General Electric (GE) held its annual shareholder meeting on April 28th. It comes as no surprise that the same 16 directors up for reelection remain firmly in place. However, it should raise some eyebrows, since the number of shares voted against certain board members (most notably Messrs. Lafley and Penske) fell sharply compared to last year. Yet, in a fantasy land of GE proxy voting, it might not matter so much if shareholder (activist) Evelyn Davis, the “queen of the corporate jungle,” had garnered more votes for her perennial proposal for cumulative voting, which unfortunately and curiously saw a decline in support versus years prior. Back to reality, regardless of how many additional future votes there might be for cumulative voting, the board will likely not only continue to regard it as a closed matter since it was rejected, but it will also fail to acknowledge the importance of the proposal to a not insignificant number of shareholders. Ironically, even with a majority vote in favor of the proposal, the board is not required by law to do anything at all.
As I said in my article previewing GE’s annual meeting, the reelection of the board and the rejection of shareholders’ proposals was a done deal, but greater evidence of shareholder dissatisfaction could bring meaningful change. Votes in favor of cumulative voting — an utter necessity in my opinion for a company the size of GE, with such a large and entrenched board — which allows a shareholder to vote his/her number of shares multiplied by the number of directors to be elected (instead of one share, one vote), fell by over 495 million votes, as the number of votes against the proposal rose by over 300 million (possibly a result of a 228 million vote increase from shares held by brokers). This all means that the board remains ensconced and it can continue to ignore Ms. Davis’ proposal in spite of historical 20%-plus support, a level it achieved again this year after three consecutive years at 30%-plus.
The board should recognize that support of a proposal of 20%, 30% or more is meaningful. And especially year after year, after year, ad nauseam. It’s not just about cumulative voting either, as support for having an independent chairman reappeared and again had support in excess of 30%. While the chips are stacked against most shareholders, the good news is that the consistency of the likes of Evelyn Davis can persist against a stubbornly consistent board of directors. It’s not readily clear what the occasion or catalyst will be, but perhaps in the meantime, shareholders can pretend to take solace in knowing that at approximately $300,000 in annual compensation per director, they are a fraction, that is, about 1/23 the cost, of GE’s auditors, KPMG, whom have been equally as consistent in signing off, while serving up $100 million-plus annual fees.
In closing, I would like to remind GE shareholders of the following to keep in the back of their minds come next year’s annual meeting:
- Half of GE’s 16 directors have served since 2000 or prior and looking beyond the rally over the past year or so in which GE has arisen from near-death at an unfathomable $6 and change per share, the 10-year stock return is -66% versus -20% for the S&P 500 and +0.40% for the Dow, of which GE is a component. In the past 5 years, GE is down 50.6% compared to -1.6% for the S&P 500 and +4.7% for the Dow. At Friday’s $17.64 close, GE is trading where it was in 1997. (See image above of 10-year stock chart.)
- Looking back, GE’s dividend payout over the past 12 months takes it back to 2001-2002 levels. And the nearly $26 billion spent on stock buybacks between 2005 and 2007 (note in 2008 GE issued net stock of $10.76 billion), appears to have been bought mostly in excess of $34 per share.
- Speaking of GE’s dividend, which remains one of the most important matters on many shareholders’ minds. At GE’s annual meeting it sure sounded like management understood the demand for a dividend hike and claimed to be in a cash aplenty position to do something about it. Might management and the board agree that dividends must be the priority, not buybacks, no buybacks at all, until the dividend, at a per share-level, matches what it was before the reduction. Furthermore, with all that cash, how about a special dividend to make amends?
- Finally, given GE’s core businesses, how do all the directors (that is, 8 of 16) with backgrounds in academia, consumer products, and marketing fit in? Let’s not forget either, that many have an executive position and other directorships and the like, outside of GE. I have already established the fact that half of them have been directors since 2000 or prior. How about a term limit for directors?
For those accumulating GE stock like myself, maybe we should be pleased with GE’s depressed stock price(s). We should be happy the board is/was asleep or too busy or too inept or any combination of those, to have any efficacy. Presuming a recovery in GE’s stock price, maybe that’s the case. However, I think the most prudent way to approach things is to always aim for the best. For GE, it should be a consistently higher dividend, based on consistent performance.
One final note. Per new SEC rules concerning disclosure of proxy votes, GE published the results via Form 8-K within four business days of its annual meeting. Last year it took 16 days with no formal shareholder notice. Given varying interpretations of the ruling on my side and amongst individuals I consulted with, it appeared as if another long wait was in the cards this year, too, also since when I phoned Investor Relations after the annual meeting, there was no indication whatsoever regarding the four-day timing or the 8-K delivery of the results — I was told it would likely be filed with the same timing and in the same manner (via PDF on its website) as last year. In fact, since there were no surprises with the vote results last year, meaning it was the status-quo, I was told there was no need to file an 8-K. Nevertheless, despite the unfavorable results of the vote, and in spite of it being 2010 and finally just now having sufficient disclosure requirements, I must admit it was nice to not have to wait two weeks. Shame on GE for taking so long to disclose results in the past.
Disclosure: The author owns shares of GE.
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