Company Name: General Electric Co.
Public Availability Date: January 27, 2004Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
December 16, 2003 Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D.C. 20549 Re: Omission of Share Owner Proposal by Mr. Arthur A. Gavitt
Gentlemen and Ladies: This letter is to inform you, pursuant to Rule 14a-8(j) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that General Electric
Company ("GE" or the "Company") intends to omit from its proxy materials for its
2004 Annual Meeting the following resolution and its supporting statement (the
"Proposal"), which it received from Mr. Arthur A. Gavitt (the "Proponent"):
My Proposal: It becomes imperative that the Board of Directors vote a cessation
of all Executive Option Programs, and Bonus Programs. Salaries are in themselves
highly inflated, and rewards via a bona fide salary program are a necessity.
Salary increases to deserving Executives will reward only those who productively
enhance the Company's Business. Only if and when profit increases are published
and compiled annually, and verified by a Certified Accounting Firm a realistic
salary increase commensurate with the increase in the Company's Business can be
considered. Should there be no increase in the Company's Business, or a decline
in Corporate Business is published and compiled annually, and verified by a
Certified Accounting Firm, no salary increase(s) will be forthcoming. Rewards
via the above measurements will suffice and remove the bonus and Executive Stock
Option Program(s) permanently. A copy of the Proposal is enclosed as Exhibit A.
It is GE's opinion that the Proposal is excludable pursuant to: (i) Rule
14a-8(c) under the Exchange Act because the Proposal includes at least two
distinct proposals and the Proponent has declined to reduce the number of items
proposed; (ii) Rule 14a-8(i)(1) under the Exchange Act because the Proposal is
not a proper subject for action by GE share owners; (iii) Rule 14a-8(i)(2) under
the Exchange Act because implementation of the Proposal would cause GE to
violate the law; (iv) Rule 14a-8(i)(6) under the Exchange Act because GE lacks
the power or authority to implement the Proposal; (v) Rule 14a-8(i)(3) under the
Exchange Act because the Proposal is so vague and indefinite as to be considered
misleading; and (vi) Rule 14a-8(i)(3) under the Exchange Act because the
Proposal contains numerous false and misleading statements in violation of Rule
14a-9 under the Exchange Act. I. The Proposal Contains Multiple Proposals.
Rule 14a-8(c) provides that a share owner may request only one proposal for
inclusion in a company's proxy materials. By e-mail dated November 10, 2003 (the
"Notification Letter"), GE notified the Proponent that, among other things,
because the Proposal contains more than one proposal, it would need to be
amended to conform to Rule 14a-8(c) under the Exchange Act. A copy of Rule 14a-8
was included with the Notification Letter. The Proponent responded by e-mail
dated November 13, 2003 (the "Proponent's Reply") and stated that "I
respectfully deny your request to compromise, delete, or revise my proposal in
any way. I do not agree that my proposal contains more than the required single
submission." A copy of the Notification Letter and the Proponent's Reply is
enclosed as Exhibit B. The Proponent has attempted to evade the one proposal limitation by formulating
in one paragraph what are clearly multiple proposals. At the very least, the
Proposal contains two distinct, unrelated proposals:
Proposal 1: "It becomes imperative that the Board of Directors vote a
cessation of all Executive Stock Option Programs, and Bonus Programs"; and
Proposal 2: "Salary increases to deserving Executives will reward only those
who productively enhance the Company's Business. Only if and when profit
increases are published and compiled annually, and verified by a Certified
Accounting Firm a realistic salary increase commensurate with the increase in
the Company's Business can be considered. Should there be no increase in the
Company's Business, or a decline in Corporate Business is published and compiled
annually, and verified by a Certified Accounting Firm, no salary increase(s)
will be forthcoming." Proposal 1 relates to incentive compensation, specifically stock options and
bonuses, and seeks to have the Company terminate all option and bonus programs.
Ceasing all such programs is what the Proponent would propose that the Company
undertake immediately upon approval of the Proposal. Proposal 2 contains at least one other proposal: salary increases. In addition,
it differs from Proposal 1 temporally, since it could not be implemented
immediately, but rather at some future date or dates when salary increases would
normally come under consideration. The Proponent is no stranger to the submission of multiple compensation
proposals. In fact, the Staff of the Division of Corporation Finance (the
"Staff") has previously granted Rule 14a-8(c) relief where the Proponent
submitted multiple compensation proposals to other companies. See, e.g., Merck &
Co., Inc. (Jan. 29, 1997); and Ameritech Corporation (Jan. 3, 1997). The
Proponent submitted a proposal similar to Proposal 1 to GE for inclusion in its
2003 proxy materials, demanding that all executive stock option programs and all
bonus programs be permanently discontinued and that certain monetary gains be
returned. See General Electric Company (Jan. 24, 2003). Therefore, by adding
Proposal 2, on the separate topic of salary increases, the Proponent must be
aware that he has submitted multiple proposals. The Staff has consistently found that, where a proponent submits multiple
proposals as one proposal and refuses upon request to limit himself to one
proposal, the entire proposal may be omitted. See, e.g., Citizens Corporation
(Apr. 4, 1997) (Staff permitted the exclusion of multiple proposals requesting
the company to study whether unlawful discrimination was practiced in the sale
of its group insurance programs and whether there was a pattern of "boycott in
the geographic representation of the [c]ompany's agents"); Allstate Corporation
(Jan. 29, 1997) (Staff permitted the exclusion of multiple proposals requiring
the board of directors to adopt cumulative voting and then to avoid certain
actions that might impair the effectiveness of cumulative voting); Fotoball,
Inc. (May 6, 1997) (Staff permitted exclusion of multiple proposals relating to
mandatory stock ownership guidelines for directors, payment of director fees in
equity, and limitations on services performed for the company by non-employee
directors); Storage Technologies Corporation (Feb. 22, 1996) (Staff permitted
the exclusion of multiple proposals relating to the disclosure of the terms of
the CEO's retirement and the termination of the CEO); and MNC Financial, Inc.
(Mar. 6, 1991) (Staff permitted the exclusion of multiple proposals relating to
the recission of bonus and incentive awards, retirement benefits, and golden
parachutes, and the recovery of amounts for an individual's personal use of the
company aircraft). Alternatively, if the Staff were to view the Proposal as a single proposal, the
Proposal, together with its supporting statement, exceeds the 500-word limit of
Rule 14a-8(d) and should be excluded on that basis. See, e.g., AOL Time Warner
(Feb. 18, 2003). See also, e.g., AT&T Corporation (Dec. 30, 1996).
For the foregoing reasons, GE requests that the Staff concur that the entire
Proposal may be omitted from its 2004 proxy materials under Rule 14a-8(c).
II. The Proposal Is Not a Proper Subject Under State Law.
The Proposal is cast as a demand to the Board rather than as a precatory
proposal making a recommendation for Board action. Rule 14a-8(i)(1) states that
a company may omit a share owner proposal from its proxy materials if the
proposal is "not a proper subject for action by shareholders under the laws of
the jurisdiction of the company's organization." Thus, a proposal may be omitted
if it seeks to mandate action on matters that, under state law, fall within the
powers of a company's board of directors. It is my opinion that the Proposal, as drafted, would violate New York law. GE
is a New York company. In the absence of a specific provision giving the power
directly to the share owners, a New York company's business and affairs are
managed under the direction of the board of directors. See Section 701 of the
New York Business Corporation Law (the "NYBCL"). No provision of the NYBCL
confers such power on the share owners directly, and no provision in the GE
Articles of Incorporation or By-Laws does so either. The note to Rule 14a-8(i)(1) states that, "[d]epending upon the subject matter,
some proposals are not considered proper under state law if they would be
binding on the company if approved by shareholders. In our experience, most
proposals that are cast as recommendations or requests that the board of
directors take specified action are proper under state law." The Staff has
consistently found that binding proposals are excludable unless amended by the
proponent to make them precatory. See, e.g., General Electric Company, supra;
Phillips Petroleum Company (Mar. 13, 2002) (proposal requiring a formula
limiting increases in the salaries of the company's chairman and other
officers); PPL Corporation (Feb. 19, 2002) (proposal requiring decrease in the
retainer for non-employee directors); PSB Holdings, Inc. (Jan. 23, 2002)
(proposal requiring a limitation on compensation of non-employee directors); and
Columbia Gas System (Jan. 16, 1996) (proposal requiring a limitation on salary
increases and option grants). The Proposal is not cast as a recommendation or request. Rather, it demands that
"the Board of Directors vote a cessation of all Executive Option Programs, and
Bonus Programs" and adopt a separate compensation mechanism requiring increases
in salary "commensurate with the increase in the Company's Business" but "[o]nly
if and when profit increases are published and compiled annually." The
Proposal's two proposals therefore are not precatory. Instead, they require GE
perform specific actions, leaving no discretion in the matter to the GE Board of
Directors. Thus, the Proposal seeks to usurp the discretion of GE's Board.
Accordingly, it is my opinion that, under the NYBCL, the Proposal is not a
proper subject for action by the Company's share owners and may be properly
omitted from the Company's 2004 proxy materials pursuant to Rule 14a-8(i)(1).
III. The Proposal, If Implemented, Would Require GE to Violate the Law.
Rule 14a-8(i)(2) states that a company may omit a share owner proposal if
implementation of the proposal would cause the company to violate any state,
federal, or foreign law to which it is subject. The Proposal relates not only to
future compensation arrangements entered into by GE through its stock option and
bonus programs and the separately-proposed limitation on salary increases, but
alsobecause the Proposal would require "cessation" of the stock option and
bonus programsto all of GE's outstanding compensation arrangements in
connection with those programs. Because GE has outstanding contractual
obligations to pay executive officers compensation pursuant to its stock option
and bonus programs, in my opinion, the Proposal would require GE to breach
outstanding contractual obligations with its executive officers and, thus,
violate state law. Unilateral breach of a contract without cause would
constitute a material breach under New York state law, which would render the
Company liable. See Webster v. Casein Company of America, 206 N.Y. 506, 100 N.E.
488 (1912). See also, e.g., Karas v. H.R. Laboratories, Inc., 271 App. Div. 530,
67 N.Y.S.2d 15 (2d Dept. 1946), aff'd per curiam, 297 N.Y. 494, 74 N.E.2d 192
(Ct. App. 1947)(failure to adhere to terms of employment contract was actionable
breach); and Wegman v. Dairylea Cooperative, Inc., 50 A.D.2d 108, 376 N.Y.2d 728
(4thDept. 1975) (a party's failure to perform under an employment contract
constitutes a breach of such contract). If such outstanding arrangements were unilaterally terminated or amended, it is
my opinion that GE would be in breach of its existing contractual obligations to
the executive officers who are parties to those arrangements. For example, GE
has granted stock options and restricted stock units under the GE 1990 Long-Term
Incentive Plan, as Amended and Restated, to various executive officers. Such
awards are still outstanding, and in some cases are in the early years of a
multi-year award cycle. It appears, therefore, that the Proposal, if
implemented, would have a retroactive effect on GE's outstanding compensatory
arrangements, and GE could not unilaterally terminate or amend such arrangements
to bring them into compliance with the Proposal without violating those
contracts and, thus, state law. The Staff has consistently allowed omission of share owner proposals under Rule
14a-8(i)(2) that may require the breach of outstanding compensation-related
contractual obligations. In Citigroup Inc. (Feb. 18, 2003), the Staff permitted
omission of a share owner proposal submitted by the Proponent which demanded, in
part, that all senior manager stock option programs and bonus programs be
terminated, unless the proposal was revised to apply only to future compensation
arrangements. Additionally, in Sensar Corporation (May 14, 2001), the Staff
permitted omission of a share owner proposal requiring that "[a]ll options
reserved for officers and directors at the last shareholders meeting be
rescinded and re-authorized," because the proposal may cause the company "to
breach existing contractual obligations." See also, e.g., Selective Insurance
Group, Inc. (Mar. 24, 2003) (Staff permitted omission of a share owner proposal
that requested, in part, that the company enter into understandings with its
senior executive officers and directors not to exercise outstanding stock
options, unless the proposal was revised to apply only to future contractual
obligations); International Business Machines Corporation (Feb. 27, 2000) (the
Staff permitted omission of a share owner proposal that requested "termination
and renegotiation of the grossly excessive retirement package" of the company's
chief executive officer); SBC Communications (Jan. 11, 1999) (Staff permitted
omission of share owner proposal requiring abolition of all stock options); and
CoBancorp Inc. (Feb. 22, 1996) (Staff permitted omission of share owner proposal
requesting recission of long-term incentive plan). In numerous other letters, including some involving share owner proposals by the
instant Proponent, the Staff has also permitted registrants to exclude share
owner proposals under Rule 14a-8(i)(2) if the implementation of such proposals
might require the registrant to breach other types of outstanding compensation
agreements. See, e.g., NetCurrents, Inc. (June 1, 2001) (permitting omission of
a share owner proposal because it may cause the company "to breach existing
employment agreements or other contractual obligations"); and Whitman
Corporation (Feb. 15, 2000) (permitting omission of a share owner proposal
because it may cause the company "to breach an existing contract").
For all of the foregoing reasons, GE requests that the Staff concur that the
Proposal may be omitted from GE's 2004 proxy materials pursuant to Rule
14a-8(i)(2). IV. GE Lacks the Power or Authority to Implement the Proposal.
Rule 14a-8(i)(6) provides that a company may omit a share owner proposal if the
company would lack the power or authority to implement the proposal. As noted
above in Part III, GE does not have the authority to unilaterally terminate or
amend outstanding compensatory arrangements. As such, GE lacks the power or
authority to implement the Proposal because the Proposal would compel GE to
violate outstanding contractual obligations to its executive officers and, thus,
state law. The Staff has previously held that share owner proposals that require the
company to breach outstanding contractual obligations may be omitted pursuant to
Rule 14a-8(i)(6) because the company would lack the power or authority to
implement the proposal. See, e.g., Selective Insurance Group, Inc., supra;
NetCurrents, Inc., supra; Sensar Corporation, supra; and Whitman Corporation,
supra. Accordingly, for the foregoing reasons, GE requests that the Staff concur that
the Proposal may be omitted from GE's 2004 proxy materials pursuant to Rule
14a-8(i)(6). V. The Proposal Is So Vague and Indefinite as To Be Misleading.
Rule 14a-8(i)(3) states that a proposal may be omitted if the proposal or its
supporting statement is contrary to the proxy rules, including Rule 14a-9, which
prohibits materially false or misleading statements in proxy soliciting
materials. The Staff has consistently taken the position that vague and
indefinite share owner proposals are excludable under Rule 14a-8(i)(3) as
inherently misleading because neither the share owners nor the company's board
of directors would be able to determine, with any reasonable amount of
certainty, what actions or measures would be taken if the proposal were
implemented. See, e.g., Pennsylvania Power & Light Co., supra (permitting
omission of a proposal submitted by the Proponent as "inherently vague and
indefinite" unless the Proponent revised the proposal to make certain terms more
specific); Woodward Governor Company (Nov. 26, 2003) (permitting omission of a
proposal requiring the board to implement a compensation policy for senior
executives based on stock growth); Smithfield Foods. Inc. (July 18, 2003)
(permitting omission of a proposal requesting that the company prepare a
sustainability report); The Procter & Gamble Company (Oct. 25, 2002) (permitting
omission of a proposal requesting that the board of directors create a specific
type of fund as vague and indefinite because the company argued that neither the
shareholders nor the company would know how to implement the proposal);
Philadelphia Electric Company (July 30, 1992) (permitting omission of a proposal
regarding the creation of a committee of share owners because "the proposal is
so inherently vague and indefinite" that neither the share owners nor the
company would be able to determine "exactly what actions or measures the
proposal requires"); and NYNEX Corporation (Jan. 12, 1990) (permitting omission
of a proposal relating to noninterference with the government policies of
certain foreign nations because it is "so inherently vague and indefinite" that
any company action "could be significantly different from the action envisioned
by the shareholders voting on the proposal"). The Proposal is vague and indefinite because it fails to define critical terms
or otherwise provide guidance on how it should be implemented. For example, in
the discussion of the separately-proposed limitation on salary increases, the
Proposal does not define the term "profit increases." Do "profit increases"
contemplate gross profit or net profit, or another measure which may or may not
be in accordance with generally accepted accounting principles? Further, neither
the term "Company's Business" nor the term "Corporate Business" is defined in
the Proposal or the supporting statement. Does the Proponent mean to refer to
gross sales? Net sales? Net income? Nor is it readily apparent how the Company
is to determine whether there is "no increase in the Company's Business, or a
decline in Corporate Business." Finally, how would an accounting firm "verify"
such "increases or decreases" in "Business"? Would a full audit be required, or
an attestation, or just a review that does not involve an audit? What standards
would the Company apply to determine whether a salary increase is "commensurate"
with an "increase" in "Business"? If GE were to attempt to implement the Proposal, it would be especially
difficult because GE, like many other companies, emphasizes long-term incentive
awards covering periods of more than one year, and has various long-term awards
currently outstanding and in various stages of their life cycles. The Proposal
may be read to apply retroactively to those outstanding awards regardless of
their stage of development. The Proposal, by requiring a "cessation" of the
Programs, does not explain how or to what extent GE is to address such issues,
and ignores the fact that GE is not free to breach existing contractual
commitments. For the foregoing reasons, the Proposal is so inherently vague and indefinite
that it may be omitted from GE's 2004 proxy materials pursuant to Rule
14a-8(i)(3). VI. The Proposal Is Materially False and Misleading.
The Proposal violates the proxy rules, including Rule 14a-9, because it is false
and misleading, inflammatory, impugns character and integrity without factual
foundation, and sets forth numerous other statements and assertions that lack
factual support and citation. Therefore, the Proposal may be excluded pursuant
to Rule 14a-8(i)(3). A share owner proposal that is false or misleading may be omitted from a
company's proxy materials under Rules 14a-8(i)(3) and 14a-9, which prohibit the
use of proxy materials containing any materially false or misleading statements.
A share owner proposal may violate these rules if it contains language which is
false or misleading, including statements that, under Note (b) to Rule 14a-9,
"directly or indirectly impugn[ ] character, integrity or personal reputation
... without factual foundation." The Proposal is so replete with statements and assertions that are false and
misleading that we believe that the Company may omit the entire Proposal from
the Company's proxy materials pursuant to Rule 14a-8(i)(3). The Staff has
indicated that, "when a proposal and supporting statement will require detailed
and extensive editing in order to bring them into compliance with the proxy
rules," the Staff may find it appropriate to grant relief without providing the
proponent a chance to make revisions to the proposal and supporting statement.
Division of Corporation Finance: Staff Legal Bulletin No. 14 (July 13, 2001)
("Staff Legal Bulletin No. 14"). We urge the Staff to provide such relief here.
See, e.g., The Swiss Helvetia Fund, Inc. (Apr. 3, 2001); and General Magic, Inc.
(May 1, 2000). The award of stock and stock options by the GE Board of Directors in the
exercise of its business judgment and in accordance with the terms of GE's 1990
Long-Term Incentive Plan, as approved by the share owners, and the exercise of
those options and sale of stock by insiders are permissible under federal and
state securities laws and the laws of the State of New York, subject, of course,
to the insiders' compliance with those laws. Moreover, the grant of options and
other equity-based awards to management is a common practice among companies
used to attract, retain and incentivize key employees. Therefore, the Proposal
is false and misleading in its entirety for implying that it is somehow improper
for GE's Board of Directors and management to use equity-based awards to
attract, retain and incentivize its key employees. In addition, many of the statements in the Proposal lack any factual basis. The
Staff has noted that "shareholders should avoid making unsupported assertions of
fact ... [and] should provide factual support for statements in the proposal and
supporting statements and phrase statements as their opinion where appropriate."
Staff Legal Bulletin No. 14. Should the Staff determine not to exclude the
entire Proposal, there are numerous recent no-action letters that would support
the exclusion of each of the statements and assertions below as false and
misleading under Rule 14a-8(i)(3), or that otherwise would require the Proponent
to revise them to provide additional factual support or citations. See, e.g., J.
Alexander's Corporation (Apr. 1, 2002) (noting that various statements in the
proposal may be omitted unless the proponent provided factual support for those
statements); Northrop Grumman Corporation (Mar. 22, 2002) (noting that various
statements in the proposal may be omitted unless the proponent provided
citations to a specific source); Southwest Airlines Co. (Mar. 21, 2002) (same);
and General Electric Company (Jan. 24, 2001) (noting that various statements in
the proposal may be omitted unless the proponent provided factual support or
revised the proposal in the manner requested by the Staff).
The following are specific examples of statements and assertions in the Proposal
that are false and misleading within the meaning of Rules 14a-8(i)(3) and 14a-9:
1. In the first paragraph of the supporting statement, the Proponent states that
"[t]he gifting of shares at unrealistic low prices to Senior Managers, and then
sold to the Public by these same Managers, at multiples often times or more than
the price paid by the benefactors of this devious scheme must be stopped. The
highly suspect act of `buying & selling' takes place in one single day and is
repeated many times every year." The first paragraph of the supporting statement
goes on to state that "Senior Managers appoint a friendly Board of Directors who
vote in favor of any and all proposals benefiting the same Senior Managers."
(Emphasis added.) This paragraph is replete with statements that are inflammatory, lack factual
basis and unfairly impugn the character and integrity of GE's Board of Directors
and management by suggesting that the Board grants options and other
equity-based awards to management without merit and at below-market prices, and
that management is involved in a scheme to repeatedly and unfairly reap enormous
profits from the exercise of those stock options and the sale of those
equity-based awards. The Proponent's statements unfairly imply that the Board of Directors and
management have engaged in improper, illegal or immoral conduct. As noted above,
the practice of awarding equity-based awards to management has frequently been
used by companies to attract, retain and incentivize key employees. GE has a
policy of awarding its executive officers, when appropriate, stock options and
restricted stock units ("RSUs") pursuant to the GE 1990 Long-Term Incentive
Plan, which was approved by GE's share owners in 1990 and in 1997. As noted in
the Management Development & Compensation Committee Report included in GE's 2003
proxy materials: Our main compensation responsibility is to incentivize and reward superior
executive performance that will create long-term investor valueand to encourage
executives who deliver that performance to remain with GE and to continue that
level of performance.... We consider stock options, when used with an
appropriate holding period, to be an extremely effective incentive for executive
officers and other key employees. Stock options also encourage executives to
remain with GE because they vest over a period of years. The executive receives
gains only when the stock rises for all share owners.... Each stock option
permits the executive, generally for a period of ten years, to purchase one
share of GE stock from the company at the market price of GE stock on the date
of grant. We generally grant RSUs to our executive officers every three years, but more
frequently on occasion.... [P]rovided the executive is still employed by GE when
the restrictions expire, the executive will receive one share of GE stock from
the company in exchange for each RSU. RSUs vest for executives who remain with
the company over a longer time horizon than stock options.
Thus, it is evident that GE's policy is not to "gift" awards, but to grant
awards to certain key executives in accordance with its compensation policy.
Stock options are awarded at fair market value, not at "unrealistic low prices."
Management may elect to exercise options in accordance with Company policy and
federal and state regulations, and may realize gains from this exercise. In
addition, so long as management is exercising options in accordance with Company
policy and federal and state regulations, they are free to do so at multiple
times over the course of the year. The timing of such option exercises is in
accordance with each individual's financial strategythe fact that an individual
may exercise options several times throughout the year in no way rises to the
level of a "highly suspect act." There are numerous no-action letters that support the exclusion of the
statements included in the first paragraph of the supporting statement as false
and misleading because they are inflammatory and impugn the character and
integrity of the members of GE's Board of Directors and management without
factual foundation. Although the Proponent is allowed to set forth his opinion
in the supporting statement (see, e.g., Marriott International, Inc., supra
(requiring four sentences or phrases to be recast as the proponent's opinion)),
the Proponent cannot impugn the character and integrity of the Board of
Directors and management without factual foundation. Statements that impugn
character and integrity by suggesting impropriety without any factual support
contravene Rule 14a-8(i)(3). See, e.g., Xcel Energy (Apr. 1, 2003) (company
permitted to exclude unsupported statements suggesting that the company's
directors lacked independence); The Swiss Helvetia Fund, supra (unsupported
statements suggesting violation of fiduciary duty); Honeywell International Inc.
(Oct. 26, 2001) (requiring deletion of a sentence asserting that the company's
chairman was "forced out" with the help of "a $10 million check" as inaccurate
and an attempt to impugn the character of company officers); and Electronic Data
Systems Corporation (Mar. 11, 1999) (requiring deletion of a statement that
asserted that the company's board of directors considered one of the company's
officers to be "mediocre" as inaccurate and lacking factual foundation).
In addition, the Proponent states that "Senior Managers appoint a friendly Board
of Directors." Of course, it is the share owners of the Company who elect the
members of the GE Board at each annual meeting, not the management of the
Company. The Nominating and Corporate Governance Committee of the Board, which
is composed entirely of "independent directors" as defined by NYSE listing
standards, nominates candidates for the Board. Furthermore, under New York State law, the Board of Directors of GE has a
fiduciary duty to act in the best interests of the Company and its share owners.
Section 717(a) of the NYBCL specifically states that "[a] director shall perform
his duties as a director, including his duties as a member of any committee of
the board upon which he may serve, in good faith and with that degree of care
which an ordinarily prudent person in a like position would use under similar
circumstances." See Hanson Trust PLC v. ML SCM Acquisition Inc., 781 F.2d 264,
273 (2d Cir. 1986) (identifying the role of a director as one of a "corporate
fiduciary" and noting that, "[u]nder New York corporation law, a director's
obligation to a corporation includes a duty of care in the execution of
directorial responsibilities.") To imply that the directors might abdicate their
fiduciary duty by voting "in favour of any and all proposals benefiting [GE's]
Senior Managers" instead of awarding executive stock-based grants in the
exercise of its business judgment and in accordance with the best interests of
the Company and its share owners disregards the extensive statutory, regulatory
and common law limits on the Board's authority, and implies without any factual
basis that the Board would not properly discharge its fiduciary duties. As such,
the Proposal is false and misleading under Rules 14a-8(i)(3) and 14a-9.
2. The second paragraph of the supporting statement states that "[t]he rest of
the `civilized' world's business communities are in awe at the pilferage being
orchestrated by Senior Managers at companies such as General Electric."
To imply, without a shred of support, that GE's management is somehow
orchestrating a scheme to "pilfer" the Company through the Company's
compensation programs impugns the character and integrity of management and, as
such, is false and misleading under Rules 14a-8(i)(3) and 14a-9. As noted above,
there are numerous no-action letters that support the exclusion of these types
of inflammatory statements as false and misleading because they impugn the
character of a company's management without factual foundation.
Furthermore, the Proponent fails to provide any support for the proposition that
unidentified members of the "`civilized' world's business communities are in awe
at the pilferage being orchestrated" by companies such as GE. Without
identification of specific "world business communities" or a citation to a
specific publication or other source to permit share owners to review the
proposition in context, as well as the basis for associating the proposition
with GE specifically, the reference is misleading and should be omitted in its
entirety from GE's proxy materials. See Staff Legal Bulletin No. 14. See also,
e.g., Minnesota Mining and Manufacturing Company (Mar. 18, 2002) (permitting
omission of the statement "[s]hareholder right to vote on poison pill
resolutions achieved a 57% average yes-vote from shareholders at 26 major
companies in 2000" unless the proponent could "specifically identify the major
companies referenced and provide factual support in the form of a citation to a
specific source" for the voting results referenced); El Paso Corporation (Mar.
11, 2002) (same); The Boeing Company (Mar. 2, 2002) (same); and PG&E Corporation
(Mar. 1, 2002) (same). 3. In the second paragraph, the Proponent provides examples of the perceived
"pilferage" that is supposedly being orchestrated at large companies such as GE.
The Proponent cites two examples. The first is to a Fortune Magazine article
discussing the indictment of Josef Ackerman and five other executives at
Mannesmann for providing a $15 million bonus to the company's former CEO. The
second example addresses the conviction of Rite Aid Corporation Vice Chairman,
Franklin Brown, for making false statements to the Commission, witness
tampering, and obstruction of justice, and the guilty plea of five other Rite
Aid executives. First, the foregoing examples are misleading because they bear no similarity or
connection to the Proponent's concerns with the exercise of stock options and
sale of common stock by GE management. The use of these two examples is
inflammatory and misleading and improperly suggests support for the Proponent's
views through "guilt by association." The Proponent offers no evidence or other
factual support that would indicate any similarities between GE and the examples
cited. The inclusion of such egregious examples also impugns the character of
GE's Board of Directors and management by implying that the exercise of stock
options and sale of common stock, made in the ordinary course and pursuant to
the terms of the award agreement, incentive plan, and state and federal
regulations, somehow rise to the level of a breach of the fiduciary duty imposed
under New York State law or a serious securities law violation.
Furthermore, the Proponent fails to point out that the Fortune article also
cites a leading corporate law expert who is of the opinion that, "unless the
prosecution can find evidence of bribery, the [Mannesmann] case is `nuts.'"
Fortune Magazine, October 13, 2003, In Germany, High Pay is a Crime. We have
enclosed a copy of this article as Exhibit C for your review.
The Staff has permitted companies to omit references to publications and other
third-party sources that are taken out of context or otherwise used in a
misleading way to improperly suggest support for a proponent's views. See, e.g.,
The Home Depot (Mar. 31, 2003) (statement attributed to a Business Week article
may be omitted as misleading in context); General Motors Corporation (Apr. 3,
2002) (requiring the proponent to delete the phrase "an Enron-type practice");
Southwest Airlines Co. (Mar. 25, 2002) (requiring the proponent to delete the
phrase "Enron director `side deals'", as well as various sentences and a
reference to a news article in connection with such phrase); AlliedSignal (Jan.
15, 1998) (selected exerpts from publications arranged in a misleading way may
be omitted). 4. The third paragraph of the supporting statement states that Mr. Immelt
"lucked out again" and "used another of his unlimited options" to purchase
additional shares. This statement is false and misleading under Rules 14a-8(i)(3) and 14a-9 because
it provides no factual support for the false assertion that Mr. Immelt got
"lucky" or has "unlimited" options. In fact, his options are limited, and GE is
required to report in its proxy statement the aggregate number of options held
by Mr. Immelt. 5. The third paragraph of the supporting statement opens with the phrase,
"[w]hile the rest of us were losing our shirts GE Stock...." and ends with the
following sentence: "GE Executives were never in danger of losing, as other
Investors did in fact lose." This final sentence of the paragraph impermissibly impugns the character and
integrity of GE's management by implying that they did not face the same market
risk as other investors. It also implies, through pure innuendo, without any
factual support, that GE executives may have exercised options and sold shares
of common stock based upon inside information not generally available to all
other share owners, or were granted options at a below market value in order to
assure profit upon exercise. GE's executives gain only when the share price
rises for all share owners. Thus, the statement is false and misleading under
Rules 14a-8(i)(3) and 14a-9. 6. In the fourth paragraph of the supporting statement, the Proponent cites the
scandal at HealthSouth Corporation, in which the former chairman, Richard
Scrushy, is accused of falsely inflating profits. Again, the reference to such an egregious example of fraud bears no similarity
or connection to the Proponent's concerns with the exercise of stock options and
sale of common stock by GE management and is therefore false and misleading
under Rules 14a-8(i)(3) and 14a-9. The reference to Scrushy is inflammatory and
misleading and impugns the character and integrity of GE's Board of Directors
and management by implying that the exercise of stock options and sale of common
stock, made in the ordinary course and pursuant to the terms of an award
agreement, incentive plan, and state and federal regulations, is tied to a false
inflation of profits. The Staff has consistently permitted companies to omit references to
publications and other third-party sources that are taken out of context or
otherwise used in a misleading way to improperly suggest support for the
proponent's views. See, e.g., The Home Depot, supra; General Motors Corporation,
supra; Southwest Airlines Co. supra; and AlliedSignal, supra.
7. Finally, the Proposal states that "[s]alaries are in themselves highly
inflated...." This statement is false and misleading under Rules 14a-8(i)(3) and 14a-9 because
it provides no context, citation, or other form of factual foundation to support
the assertion. The Management Development & Compensation Committee Report
contained in GE's 2003 proxy materials states: Salary is paid for ongoing performance throughout the year.... We also
considered the compensation levels and performances of a comparison group of
major companies that are most likely to compete with us for the services of
executive officers. To suggest that the Board of Directors sets management salaries at a level that
is not commensurate with performance and market conditions impugns the character
and integrity of the Board in contravention of Rule 14a-8(i)(3).
For the foregoing reasons, GE respectfully requests the concurrence of the Staff
in GE's determination to omit the Proposal from GE's 2004 proxy materials
pursuant to Rule 14a-8(i)(3). * * * Five additional copies of this letter and the enclosures are enclosed pursuant
to Rule 14a-8(j) under the Exchange Act. By copy of this letter, the Proponent
is being notified that GE does not intend to include the Proposal in its 2004
proxy materials. We expect to file GE's definitive proxy materials with the Commission on or
about March 9, 2004, the date on which GE currently expects to begin mailing the
proxy materials to its share owners. In order to meet printing and distribution
requirements, GE intends to start printing the proxy materials on or about
February 20, 2004. GE's 2004 Annual Meeting is scheduled to be held on April 28,
2004. If you have any questions, please feel free to call me at (203) 373-2663.
Very truly yours, /s/
Thomas J. Kim Enclosures
cc: Special CounselRule 14a-8No-Action Letters
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, DC 20549 Mr. Arthur A. Gavitt
P.O. Box 02-5261
Miami, FL 33102 [APPENDIX]
October 24, 2003 General Electric Corporation
3135 Easton Turnpike
Fairfield, Connecticut 06431 Attention: Jeffrey R. Immelt, Chairman
Dear Sir: SUBJECT: SHAREOWNER PROPOSAL
I am the owner of 300 common shares of General Electric Stock, and respectfully
submit the following Share Owner Proposal. The Gifting of shares at unrealistic low prices to Senior Managers, and then
sold to the Public by these same Managers, at multiples of ten times or more
than the price paid by the benefactors of this devious scheme must be stopped.
The highly suspect act of "buying & selling" takes place in one single day, and
is repeated many times every year. Senior Managers appoint a friendly Board of
Directors who vote in favour of any and all proposals benefiting the same Senior
Managers. The rest of the "civilized" world's business communities are in awe at the
pilferage being orchestrated by Senior Managers at companies such as General
Electric. On September 30, 2003, Fortune Magazine published that in Germany high
pay is a crime. Prosecutors used an obscure 1871 law to indict Deutsche Bank CEO
Josef Ackermann and five other executives who sat on the Board of Mannesmann, a
German Telecom Company. All six have been charged with breaching fiduciary
responsibility by approving a $15 million bonus to former CEO Klaus Esser. On
October 17, 2003 Reuters published news of former Rite Aid Corp. Vice Chairman
Franklin Brown being convicted on 10 federal criminal counts pertaining to a
$1.6 billion dollar scandal. Convictions included making false statements to the
SEC, witness tampering and obstruction of justice. Five other Rite Aid Senior
Executives pleaded guilty to all charges mainly being the use of executive
compensation schemes. Brown, and the five others face up to 65 years in prison.
While the rest of us were losing our shirts on GE Stock, Vickers reports,
Jeffrey R. Immelt Chairman at GE made "wise" investment decisions. On Sept. 9,
2003 he purchased 96,000 shares of his Company's stock at $8.05 per share and
sold 47,836 of these shares for $31.18 per share and made, or netted a profit of
$1,106,447. Only two months before that Mr. Immelt lucked out again. He used
another of his unlimited options, and on July 29, 2003 he purchased another
96,000 shares at that magic number, $8.05 per share, for a cost of $772,800. On
the very same day, he sold the 96,000 shares at $28.43 per share for $2,729,280.
Again, Mr. Immelt very wisely made a net profit of $1,956,480. September of 2003
was a lucky month for other Executives at General Electric Corporation. To
mention a few Vickers reported that Michael A Neal and Kathryn A. Cassidy were
as fortunate as Mr. Immelt, as they bought thousands of GE Shares at $8.05 and
sold thousands of GE shares between $30.79 per share and $31.11 per share on the
same day. The 52 week low price of GE Stock as listed on the NYSE was $21.30, GE
Executives were never in danger of losing, as all other Investors did in fact
lose. On October 12, 2003, Host Mike Wallace(60 Minutes News Program) conducted an
interview with Richard Scrushy the disgraced former Chairman of Health South
Corporation. Five former Health South Financial Officers have already pleaded
guilty to committing multiple crimes against Health South. All five have
revealed Mr. Scrushy's involvement in the thievery. Scrushy is awaiting trial
for his participation in the looting of Health South. Listed as one of the prime
areas of thievery is Health South Executive Stock Options and Bonus Programs.
My Proposal It becomes imperative that the Board of Directors vote a cessation of all
Executive Stock Option Programs, and Bonus Programs. Salaries are in themselves
highly inflated, and rewards via a bona fide salary program are a necessity.
Salary increases to deserving Executives will reward only those who productively
enhance the Company's Business. Only if and when profit increases are published
and compiled annually, and verified by a Certified Accounting Firm a realistic
salary increase commensurate with the increase in the Company's Business can be
considered. Should there be no increase in the Company's Business, or a decline
in Corporate Business is published and compiled annually, and verified by a
Certified Accounting Firm, no salary increase(s) will be forthcoming. Rewards
via the above measurements will suffice, and remove the bonus and Executive
Stock Option Program(s) permanenfly. /s/
Arthur A. Gavitt
EPS X-13910 - PO Box 02-5261
Miami, Florida 33102-5261
Telephone: 809-549-3571
E-mail: aae5538@codetel.net.do Copy: Chairman William H. Donaldson, Securities & Exchange Commission [INQUIRY LETTER]
December 24, 2003 Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Washington, D.C. 20549 Re: Omission of Share Owner Proposal by Mr. Arthur A. Gavitt
Gentlemen and Ladies: I respectfully respond to the letter submitted by Mr. Thomas J. Kim, Corporate &
Securities Counsel for General Electric Corporation, specifically to disqualify
my Shareowner Proposal dated October 24, 2003. In my opinion, my proposal is not excludable pursuant to: (i) Rule 14a-8(c) as
my proposal distinctly deals with one single item in its entirety "compensation"
for Senior Managers at General Electric Corporation. My proposal is also not
excludable under (ii) Rule 14a-8(i)(1) as it is proper to be placed before the
Shareowners of the Corporation as motivation for the Board of Directors to
competently and honestly realign Senior Managers total remuneration. Suspicion
of devious conduct by Corporate Boards can be avoided by avoiding displays of
largesse being heaped on Senior Managers irregardless of their performance.
My Shareowner Proposal directed to Citigroup Corporation dated October 2, 2001
dealt with the same single subject "compensation" and was endorsed by Katherine
W. Hsu, Attorney-Advisor with the SEC for inclusion at the last Citigroup
Shareowner Annual Meeting. Exactly the same subject matter "excessive executive
compensation" appeared in the Citigroup Annual Printing which was distributed to
all Citigroup Share Owners. I was honoured to receive many letters from
astonished Shareowners complementing me for revealing the enormity of the
hundreds of millions of dollars heaped on Senior Managers, with no relationship
to corporate image or integrity. The Respondents letter in item 11 states "Proposal is not a proper subject under
state law". Apparently, to request honesty and integrity by Senior Managers of a
Publicly Owned Corporation has become a violation of state law. In itself item
11 is totally ambiguous. Meaning a state of mind or a State within the US. What
State or legitimate Publicly Owned Corporation makes it legal to permit illicit
behaviour at Senior Corporate level? What State permitted the secret actions by
the GE Board of Directors, and former CEO Jack Welch outlined in the following
paragraph. Also outlined in the GE response is that GE would be in breach of its
existing contractual obligations to the executive officers who are party to
those arrangements. Additional reference is made to my proposal being vague,
indefinite and misleading. Emphasis is made as to fiduciary responsibility by
these same Executives. Revelations as to the conduct of the GE Board, and the
equally questionable conduct exemplified by the former CEO Mr. Jack Welch
created a great embarrassment to all at GE. Only after a highly publicised
divorce were we the Share Owners informed of "our Company", with the OK from the
General Electric Board of Directors paying former Chairman Welch's monthly
rental tab of $80,000. It becomes apparent that every "rule" was violated and
what happened to their self serving interpretation of "fiduciary
responsibilities" while secretly violating ethics that demands an investigation
by Federal Authorities. Perhaps the GE Lawyers could find a rule permitting the
maintenance of Mr. Welch, secretly perpetuating his living a life style of the
"super rich and famous" at the expense of a Publicly Owned American Company.
Could there possibly have been a law or rule being violated by GE secretly
providing and paying for 24 hour full staff employees in this luxurious multi
roomed exquisitely furnished apartment with an OK by the GE Board. I wonder if
Mr. Welch and the Board of Directors had their "fiduciary responsibility" in
mind when they made the GE Corporate Jet fleet secretly available for service to
(retired) Mr. Welch. Was the General Electric Board of Directors and former
Chairman Welch aware of breaking law number (1) ethics, when they endorsed GE, a
Publicly Owned Corporation to pay for the best box seats at sporting events
anywhere the retired former Chairman desired to be a spectator. Any restitution
made after being publicised by Mr. Welch was too late, as the damage and
unethical misbehaviour had already become international public knowledge.
I respectfully request that my proposal be endorsed by the SEC, and give the
Share Owners an opportunity to make Publicly Owned General Electric more
responsible, and accountable as the law requires. Very truly yours,
/s/ Arthur A. Gavitt
If you have any questions, please feel free to telephone me at 809-549-3571,
Kindly note my household help speaks Spanish only. I will be away Dec 24 -
through Jan 3. Copy: Thomas J. Kim
[STAFF REPLY LETTER]
January 27, 2004 Response of the Office of Chief Counsel
Division of Corporation Finance Re: General Electric Company Incoming letter dated December 16, 2003
The proposal mandates that the board cease "all Executive Stock Option Programs,
and Bonus Programs" and reward salary increases to executives only "if and when
profit increases" are published, compiled annually, and verified by a Certified
Public Accountant. We are unable to concur in your view that GE may omit the entire proposal under
rule 14a-8(c). Accordingly, we do not believe that GE may omit the proposal from
its proxy materials in reliance on rule 14a-8(c). We are unable to concur in your view that GE may omit the entire proposal under
rule 14a-8(d). Accordingly, we do not believe that GE may omit the proposal from
its proxy materials in reliance on rule 14a-8(d). There appears to be some basis for your view that GE may exclude the proposal
under rule 14a-8(i)(1) as an improper subject for shareholder action under
applicable state law. It appears that this defect could be cured, however, if
the first sentence of the proposal were recast as a recommendation or request to
the Board of Directors. Accordingly, unless the proponent provides GE with a
proposal revised in this manner, within seven calendar days after receiving this
letter, we will not recommend enforcement action to the Commission if GE omits
the proposal from its proxy materials in reliance on rule 14a-8(i)(1).
We are unable to conclude that GE has met its burden of establishing that the
proposal would violate applicable state law. Accordingly, we do not believe that
GE may omit the proposal from its proxy materials in reliance on rules
14a-8(i)(2) and 14a-8(i)(6). We are unable to concur in your view that GE may omit the entire proposal under
rule 14a-8(i)(3). There appears to be some basis for your view, however, that
portions of the supporting statement may be materially false or misleading under
rule 14a-9. In our view, the proponent must:
delete the paragraphs that begin "The Gifting of shares ..." and ends "... up
to 65 years in prison";
delete the statement "He used another of his unlimited options, and" from the
sentence that begins "He used another of his ..." and ends "... a cost of
$772,800";
delete the statement "GE executives we never ..." and ends "... did in fact
lose" from the sentence that begins "The 52 week low price ..." and ends "...
did in fact lose";
delete the paragraph that begins "On October 12, 2003 ..." and ends "...
Options and Bonus Programs"; and
provide a citation to a specific source for the statement "Salaries are in
themselves highly inflated.." in the sentence that begins "Salaries are in
themselves..." and ends "... are a necessity."
Accordingly, unless the proponent provides GE with a proposal and supporting
statement revised in this manner, within seven calendar days after receiving
this letter, we will not recommend enforcement action to the Commission if GE
omits these portions of the proposal and supporting statement from its proxy
materials in reliance on rule 14a-8(i)(3). Sincerely,
/s/ Daniel Greenspan
Attorney-Advisor
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