Powering ahead

Feb 02, 2016
<p>Corporate governance team of the year (large cap): General Electric</p>

Amid ongoing M&A activity, including the sale of GE Capital, and greater regulatory demands from the US Federal Reserve, General Electric continued as a governance innovator by redesigning both its 10K and proxy  statement to make them more functional.These  redesigns resulted in new types of disclosures, many of which are already being adopted by other firms. The judges also liked GE’s ongoing attention to training, with three eligible governance lawyers selected for the company’s most senior level of training.

GE has been introducing innovations to its proxy statement for visual appeal and easy navigability for the past five or more years, but it sees changes to the 10K as more significant because it’s ‘a key tool to engage with investors,’ says Christoph Pereira, chief corporate securities & finance counsel, whose group led the 10K makeover. ‘If you think of it, 50 percent of the top 75 holders are passive investors that don’t have portfolio managers actively following the company.’

Because the voting side of most active institutional investors doesn’t have time to track the company’s performance, GE’s legal team talks to them not only about governance, but also about company strategy and performance. And adding an introductory summary explaining what the company stands for in the 10K’s front section has greatly aided GE’s engagement discussions with investors, Pereira says. The new 10K also includes a completely new presentation on how the company manages risk and its approach to M&A.

‘Outreach informs our entire governance  framework and the changes we make to board  practices each year,’ Pereira says. ‘Anything we do is the result of this feedback loop.’

That’s how GE became one of the first large-cap companies to adopt proxy access. ‘In talking to  shareholders, it became clear that proxy access has the same momentum as majority voting in director elections had a few years ago,’ Pereira says. ‘You could defer adoption of proxy access, but it would be at a cost, so you may as well put something in place.’

Another reason to adopt proxy access was that  the issue had ‘sucked the air out of the room’ in  shareholder engagement discussions. ‘[Adoption] puts the issue behind us and allows us to have other  meaningful discussions’ with investors, Pereira adds.

GE has also made progress toward the sale of GE Capital, its financial arm, which was responsible for the company being designated a systemically important financial institution (SIFI) under the Dodd-Frank Act, a designation that comes with higher capital and  oversight requirements. GE hopes to complete most of the sell-off of GE Capital by the end of 2016 and have its SIFI status revoked by the Federal Reserve.

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