There are four such shareholders, with the largest being BlackRock, a large money management firm with 583 million of the nearly 10.1 billion GE shares outstanding.
  1. True or False? Page 18-19 of the proxy statement presents information on related party transactions. These are transactions between GE and its directors and officers (or immediate family members). Under SEC rules any such transaction that is “material” to a director or officer must be disclosed. In addition, the nominating committee must approve such transactions.
  1. True or False? Page 13 (and also page ii) of the proxy statement describes the membership of the audit committee, which oversees the company’s outside auditor and makes sure GE’s financial reports are accurate. As required by SEC rule all of the committee members are “financial experts,” including the former CEO of JP Morgan and the former chair/professor of the MBA school at Harvard.
  1. True or False? Pages 20-30 of the proxy statement include a compensation discussion and analysis (CD&A) of executive pay at GE. The board recommends that shareholders approve the compensation last year, as required by the federal securities laws. This say-on-pay vote is not binding on the board.
  1. True or False? Pages 21-22 of the proxy statement include a summary of the CD&A. The compensation committee states that CEO Immelt and other top executives performed extremely well in a challenging global environment, even though only there was only 53% shareholder support for the company’s say-on-pay proposal in the previous year.
  1. True or False? Pages 27-28 of the proxy statement describe the key considerations in setting pay at GE. They include consistent, sustainable and relative performance. For example, the compensation committee believes in cash payments for recent performance, but even more the granting of equity awards that encourage long-term stock price performance.
  1. True or False? Pages 31-32 (and earlier page iv) of the proxy statement have compensation tables for the top five executives at GE. Only the CEO Immelt was paid more than $20 million in 2012 -- once cash, bonus, incentive plans, pension value and other compensation are included.
  1. True or False? The compensation tables (at pages 31-41) show that Immelt’s bonus was more than his salary, the largest compensation component was a non-equity incentive plan payout, his use of company aircraft was valued at more than $250,000, and he did not exercise (cash out) any of his stock options in 2012.
  1. True or False? Pages 42-43 of the proxy statement describe GE’s auditing firm, KPMG. The auditor reviews the company’s financial statements and certifies their compliance with generally accepted accounting principles. KPMG billed $113 million for its audit services in 2012.
  1. True or False? Pages 42-43 of the proxy statement describe a management proposal for shareholders to ratify KPMG as the company’s auditor. This is not required by SEC rule or under the company’s bylaws, but the company sought a shareholder vote as a matter of good corporate practice.
  1. True or False? Pages 44-49 of the proxy statement lay out shareholder proposals. There are six proposals, which in each case the board recommends be voted against. The proposals generally would require the board to change aspects of the company’s corporate governance.
  1. True or False? Looking at the shareholder proposals (at pages 44-49), most seem to deal with corporate governance matters, such as director term limits, having an independent board chair, and allowing shareholders to vote by written consent. There are no CSR proposals.
  1. True or False? Looking at the shareholder proposals (at pages 44-49), one of them suggests that shareholders have the choice of at least two candidates for each available board seat. The shareholder proponent pointed out that a dollar invested 2000 years ago at Christ’s crucifixion would be worth $1.00 * 1060 if it had been invested at 7.2% interest. GE’s board recommended against this proposal because it seemed crazy.
  1. True or False? The results of the shareholder votes conducted at the 2013 annual meeting are found in an SEC filing – a special report on Form 8-K. The top vote-getting director was john Brennan, the former head of the mutual fund company, the Vanguard Group. The least popular was James Tisch, the CEO of Loews. See Form 8-K (4/26/13)
  1. True or False? The results also showed greater shareholder support for the company’s say-on-pay vote than the ratification of KPMG as auditor. Shareholder approval in the say-on-pay vote was above 93%. See Form 8-K (4/26/13)
  1. True or False? None of the shareholder proposals received majority shareholder support. In fact, the most supported proposal – that seeking to have executives retain at least 25% of their GE equity pay until they retire – received only 28.5% shareholder support. See Form 8-K (4/26/13)
  1. True or False? Finally, page 53 of the proxy statement gives instructions for submitting shareholder proposals for next year’s annual meeting. For proposals that seek to be included in the proxy statement under SEC Rule 14a-8, the deadline for submission is (or was) October 14, 2013.

Proxy card

  1. True or False? Look at the letter to shareholders accompanying the proxy card for the 2013 annual meeting (and also page 3 of the proxy statement). The record date for the meeting is February 25, 2013. This means that a person who owned GE shares on that date can vote those shares at the meeting, even though he may have sold the shares after the record date.
  1. True or False? The matters covered in the proxy card include management proposals, election of directors, shareholder proposals, and the level of executive pay. These matters are described in the proxy statement.
  1. True or False? The proxy card includes all matters that are expected to come before the shareholders at the annual meeting. It would violate the SEC rules if management were aware of a matter (such as a shareholder proposal) that was supposed to come up at the meeting and failed to include it in the proxy card and the proxy statement.

Annual Report

  1. True or False? The proxy statement is required to be accompanied by the annual report. The Highlights tab (online version) and inside page (hard copy) of the annual report include a summary of financial results. GE’s revenues grew in 2012 to $190 billion. Its operating earnings grew to $16.1 billion. And its cash flow grew to $17.8 billion.
  1. True or False? Pages 2-15 of the annual report contain a “letter to shareowners” from CEO Jeffrey Immelt. He points out that GE is an infrastructure leader, that the company allocates capital internally in a disciplined way, that the company has focused on R&D, and that the company seeks to enhance productivity. The letter further says that GE will lead the shale gas revolution.
  1. True or False? Page 30 of the annual report contains a letter from the board’s “presiding director” to the shareholders. It describes a company survey of employees, which found that employees thought GE executives were not trustworthy to do the right thing. The employees also found that the company was too complex and failed to respond to customers.
  1. True or False? Pages 31-146 of the annual report contain GE’s financials, including a “clean” audit letter from GE’s auditor and management discussion and analysis (MD&A). Of particular interest is the breakdown (at page 42 of the annual report) of GE’s business into segments. The biggest segment is GE Capital (the financing company) and next is Power & Water (utility infrastructure), while one of the smallest segments is Home and Business Solutions (GE appliances and lighting). Who would have thought?
  1. True or False? Finally, page 1 of the annual report shows a picture of the GE management team, which includes two women. One woman is in charge of marketing and the other is the company’s “chief learning officer.” GE has a history of having women on its top management team.