BusOrg (Fall 2014)
Chapter 15 – GE Scavenger Hunt
[RA - Michael Klotz <klotzmm@wfu.edu>]
Please answer the following questions using the proxy materials of GE:
 GE 2014 Proxy Card
 GE Notice of 2014 Annual Meeting and Proxy Statement [pdf] [interactive]
 GE 2013 Annual Report [pdf] [interactive]
If you’re curious, you can listen to the annual shareholders’ meeting – click here.
***
1. True or False? The GE proxy statement (cover page) is titled “Notice of 2014
Annual Meeting and Proxy Statement.” This is because the document 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.
2. 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 23, 2014 annual shareholders’
meeting. They include the election of one-third of the board (6 directors), 2
management proposals, and 6 shareholder proposals.
3. True or False? Page 1 of the GE proxy statement (and later Page 51 - Important
Voting Information for Beneficial Owners) indicates that shares held by a broker
cannot be voted by the broker without the beneficial owner’s instructions.
(Note: This prohibition comes from an SEC rule meant to prevent close
corporate votes from being decided by Wall Street.)
4. True or False? Page 1 (and later page 50 – How Proxies Are Voted) 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.
5. True or False? Page 2 (and later page 50 – Majority Voting Standard) 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.
6. 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 must own GE shares; and, in fact, all of the directors own GE stock.
7. True or False? Pages 2-7 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.
8. True or False? Looking at the director nominees (pages 2-7), a GE shareholder
could vote for some and against others. A shareholder could also write-in the
shareholder’s own director candidate. See GE 2014 Proxy Card.
9. True or False? Page 9 of the proxy statement (Board Leadership Structure) lays
out the board leadership structure. GE does not separate the CEO and chair
position. But it does use a “lead director,” who is the former CEO and chairman
of the board of Johnson & Johnson.
10. True or False? Page 11 of the proxy statement (Risk Committee) outlines 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
committee is specifically charged with managing the risk of climate change.
11. True or False? Page 8 of the proxy statement (Director Independence) describes
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 (as required by
these standards) can be member of a law firm, accounting firm or investment
bank that does business with GE.
12. True or False? Pages 10-11 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 Governance and Public
Affairs Committee oversees lobbying and political contributions, and prepares
an annual report for shareholders summarizing these expenditures.
13. True or False? Pages 15-17 of the proxy statement describe how nonmanagement directors were compensated. Non-management directors are
allocated $250,000 in cash and deferred stock units (DSUs) paid in four
quarterly installments. Each DSU has the financial attributes of a share of stock,
but is payable only after the director leaves the board. Directors received no
additional fees for attending meetings, though their expenses are covered.
14. 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
2013 for D&O insurance were $8.7 million.
15. True or False? Page 17 of the proxy statement (Stock Ownership Information)
presents information on director stock ownership. The director with the most
stock, James Tisch, owns more than 480,000 shares (including non-voting stock
units). This represents about $12 million in value, based on the current GE stock
price. See Yahoo Finance.
16. 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 three such shareholders -- the largest being BlackRock, a large money
management firm with about 590 million of the 10 billion GE shares outstanding.
See Yahoo Finance.
17. True or False? Page 18-19 of the proxy statement presents information on
related person 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 Governance and Public Affairs Committee must approve such
transactions.
18. True or False? Page 10 (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. Only some of the
committee members are “financial experts,” as defined by SEC rules – specifically,
only the former CEO of JP Morgan and the former chair/professor of the MBA
school at Harvard.
19. True or False? Pages 20-31 of the proxy statement include a compensation
discussion and analysis (CD&A) of executive pay at GE. At page 19 of the proxy
statement, the board recommends that shareholders approve the executive
compensation last year, as required by the federal securities laws. This say-onpay vote is not binding on the board.
20. True or False? Pages 20-21 of the proxy statement include a summary of the
CD&A. The compensation committee states that CEO Immelt’s “strong
performance and leadership in 2013” warranted a larger cash bonus, more PSU
grants, and an increase in base salary. This was even though only 53% of
shareholder votes cast at the 2013 annual shareholders’ meeting supported the
company’s executive pay.
21. True or False? Pages 27 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.
22. True or False? Pages 3 of the proxy statement has a compensation table showing
“realized compensation” for the top five executives at GE. Only CEO Immelt had
more than $10 million in 2013 of realized compensation – as reported to the IRS.
23. True or False? The summary compensation tables (at pages 32) show that
Immelt’s bonus was more than his salary, the largest compensation component
were equity awards. At page 33, a table shows other benefits to the top five GE
executives, including that CEO’s Immelt’s personal use of company aircraft was
valued at more than $340,000.
24. 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 has been
GE’s outside auditor since 1909 and in 2013 billed $350 million for its audit
services.
25. True or False? Page 42 of the proxy statement describes 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.
26. 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 and undertake certain
social/environmental business reforms.
27. True or False? Looking at the shareholder proposals (at pages 44-49), most
seem to deal with corporate governance matters, such as cumulative voting,
multiple candidate elections, shareholder action by written consent, and selling
the company. There are no CSR proposals.
28. True or False? Looking at the shareholder proposals (at pages 44-49), the
proposals all follow the same format: a series of recitals (“whereas” clauses)
followed by a formal resolution (“therefore” clause). None of the proposals
make reference to outside material.
29. True or False? The results of the shareholder votes conducted at the 2014
annual meeting are found in an SEC filing – a special report on Form 8-K. The
top vote-getting director was James Mulva, the former chair and CEO of Conoco
Phillips. The least popular was James Tisch, the CEO of Loews. See Form 8-K
(4/28/14)
30. 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 94%. See Form 8-K
(4/28/14)
31. True or False? None of the shareholder proposals received majority shareholder
support. In fact, the most supported proposal – that seeking to have cumulative
voting for directors – received only about 28% shareholder support. See Form 8K (4/28/14)
32. 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 1, 2014.
Proxy card
33. True or False? Look at the proxy card for the 2014 annual meeting (and also
page 51 of the proxy statement). The record date for the meeting is February 24,
2014. 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. See GE 2014 Proxy Card.
34. 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. See GE 2014 Proxy
Card.
35. 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
36. True or False? The proxy statement is required to be accompanied by the annual
report. The Financial Highlights tab (interactive version) and inside page (hard
copy) of the annual report include a summary of financial results. GE’s revenues
grew in 2013 to $190 billion. Its segment profit grew to $36.1 billion. And its
cash flow grew to $17.4 billion.
37. True or False? Pages 2-11 of the annual report contain a “letter to shareowners”
from CEO Jeffrey Immelt. He wrote that GE is the world’s most competitive
infrastructure company. He also came up with a formula: “We look at what
world needs * [A belief in a better way + A relentless drive to invent and build
things that matter] = A world that works better.” It sounds like a political speech.
38. True or False? Page 24 of the annual report identifies that GE is looking to
simplify its operations and presents some metrics of how the company is doing.
For example, HQ is 15% smaller; Field Approvals is 20% greater; and there are
10% fewer Profit and Loss Centers.
39. True or False? Pages 70-138 of the annual report contain GE’s financials, and are
preceded by a “clean” audit letter from GE’s auditor and the super-important
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 in terms of revenues is GE Capital (the financing company)
and next is Power & Water (utility infrastructure – and also the most profitable
segment), while one of the smallest segments is Home and Business Solutions
(GE appliances and lighting). Who would have thought?
40. 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.