Company Name: General Electric Co.
Public Availability Date: January 28, 2004Document Sections:
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
December 17, 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 Dr. Mark I. Klein
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 Dr. Mark I. Klein:
The shareholders recommend General Electric hire an investment bank to explore
the sale of the company. 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(i)(4) under the Exchange Act
because it relates to the redress of a personal claim or grievance against the
Company and is designed to result in a benefit to the proponent and further a
personal interest, which is not shared by other share owners at large; (ii) Rule
14a-8(i)(7) under the Exchange Act because it relates to the ordinary business
operations of the Company; and (iii) Rule 14a-8(i)(3) under the Exchange Act
because the Proposal contains materially false and misleading statements.
As the SEC Staff is likely aware, over the past several years the Company has
received a number of share owner proposals, the principal theme of which has
been criticism of the content of programming at GE's subsidiary, NBC. In each
case, the Staff has concurred with the Company's view that the proposals could
be excluded from the Company's proxy materials under Rule 14a-8(i)(7),
eitherbecause the proposals related to the nature, content or presentation of
programming, see, e.g., General Electric Company (Jan. 10, 2002) and General
Electric Company (Jan. 27, 2000), or because the proposals related to the
retention or disposition of a non-core business or asset (i.e., NBC), see, e.g.,
General Electric Company (Jan. 22, 2001). The proponent of the Proposal, Dr. Klein, previously submitted such a proposal
for the Company's 2002 proxy statement, recommending that "GE dispose of NBC."
See General Electric Company (Jan. 9, 2002). In that case, the Staff concurred
that the Company could exclude Dr. Klein's 2002 proposal under Rule 14a-8(i)(7)
because it related to the "disposition of a business or assets not related to
GE's core products and services." The Proposal in substance is little different from Dr. Klein's 2002 proposal.
Like his 2002 proposal, the focus of the Proposal is NBC and Dr. Klein's
criticisms of the nature and content of its programming, especially at its CNBC
financial news network. For example, Dr. Klein's 2002 proposal asserted that, in his view, "GE's core
businesses operate in highly regulated ... politically sensitive environments
here and abroad," that "NBC's [left wing] editorial positions ... create[]
political and regulatory problems affecting GE's interests," and that, as one
example of these perceived problems for GE, "[t]he administration didn't offer
effective support to help GE over objections by European regulators to complete
the Honeywell merger." In the instant Proposal, Dr. Klein expresses the same
views in nearly identical terms: Paradoxically highly profitable units like NBC can damage other company
operations. The company operates in highly regulated business environments at
home and abroad. NBC's editorial and entertainment content independence risks
inciting the ire of regulators who in turn can punish GE in retaliation for real
and perceived political slights. I believe such problems were behind the
European Union's rejection of the Honeywell merger. As another example, Dr. Klein's 2002 proposal stated that "CNBC programming
encourages bad long term investment practices by amplifying short term trends,"
and that "CNBC permits investment bank and brokerage employees, masquerading as
unbiased market gurus, on air to plug companies their firms underwrite, make a
market in, or are trading for their accounts without revealing conflicts of
interest." Similarly, the Proposal states that "CNBC financial network's
programming ... provides a platform for commenters and analysts to encourage
speculative investing or excessive trading," and that "most of CNBC's
advertisers prod viewers towards speculative strategies and excessive trading."
Finally, in both his 2002 proposal and the Proposal, Dr. Klein asserts that
CNBC's programming content, purportedly emphasizing short-term, speculative
investing, works against the interests of GE share owners. Dr. Klein's 2002
proposal stated that "CNBC's programming damages shareholders value" by "promot[ing]
diversion of capital to speculative investments," and away from GE, "an earnings
per share company," while in his view the "[s]hare value [of GE would be]
enhanced by educating stockholders to the rewards of holding GE through
successive business cycles." Similarly, in the Proposal, Dr. Klein states as
follows: The CNBC financial network's programming format works at direct cross-purposes
with shareholder interests. The station provides a platform for commentators and
analysts to encourage speculative investing or excessive trading. Their success
in doing so dries up available capital and reduces demand for stocks such as
General Electric. Adding insult to injury, most of CNBC's advertisers prod
viewers towards speculative strategies and excessive trading. Buying and holding
for the long term the best dividend paying blue chip stocks, like General
Electric, isn't the royal road to repeat broker commissions and management fees.
These advertisers profits derive from the "churn'em and burn'em" strategy the
broker character Marv tooted in the movie Wall Street. Owning CNBC is like letting your child play with a cocked pistol with a hair
trigger, a chambered shell and the safety switched off. Clearly, Dr. Klein disapproves of NBC's programming content and believes that it
causes problems for GE and its share owners. His proposed solution in his 2002
proposal was for GE to "dispose of NBC" because NBC ranked far behind the other
networks and "was just one from the bottom for profitability in 6thplace
against GE's other businesses." As noted above, the Staff concurred with GE's
view that Dr. Klein's 2002 proposal was excludable "under rule 14a-8(i)(7) as
relating to GE's ordinary business operations (i.e., disposition of a business
or assets not related to GE's core products and services)." Recognizing that he
cannot succeed in getting his proposal to sell NBC included in GE's proxy
statement under Rule 14a-8, Dr. Klein has now simply included his same
complaints about NBC's programming content in the Proposal, which purports to
recommend the otherwise non-excludable proposal to have GE "hire an investment
bank to explore the sale of the company" as a whole to "release" the hidden
"value" of its individual businesses. Note that Dr. Klein does not propose that GE explore selling "some or all" of
its businesses as a way to "rescue" GE's other businesses from the supposed
damage done to them by GE's NBC unit, thereby "releas[ing]" their hidden
"value." Such a proposal would also be excludable under Rule 14a-8(i)(7). See,
e.g.,Associated Estates Realty Corp. (Mar. 23, 2000); Sears, Roebuck and Co.
(Feb. 7, 2000); Reader's Digest Ass'n (Aug. 18, 1998). Instead, Dr. Klein now asserts that the hidden "value" in GE's businesses would
somehow be "release[d]" by the "sale" of GE as a whole, a proposal which is
otherwise non-excludable. Yet, Dr. Klein's true intent is transparent because
selling GE as a whole would do nothing to achieve his purported new-found goal
of "releas[ing]" the "value" of each of GE's businesses purportedly hidden
behind the GE "conglomerate." Nor would it do anything to separate GE's other
businesses from NBC. The Proposal goes on to identify only one GE business with
hidden value that could be "release[d]" by separating it from the rest of
GEspecifically, NBC. Indeed, although Dr. Klein has altered his Proposal from
his 2002 proposal ostensibly to seek the sale of the entire Company, rather than
only the sale of NBC, that alteration appears to be an artifice.
GE respectfuly submits that, like his 2002 proposal, Dr. Klein's instant
Proposal may be omitted from the Company's 2004 proxy materials. GE believes
that the Proposal may be omitted as a matter of personal grievance, or special
interest, of the proponent. Alternatively, if the Staff does not concur that the
Proposal may be excluded as furthering a personal claim or grievance or special
interest of the proponent, then GE respectfully requests that the Staff concur
that the Proposal, like Dr. Klein's 2002 proposal, may be excluded under Rule
14a-8(i)(7) as relating to matters of "ordinary business" i.e., the nature and
content of NBC's programming and the proposed separation of NBC from the rest of
GE. Finally, the Company believes that the Proposal may also be excluded under
Rule 14a-8(i)(3) and Rule 14a-9 because it is replete with materially false and
misleading statements, including statements that lack factual foundation and
that impugn the character and integrity of members of the Company's management
and Board of Directors. I. The Proposal Relates to the Redress of a Personal Claim or Grievance.
GE believes that it may exclude the Proposal from its proxy materials under Rule
14a-8(i)(4) because it relates to the redress of a personal claim, grievance, or
special interest not shared by other share owners at large. As noted above, the
Staff concurred in the Company's exclusion of Dr. Klein's 2002 proposal, and
that proposal likewise focused on the content of programming at NBC. While the
proponent has now modified his resolution to recommend that the GE Board "hire
an investment bank to explore the sale of the company," the real issues for Dr.
Klein are NBC and the nature and content of its programming.
Rule 14a-8(i)(4) was adopted in order to ensure "that the security holder
proposal process would not be abused by proponents attempting to achieve
personal ends that are not necessarily in the common interest of the issuers'
shareholders generally." Securities Exchange Act Release No. 20091 (Aug. 16,
1983). The Commission has acknowledged the appropriateness of a more "subjective
analysis" where "a proposal, despite being drafted in such a way that it might
relate to matters which may be of general interest to all security holders,
properly may be excluded ... if it is clear from the facts presented by the
issuer that the proponent is using the proposal as a tactic designed to redress
a personal grievance or further a personal interest." Securties Exchange Act
Release No. 19135 (Oct. 14, 1982). Here, not only does the Proposal fail to further an interest shared by other
share owners at large, but it is not, as drafted, designed even to further the
true interest of the proponent, Dr. Klein, himself. We believe that the Proposal
accordingly may be omitted from the Company's 2004 proxy materials because it
relates to Dr. Klein's personal grievance over the omission of his 2002 share
owner proposal, is designed to further his special interest in expressing his
views regarding NBC, and was modified in an attempt to include the Proposal,
which contains those views about NBC, in the Company's 2004 proxy materials.
The Staff has in the past concurred that proposalsthough unrelated on their
face to the underlying grievancemay nonetheless be excluded under the personal
grievance exclusion. In Dow Jones & Co. (Jan. 24, 1994), a proposal to limit the
CEO's compensation was unrelated to the underlying special interest of the
proponent to put pressure on the company to comply with union demands. The
proponents in that case had in prior written statements appeared to acknowledge
that the proposals were submitted to further a special interest unrelated to the
substance of the resolutions. See also, e.g., Sigma-Aldrich Corp. (March 4,
1995) (executive compensation proposal excludable, where the proposal on its
face was unrelated to the proponent's grievance over, among other things, the
company's decision not to renominate him to its board of directors); LDI Corp.
(March 2, 1995) (true motivation for proposal seeking an examination by the
Company's auditor was the company's lawsuit against the proponent for breach of
contract); United Technologies Corp. (Dec. 28, 1995) (proposal that the company
take certain actions concerning an alleged act of fraud was part of the
proponent's effort to pressure the company to enter into settlement of
long-standing dispute over the proponent's termination). Accordingly, GE believes that the Proposal may be omitted under Rule
14a-8(i)(4). II. The Proposal Relates to the Ordinary Business Operations of GE.
Rule 14a-8(i)(7) states that a company may omit a share owner proposal if it
"deals with a matter relating to the company's ordinary business operations." As
noted above, the primary focus of the instant Proposal appears to be the same as
that of Dr. Klein's 2002 proposal, and the Staff concurred that the 2002
proposal could be omitted from the Company's 2002 proxy materials under Rule
14a-8(i)(7). The Staff should reach the same conclusion in connection with the
Proposal. The Staff has consistently drawn a distinction between those proposals relating
to the sale of an entire company and those relating to the sale of only part of
a company. GE realizes that the Staff considers share owner proposals relating
to the sale of the entire company to be extraordinary transactions, and not
"ordinary business." See, e.g., Fab Industries, Inc. (Mar. 23, 2000) (proposal
requesting that the company hire an investment bank for the sole purpose of
exploring the sale of the entire company not excluded because it focused on
"possible extraordinary business transactions").
However, the Staff has regularly determined that, consistent with state
corporate law, the sale of a non-core business or asset is not an extraordinary
transaction, and is excludable as an ordinary business matter. For example,
Section 909 of the New York Business Corporation Law ("BCL"), which governs GE
because it is incorporated in New York, treats only the sale of "all or
substantially all of the assets of a corporation" as an extraordinary business
matter requiring share owner approval. See, e.g., Lancer Corporation (Mar. 10,
2003); Archon Corporation (Mar. 10, 2003); Virginia Capital Bancshares (Jan. 16,
2001). As the Staff has previously determined, NBC is clearly a non-core business or
asset of GE. See General Electric Company (Jan. 9, 2002); General Electric
Company (Jan. 22, 2001). NBC accounts for only a small part of GE (less than 6%
of revenues, less than 9% of segment profits and less than 2% of total assets),
and any such divestiture would not relate to the sale of "all or substantially
all the assets" of GE, and thus would not be an extraordinary business matter
under BCL Section 909. Furthermore, insofar as Dr. Klein's principal objection to the Company's
retention of NBC relates to the nature, content and presentation of its
programming, that subject matter, likewise, is a matter of "ordinary business."
For example, in General Electric Company (Jan. 27, 2000), the Staff agreed that
a proposal requesting, among other things, more "family-friendly" programming at
NBC wasexcludable as involving "ordinary business." See also General Electric
Company (Jan. 1, 2002). Compared to his 2002 proposal, Dr. Klein has modified the Proposal's resolution
to recommend that the Company hire an investment bank to explore the sale of the
entire company. While the supporting statement begins with criticism of GE's
"conglomerate structure," it quickly returns to the focus of the proponent's
2002 proposalNBC. Accordingly, when viewed together with its supporting statement, the Proposal
seeks the divestiture of NBC, a non-core business or asset, and relates to the
nature, content and presentation of programming at NBC. In either case, the
Staff should concur that the Proposal may be excluded from the Company's proxy
materials as a matter of "ordinary business." The Staff recently took a similar approach in Avalon Holdings Corp. (Jan. 23,
2003). There, the Staff carefully reviewed the proponent's supporting statement
in interpreting the true intent of the proposal. The proposal in Avalon was to
recommend that the board retain an investment bank for the sale of the
"Company's stock or assets," and submit terms of the proposed sale for
shareholder approval within 120 days of approval of the proposal. Despite the
clear "sale of the company" language of the resolution, the Staff concurred that
the proposal could be excluded as relating to "ordinary business" matters (i.e.,
relating to non-core businesses or assets) after the company pointed out
language in the supporting statement indicating that the resolution should
nonetheless be interpreted to include non-extraordinary transactions. See also,
e.g., Sears, Roebuck and Co. (Feb. 7, 2000) (proposal and supporting statement
read together show that focus is on non-extraordinary transactions rather than
on a sale of the entire business); The Reader's Digest Ass'n (Aug. 18, 1998)
(same). In applying Rule 14a-8(i)(7) in other contexts, the Staff has consistently taken
the similar approach of viewing the resolution together with the supporting
statement in determining the proposal's true intent. The Staff has taken such an
approach, for example, where proposals appear to focus on subjects that are not
excludable as "ordinary business" under the rule, but address as well other
subjects that are "ordinary business." In Chrysler Corporation (Feb. 18, 1998),
for instance, although much of the proposal to review the company's code of
standards for international operations did not appear to relate to matters of
"ordinary business," the Staff concurred that the proposal could be excluded
because portions did address matters of "ordinary business" (e.g., the company's
employment policies and practices). In explaining its analysis, the Staff noted
that, "although the balance of the proposal and supporting statement appears to
address matters outside the scope of ordinarybusiness [one paragraph of the
proposal] relates to ordinary business matters, and [another paragraph] is
susceptible to a variety of interpretations, some of which could involve
ordinary business matters." See also, e.g., Hilton Hotels Corporation (Mar. 14,
2003) (proposal focusing on executive retirement benefits would in part cover
general employment matters); Ascential Software Corporation (Apr. 4, 2003)
(same). Accordingly, the Company requests the Staff's concurrence that the entire
Proposal may be excluded from its proxy materials in reliance on Rule
14a-8(i)(7). III. The Proposal Is Materially False and Misleading.
GE believes that that the Proposal may also be excluded from its proxy materials
under Rule 14a-8(i)(3) and Rule 14a-9 because it contains materially false and
misleading statements. The Proposal is so replete with statements and assertions
that lack factual foundation, impugn the character of members of GE management
and its Board of Directors, or are otherwise materially false and misleading
that GE believes that the Company may omit the entire Proposal from the
Company's 2004 proxy materials pursuant to Rule 14a-8(i)(3). Indeed, 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. The materially false and misleading statements are identifed below:
1. The Proposal takes out of context, and in that manner completely changes the
meaning, of a quote from a Reuters news article, attributed to GE Plastics CEO
John Krenicki, that "[w]e're not going to be successful with the mutual fund
management approach." In the context of the Reuters news article, a copy of
which is enclosed as Exhibit B, Mr. Krenicki clearly is not saying that he
believes that GE is currently managed like a mutual fund, but rather that he
does not believe that the Company has been or should ever be managed like a
mutual fund in the future. The quote appears to have been placed in the article
in support of the article's reporting that members of GE management do not
believe that the Company should be viewed as a "conglomerate" or a "basket of
companies." The article states, for example, just above the quote in question,
that: GE executives deride conglomerates as a collection of businesses strung together
by accounting. When you buy GE shares, they argue, you get a unified set of
management practices and shared processes, such as mathematical formulas that
reduce waste in making jet engines, for example. The proponent, however, turns the meaning of the quote on its head by placing
the quote directly below his own statement that "General Electric's conglomerate
structure is a collection of businesses strung together like a basket of
companies in a mutual fund," making it sound as if Mr. Krenecki is criticizing
GE's current management approach, when he is doing just the opposite.
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 the 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); AlliedSignal (Jan. 15, 1998)
(selected exerpts from publications arranged in a misleading way may be
omitted). 2. The Proposal states that "[t]he stock market assigns a minimal value to
company shares because its operations are too complex and diverse to understand
on a real time trading basis, and by implication GE's top management and board
doesn't understand them either." Without references to the bases for each of the
statements that the stock market "assigns a minimal value" to the Company's
shares, and that the Company's operations are "too complex" for the market and
for "GE's top management and board" to understand, the statements are materially
false or misleading. Further, the statement regarding GE management's and
Board's familiarity with the Company's operations impugns the character of its
management and Board members without any factual support and may be omittted for
that reason alone. The Staff has consistently permitted companies to omit, or required proponents
to modify, statements that if true seem conveniently to support the proponent's
thesis but lack factual support. See, e.g., Lennox International (Mar. 14,
2003); UST (Mar. 10, 2003); Fluor Corporation (Mar. 10, 2003). 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 as their opinion where appropriate." Staff Legal Bulletin
No. 14. 3. The statements in the Proposal that "[t]he board's capacity to effectively
oversee GE is severely compromised ...," and that the board's ability to
"supervise GE management" is "diluted" suffer from the same defects noted in
paragraph 2 above, insofar as they are offered as statements of fact without any
foundation. Theproponent provides no support for any of these assertions, which
he misleadingly portrays as factual. 4. The statement that the Board "is management's rubber stamp" not only lacks
factual support, but also impugns the character of members of GE's management
and Board. Note (b) to Rule 14a-9 states that Rule 14a-9 prohibits the use of
"[m]aterial which directly or indirectly impugns character, integrity or
personal reputation, or directly or indirectly makes charges concerning
improper, illegal or immoral conduct or associations, without factual
foundation." (Emphasis added.) Accordingly, the Staff has permitted companies to exclude statements similar to
the one quoted above. See, e.g., Xcel Energy (April 1, 2003) (company permitted
to exclude unsupported statements suggesting that the company's directors lacked
independence); The Swiss Helvetia Fund (Apr. 3, 2001) (statements suggesting
violations of fiduciary duty). 5. Finally, the last two sentences of the Proposal are inflammatory, lack
factual foundation, convey no information, and impugn the character of the
members of GE's management and Board. In the first, the proponent states that
"[o]wning CNBC is like letting your child play with a cocked pistol with a hair
trigger, a chambered shell and the safety switched off." In the next sentence,
he states that "General Electric's governance reminds me of the fairy tale about
the little old lady who lived in a shoe and had so many children she didn't know
what to do." As addressed above, the Staff has in the past permitted companies to omit
unsupported statements impugning character (e.g., suggesting breaches of
fiduciary duty). Inflammatory and unsupported statements such as these
demonstrate that the Proposal is inconsistent with the purposes and policies of
the proxy rules and Rule 14a-8 because the Proposal is not designed to inform
other shareholders of matters that may be of common interest. See, e.g., General
Magic (May 1, 2000) (permitted exclusion of entire proposal that, among other
things, contained the inflammatory statement that the company should be renamed
"the hell with shareholders"). 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 statement
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, Dr. Klein 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) 373-2243.
Very truly yours, /s/
Robert E. Healing 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 Dr. Mark I. Klein 6808 Estates Drive Oakland, CA 94611 [INQUIRY LETTER]
December 19, 2003 Special CounselRule 14a-8No action Letters
Office of the Chief Counsel
Division of Corporation Finance
450 Fifth Street NW
Washington, D.C. 20549 RE: OPPOSITION TO GE'S REQUEST FOR A NO ACTION LETTER
Dear Sir: Because my primary objective is to get my proposal on the proxy, I stipulate I
will not contest a SEC request to change wording, will accept alternative
suggested language in the reasons section, or challenge General Electric's
opposition reply so as to facilitate the printing and mailing of the proxy
materials. General Electric, as a New York Corporation, cannot object to a shareholder
proposal recommending an "extraordinary" transaction involving the dissolution
or sale of "all or substantially all of the assets of a corporation". Sec 909 NY
Bus Corp Law. Nothing in NYBCL 909 or related sections allows a company to bar a
vote on an extraordinary transactions by challenging the "motives" of the
proposing shareholder. Anticipating GE's objection to this proposal some months ago I discussed this
matter with your staff counsel Keir Gumbs. I used the exact wording he
recommended: "The shareholders recommend General Electric hire an investment
bank to explore the sale of the company." Hence my proposal is entirely
consistent with SEC decision in Fab Industries, Inc (Mar 23, 2000) which stated
"a proposal that the company hire an investment bank for the sole purpose of
exploring the sale of the entire company(should not be) excluded because it
focused on `possible extraordinary transactions'." General Electric misapplies the SEC no action letter in Avalon Holdings Corp
(Jan 23, 2003, 2003 SEC No-Act. Lexis 135) to my proposal. The proposing Avalon
shareholder didn't clearly state an unambiguous demand in either the proposal or
the supporting statement for an extraordinary transaction in his original
proposal. Quoting from supporting statement "(it) does not mandate the sale of
the company..." In contrast to Avalon I am making an unambiguous demand for an
extraordinary transaction in the sale of General Electric. My supporting
statement is entirely consistent with the proposal. General Electric's assertion it knows my "true intent" was just merely to rework
last year's shareholder proposal on NBC is demeaning and presumptuous. The
genesis of this proposal was my decision to look very closely at General
Electric's total business structure as a whole after NBC, company senior
management, and individual directors ignored my repeated warnings of serious
misconduct at CNBC during the dot.com/tech bubble which likely contributed to
massive financial losses to gullible viewers.1 Notwithstanding my belief GE
management and the board members are highly ethical, honest, and sincerely
motivated men and women, I concluded after looking at the company as a whole, GE
is just too big and has too many unrelated lines of business be effectively
managed in its present form. I believe only solution is to sell the entire
company. I make this clear in my proposal. "(quoting from the proposal) ... General Electric's conglomerate structure is a
collection of businesses strung together like a basket of companies in mutual
fund ... (hence) The board's capacity to effectively oversee GE is severely
compromised because the outside directors have high profile, demanding career
obligations elsewhere..." The underlying intellectual frame of reference for this proposal is aproduct of
my medical education and practice experience. As the world's store of knowledge
expands at a truly staggering exponential rate, medicine along with other high
level professions, including professional business management, have become
increasingly specialized. For example, attached as Exhibit B is just a partial
list of American medical specialties and subspecialties. General Electric's management totally inadequate response to my concerns, sadly
later proven true after the dot.com stock collapse about CNBC, shocked me. The
problem is General Electric is a business equivalent of the idealized solo
practitioner "Dr. Kildare" of yesteryear. Just as solo general practitioners are
today's medical practice dinosaurs, so too is General Electric's conglomerate
structure, While I sincerely believe the directors and senior company management
are honorable men and women trying their very best, they cannot be expected to
know the nitty-gritty crucial details of each the myriad of General Electric's
diverse, far flung businesses. Because Rule 14a-8 shareholder proposals are strictly limited to 500 words, I
used NBC merely as my explanatory example. I requested General Electric to waive
the 500 word limit so I could expand the reasons section to cover other GE
operations in addition to NBC in the proposal. GE Corporate Counsel Robert
Healing denied that request in writing. Consequently they are estopped to now
complain given the word count limitation I used NBC as the sole exemplar why I
think the company should be sold. Given this proposal requests an extraordinary transaction General Electric's
assertion my comments about NBC operations trigger the SEC 14a-8 "ordinary
business" exclusion is irrelevant. To accept that argument would effectively bar
shareholders from submitting future extraordinary transaction proposals because
they couldn't cite the performance of specific company operations as a reason.
This proposal most assuredly addresses issues of interest of other shareholders
at large. Undoubtedly individual and institutional shareholders would be very
interested to know what this seasoned, very successful investor's analysis about
why General Electric shares trade at about 50% below its late 2000 value. (see
chart below) [Graphic omitted and under conversion.-cch]
Regarding General Electric's assertion the proposal is false and misleading
starting on page 8 et seq: 1. My proposal does not "impugn the character of members of the board of
directors." All I said was in my opinion the company's operations are so diverse and
far-flung I do not believe the directors can adequately oversee the company's
operations as now constituted. I did not identify any director by name. General
Electric forgets this is America. Utterly absurd I'm not allowed to criticize
the board's effectiveness when Governor Dean is free toassert President Bush
knew about 9-11 beforehand and did nothing! 2. I did not misrepresent John Krenike's statement to Reuters.
I concede Mr. Kreniki doesn't believe General Electric operates like a basket of
companies in a mutual fund. But if I'm correct GE operates like a mutual fund,
Mr. Kreniki's comment would be quite apt. The Reuter's article just reflects
widespread investor concern about General Electric's business structure.
3. Re my comment "the market assigns minimal value to (GE shares)...."
As an investor, I'm entitled to my opinion about GE's market valuation. Ironic
the programming format of General Electric's CNBC unit is predicated on
financial "experts" pitching such opinions to the viewers. Is it GE's position
only company ordained market gurus are entitled to voice market opinions?
The "... factual support ..." (page 9) for my statements are my 30 years of very
successful stock market investing for myself and managing family accounts.
Specialize in buying, holding and when feasible, reinvest the dividends of the
best blue chip securities I hold for the very long term. I didn't lose a penny
in the dot.com/tech stock bust because I relied on the SEC's EDGAR to analyze
the original filings of the dot.com and tech stocks CNBC's ordained financial
expert gurus were tooting to the viewers before the market bust! They were such
obvious garbage never bought any of them. Again I'm entitled to offer my opinion to fellow shareholders the reason our
company needs to be sold is "the board's capacity to effectively oversee GE is
severely comprised ... (the board) is management's rubber stamp ..." My critical
comments notwithstanding no reasonable disinterested person could conclude I
intended to suggest the board members are anything but highly ethical, honest,
and sincerely motivated men and women. Simply put despite their best intentions
and motivations on behalf of General Electric, they can be just as fallible as
anyone. 3. The "cocked pistol" and "Little old lady who lived in a shoe" comments are
not inflammatory, lack a factual basis, contain no meaning, orimpugn the
character of board members. Surely most of our shareholders understand the
utility of analogy and metaphor to explain or illustrate concepts. Just because
GE management is so obviously very thinned skinned doesn't mean the shareholders
should be deprived of the right to consider my comments. I urge the SEC to deny GE's no action letter request.
Sincerely, /s/
Copy: General Electric -----FOOTNOTES-----
1 Because management and the board turned a blind eye towards these abuses, I
demanded and obtained the formation of a Special Litigation Committee to look
into the situation. The results are pending. Exhibit A
[STAFF REPLY LETTER]
January 28, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: General Electric Company Incoming letter dated December 17, 2003
The proposal requests that GE hire an investment bank to explore the sale of the
company We are unable to concur in your view that GE may exclude the entire proposal
under rule 14a-8(i)(3). There appears, however, to be some basis for your view
that portions of the supporting statement may be materially false or misleading
under rule 14a-9. In our view, the proponent must:
provide a citation to a specific source for the phrase that begins "The stock
market assigns ..." and ends "... real time trading basis";
delete the phrase that begins ",and by implication ..." and ends "...
understand them either"; and
recast the discussion that begins "The board's capacity ..." and ends "...
capacity to supervise GE management" as the proponent's opinion;
delete the sentence that begins "Owning CNBC is like ..." and ends "... safety
switched off"; and
delete the sentence that begins "General Electric's governance ..." and ends
"... didn't know what do." Accordingly, unless the proponent provides GE with a revised proposal and
supporting statement, within seven calendar days after receiving this letter, we
will not recommend enforcement action to the Commission if GE omits only these
portions of the supporting statement from its proxy materials in reliance on
rule 14a-8(i)(3). We are unable to concur in your view that GE may exclude the proposal under rule
14a-8(i)(4). Accordingly, we do not believe that GE may omit the proposal from
its proxy materials in reliance on rule 14a-8(i)(4). We are unable to concur in your view that GE may exclude the proposal under rule
14a-8(i)(7). Accordingly, we do not believe that GE may omit the proposal from
its proxy materials in reliance on rule 14a-8(i)(7). Sincerely,
/s/ Lesli L. Sheppard-Warren
Attorney-Advisor
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