BusOrg (Fall 2014)

Chapter 15 GE Scavenger Hunt

[RA - Michael Klotz ]

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 youre 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 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 owners 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 shareholders 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 boards 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 non-management 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 GEs 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 companys outside auditor and makes sure GEs 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-on-pay 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 Immelts 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 companys 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 Immelts 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 CEOs Immelts personal use of company aircraft was valued at more than $340,000.

24. True or False? Pages 42-43 of the proxy statement describe GEs auditing firm, KPMG. The auditor reviews the companys financial statements and certifies their compliance with generally accepted accounting principles. KPMG has been GEs 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 companys auditor. This is not required by SEC rule or under the companys 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 companys 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