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General Electric is a listed company in New York Stock Exchange and has its headquarters situated in Fairfield, Connecticut USA. Since the organization is American based, GE int'l is required to follow the US corporate Governance principles. Such rules and principles have been stated in the Sarbanes-Oxley Act of 2002 (SOX).
This research is more inclined towards the compliance with the US governance rules within GE Int'l rather than being UK based only. Even though the company has a lot of business sectors in different countries around the world, this is focused on the US Governance Standards.
The analysis on this will focus on the CG principles followed by GE Int'l under SOX and company's compliance with NYSE and SEC respectively. However, a comparison with the UK Corporate Governance Principles will also be conducted here on.
Compliance with Corporate Governance Framework:
Sarbanes-Oxley Act of 2002 ("the Act")
The Sarbanes-Oxley Act of 2002 ("the Act") amends the U.S securities and other laws in a significant ways. Due to the fall of Enron, Arthur Anderson and WorldCom etc. there was a need to pass an Act that could change and standardize accounting and other irregularities in response to the public outcry. The Act changed corporate reporting, regulations for audit firms, Corporate Governance as well as the responsibilities of directors and officers. The act has provisions that have been enhanced by the Securities Exchange Act of 1934 ("The Exchange Act"), this will be scrutinized later in the analysis. (Lander, 2003)
"The Act is mandatory and is required to be followed by all US and non-US listed Companies. Compliance with the legislation need not be a daunting task, like every other regulatory requirement it should be addressed with thorough study and proper analysis" (Sox Law, 2006). The Securities and Exchange Commission's report ( SEC, 2009) on SOX states the importance of 'section 404' which is viewed to have a high cost of compliance as compared with other regulations which tend to have a more flexible rule based approach.
Keeping everything in view, the Act did bring some advantage to the companies in the U.S as stated in (Forbes, 2003) that SOX developed the Public Company Accounting and Oversight Board (PCAOB) "to ensure the accounting statements are audited according to the independent standards". It is certain that compliance costs have increased but the act did have some positive effects on the governance as well. (Forbes, 2003)
GE also stated in their Annual report of 2007 in relation to the adoption of corporate governance principles that the audit Committee within GE reviews the requirements under the section of 'the act', as explained above, as well as its compliance with GE's own policies and other applicable laws. (GE Principles, 2007)
Chairman and CEO:
Jeffery R. Immelt is the current chairman and CEO for GE International succeeding John F. Welch, Jr. in 2001 and has retained the title since then (GE Leadership, 2012). The role of chairman has been clearly stated in the UK Combined code (Financial Reporting Council 2010, p.10) as being responsible for sound leadership on the board as well as ensuring effectiveness of the role. According to Garten (2001, p.5) the chief executive officers or the "top executives, lead the organizations with enormous reach".
GE tends to stick with this ideology of having single person being the CEO as well as the chairman of the board. Despite the fact that proposals were made by the potential shareholders against the dual leadership role as the board of GE believes , stated in their corporate governance principles, that the combined role provides an effective structure that ensures effective oversight by the independent board than an independent chairman (Proxy Statement, 2004).
Moreover, shareowners are of the view that one person serving both positions might also hinder the board's ability to monitor CEO's performance. The board believes that the company's overall corporate governance principles and practices serve to minimize any potential conflicts that may arise due to the combine role of chairman and CEO. They further believe that one person can lead and speak for the company and the board more effectively and efficiently (Proxy Statement, 2012).
Sox Section rules?
Double role - UK cgc compare
What GE has?
Directors independence has grown into importance after the collapse of Enron and other major firms in the U.S. SOX had laid great importance on the directors independence and enforces them to be separate from the management to prevent biasness and other management abuses from occurring. According to Dravis (2007), independent directors can provide a better oversight to the company and a good opportunity to overcome 'wishful thinking and loss aversion influences' on the decision making.
The NYSE rules, section 303A, also require the listed companies to have majority of independent directors to avoid any conflicts of interest on the board. Additionally it requires disclosures in the company's form 10-K (to be filed with SEC) and any non-compliance must be specifically explained (NYSE, 2003).
GE has a healthy set of Governance Principles that also cover the independence of directors. The company seeks to have at least one third of its board to be independent. The guidelines established by GE also assist in determining independence according to NYSE listing rules as well. In this respect, GE complies with the SOX guidelines on the board independence stated in Section 101 of the Act. Moreover the company believes in transparency of its policies and operations and demands disclosure in its proxy statements upon compliance with NYSE Listing Rules (GE Governance, 2012).
The number of Directors on the board of GE ranges between 13 and 17 spread across the sub board committees. They are elected annually through a nomination process in the annual meeting with shareholders. Currently the board consists of 16 Independent Directors of a total of 18 under GE's independence guidelines and NYSE guidelines except for Mr. Jeffrey Immelt who is the chairman of the board , CEO GE as well as Public Responsibilities Committee Member (GE Independence, 2012)
NED and ED's
Board Committees, Composition and its practices:
Since the US Corporate law recommends for a single board structure in the listed companies in U.S, GE adopts the same unitary board structure without any supervisory or management board. The Co.'s board consists of a number of sub board committees established to perform specific operations. These mainly include Audit Committee, Management Development and Compensation Committee, Nominating and Corporate Governance Committee, Public Responsibility Committee and Risk Committee. All the committees are chaired by respective persons and hold meetings in conjunction with the full board (GE, 2012). Section 4 of GE's Governance Principles states that the Committees are delegated with certain responsibilities to carry out the tasks effectively and "assist the board in overseeing reputational risks" (GE Governance, 2012).
The board of GE consists of personnel with highest level of integrity, values and integrity which is in line with the Section 10(e) of Sarbanes-Oxley Act of 2002 whcih states that the board must have 5 individuals who possess a certain level of integrity and demonstrate commitment in the best interest of investors.
The Pie chart below shows the board composition of GE.
According to section 5 of GE's Governance Principles (2012), board directors are nominated year by year by its shareowners. It is important for the board to appoint members who have the ability to lead GE's Business in the light of Success and continuous Growth.
Board Meetings and Attendance:
Types, composition(pie charts), independence, appointments, consult proxy statement
No. of Meetings (tables). & attendance (acc to NYSE, sec, sox, FRC report?)
Refer to BY-LAWS file
Directors in Committees and indep compliance with NYSE,FRC and SOX
Adds to integrity
Effectiveness - GE website
Comparison with competitors e.g. Siemens, Sony, Emerson
Any Compensation Disclosure req?
Case against GE
Ombudsperson process ( as above)
Accountability and Audit
Discuss audit case as well
Relations with Shareholders
Sarbox sec 401 rules
Institutional shareholders communication
Use of AGM
Impact of CG practices on Key stakeholders of GE
Intro- about stakeholders
Identify GE stakeholders
Put in Medelow Matrix
Layout in chart
Share price comparison
The Spirit and the Letter pg. 6
The Spirit and the Letter pg. 16
Society and Environment
The Spirit and the Letter pg. 40-44