Privilege trumps posterity at General Electric

The vote results from General Electric’s (GE) annual meeting held on April 27th were filed with the SEC on Tuesday.  A “5th grader” reviewing the results could easily see that General Electric prevailed overwhelmingly: in reelecting its directors, approving executive pay, and voting down shareowner proposals. I question whether GE’s board and its executives could honestly tell said 5th grader that the vote results reflect a fair representation of the company’s stakeholders, which for instance include employees, retirees, investors, corporate partners, customers, and the residents in communities in which it operates. Could these very directors teach what they claim?

Is the board really independent (more than half the board has greater than ten years of service; more than a two-term U.S. president)? Are they not over-committed (many directors have employment in an executive capacity and sit on the boards of other large companies and nonprofits, not to mention their personal obligations)? Are they not over-compensated (excluding newcomer James Tisch, they each received total compensation of between $276,000 and $357,000 in 2010)?

Regarding executive pay, can GE’s senior executives explain to children how almost destroying one of the world’s largest companies means you not only get your million-dollar salary, but you also get a multi-million-dollar bonus, and meantime accumulate millions upon millions in your pension? (Note that CEO Jeff Immelt did not receive a bonus in ’08 and ’09). Why did the board approve, and said executives accept, millions of dollars of stock options they otherwise would not have received had the board not taken extraordinary measures to issue them in a blatant attempt to compensate for expiring deep out-of-the-money options? Do I even have to mention the two-thirds cut to the company’s dividend, which today is still less than half of its pre-crash level?

GE’s shareowner proposals bespeak the above mentioned problems. However, GE’s board without fail urges shareowners to vote against the proposals.  While even a 30% vote in favor of a proposal such as cumulative voting is not insignificant (especially in light of the zombie in-line with management voting by institutions), proposals are non-binding anyway, meaning the board can simply ignore the results.

For some reason I’m reminded of Thomas Paine’s introduction to Common Sense:

Perhaps the sentiments contained in the following pages, are not yet sufficiently fashionable to procure them general favor; a long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defence of custom. But the tumult soon subsides. Time makes more converts than reason.

Somehow, despite the sentiments outlined above and in my now several articles covering General Electric’s proxy voting over the past two years — which are readily embraced by readers and a variety of individuals I have talked with — the case remains that the board of directors and the voters in the majority (deemed largely of the institutional variety) “have a long habit of not thinking (them) wrong … giving (them) a superficial appearance of being right….”

For now it seems that I will either have to accept that “time makes more converts than reason,” or sell my shares on principle, or hold my shares despite principle. In the latter two instances, what sort of model does GE serve? What kind of example would I set? Grossly excessive privilege is pervasive at GE and across the U.S. Maybe I’ll submit a shareowner proposal for 2012 seeking resolution to subject GE’s proxy voting to a “can you look a fifth grader in the eye test.”

Disclosure: The author is a longtime GE shareowner. Click here for a list of articles discussing GE and proxy voting.

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