GE, Gibson Dunn vs. SEC & Me Take II


Serendipitously on Martin Luther King, Jr. Day, I was able to relay great news for shareowners of General Electric (GE) and all publicly-traded companies. The SEC ruled the prior week that GE cannot omit my critical proposal (hyperlink appears in full article view; see page 2 of PDF) requesting its board reexamine dividend policy. GE has since resubmitted dubious arguments to the SEC seeking a reversal of opinion so that it can kill my proposal and ensure the truth of my findings and the merit of my resolution do not appear before us shareowners.

For background on my GE dividend proposal, GE’s responses, and the SEC’s ruling, see: “When the proxy system works: SEC allows critical dividend proposal at GE.” In short, know that over the past decade GE has managed to destroy billions of dollars of corporate value via stock buybacks (including buying high and reissuing equity “low”), shares outstanding are considerably higher and cannot be reduced as easily as GE thinks since options grants have ballooned (GE has at times effectively paid twice its stock price to buyback stock), and dividends, crucial to many investors as a source of income (and a cushion to the losses in principal share value), were misleadingly slashed and remain a secondary or tertiary priority, taking a backseat to buybacks.

Apparently Gibson Dunn, on behalf of GE, will do whatever it takes to formulate arguments to kill proposals. I’ve already gone through GE’s own lawyers counting of  symbols ($ and &) as words (note that a proposal and supporting statement are limited to a combined 500-words max), Gibson Dunn’s circular logic, and now the latest round entails selective presentation of information to misrepresent my proposal’s intention. As mentioned above, I have identified that GE has destroyed billions of dollars of corporate value via buybacks (and it has billions more of dry powder), but my resolution is not even asking the board to to cease buybacks. My proposal’s supporting statement clearly notes GE’s dividend was slashed 68% in 2009, and states that a not insignificant number of shareowners are in need and want of more dividends, especially GE’s retirees. My resolution “… requests the Board of Directors reexamine the company’s dividend policy and consider special dividends as a means of returning excess cash to shareholders.”

GE/Gibson Dunn’s initial claim that I was not presenting a proposal for action was bunk. The SEC had no difficulty whatsoever seeing that I was proposing an action. Get this, GE/Gibson Dunn actually concede this in their Jan. 23, 2012, reply to the SEC’s letter ruling that GE cannot omit my proposal; however they continue to claim that I am calling for a referendum on buybacks (more on this below). Also bunk is GE/Gibson Dunn’s claim that my proposal (regarding reexamination of dividend policy) involved “ordinary business” matters and is thus excludable from its proxy. The SEC commented as quoted below. Its sentiments are dead on and should be embraced by shareowners and corporate officers and directors alike. Its ruling (following the bolded portion) thusly can serve as a model for others submitting shareowner proposals about dividends.

The Commission has found that dividend matters do not involve “ordinary” business matters because such matters are extremely important to most security holders and involve significant economic and policy considerations. (Citation) […] this proposal, which does not concern the form, method or procedure for dividend payments (and which does not relate to a specific amount of dividends (Citation)), involves a matter of policy outside the realm of GE’s ordinary business operations.” (NB: emphasis added)

So, GE/Gibson Dunn is now seeking permission to omit my proposal on the grounds that it is a referendum on share repurchases, which it unambiguously is not. And it is saying that my proposal is “impermissibly vague and indefinite so as to be inherently misleading,” harping again on the point that I have used an ostensibly taboo word, share repurchases. Sorry GE/Gibson Dunn, but I’ll repeat what I said in my previous article — what you call a “tirade,” I call the “truth.” The ‘vague, indefinite, and misleading,’ are the actions apparent in your own letters to the SEC and of select GE corporate executives and the entire board of directors.  A judge has ruled as much as pertains to statements and actions taken by GE in 2008. Broaden the scope and the scale of damage magnifies into a very unflattering picture.

Today I will leave readers with the following gem of a quote. It is a damning mindset surely not limited to this one individual.

Christoph Pereira, deputy general counsel at General Electric, helps write GE’s annual pay disclosures—but jokes that he stands over a trash can while he reads the proxies for the other stocks he owns. “The last thing I want to read is a 40-page proxy full of algorithms or a Kafkaesque description of process,” he says. “In the Twitter age, people want to know: Is this a good number based on what you’ve done for me lately?”

Source: “A Chance to Veto CEO’s Bonus” (The Wall Street Journal, January 29, 2011)

Applaud the SEC for not falling for GE/Gibson Dunn’s tactics and for declaring the importance of dividends.

Disclosure: The author is a longtime shareowner of General Electric.