General Electric Co. must allow shareholders to vote on aproposal that would limit the terms of two of its longest-servingboard members, the Securities and Exchange Commission hasruled.

That plan would bar independent directors elected from 1998 to2013 from running again after serving 15 years, according tocorrespondence with the SEC in which GE sought to block the vote.Former Avon Products Inc. Chief Executive Officer Andrea Jung andYoung & Rubicam Inc. ex-CEO Ann Fudge would be the first tofeel its effects, GE said.

“The proposal is a thinly veiled attempt to question thecompetence and business judgment of Ms. Jung and Ms. Fudge, and toremove them from the board” in violation of SEC rules, RonaldMueller, an attorney for Fairfield, Connecticut-based GE at GibsonDunn & Crutcher LLP, wrote in a letter to regulators.

The messages offer a glimpse of the agenda for GE's April 24annual meeting in New Orleans weeks before proxy materials aremailed. GE received permission to exclude at least fivepropositions, including two duplicating a motion limiting executivepay on which it already intended to allow a vote.

“We do not comment on our proxy statement before it has beenfiled,” Seth Martin, a GE spokesman, said today by e-mail whenasked about the exchanges with the SEC. He said Jung and Fudgeweren't available to comment on the shareholder proposal.

Dennis Rocheleau, GE's retired labor-relations manager, proposedthe board term limits. Rocheleau advanced proposals in 2008 and2009 that GE said targeted Jung and Fudge, and criticized them incomments at annual meetings between 2008 and 2012, Mueller wrote inhis Dec. 18 letter to the SEC.

Jung, 54, who joined GE's board in 1998, stepped down as CEO ofAvon last year after a tenure that encompassed slumping earnings, aforeign-bribery scandal and a takeover attempt. Fudge, 61, a membersince 1999, left Young & Rubicam in 2006 after a stint markedby client losses.

“I harbor no 'animus' toward Director Fudge or Director Jung,”Rocheleau wrote in a Jan. 17 letter to the SEC. “What my proposalrepresents is simply an earnest effort to enhance corporategovernance in a seriously underperforming major corporation.”

GE tumbled 37 percent from the end of 2007 through yesterday,trailing the 3 percent gain for the Standard & Poor's 500Index. The shares have outperformed in 2013, rising 12 percent tobeat the S&P 500's 6 percent advance.

Jung and Fudge both won election at last year's annual meetingwith more than 90 percent of the votes cast, including abstentions,according to a SEC filing in April 2012.

SEC's View

“We do not believe that GE may omit the proposal from its proxymaterials,” Adam Turk, an SEC attorney, wrote GE on Jan. 30 inresponse to the company's efforts to bar a vote on term limits.Florence Harmon, an SEC spokeswoman, didn't immediately return aphone call seeking comment on the decision.

GE's 23-member board is led by Chairman and CEO Jeffrey Immeltand has 19 directors who don't work for the company, including Jungand Fudge. The longest-serving member is Douglas Warner, the formerJPMorgan & Co. chairman, who was first elected in 1992. Underthe proposal going to a vote, directors elected in 2014 or laterwould have a 10-year term limit.

“Over time, relationships among board members get moreintertwined and more complex,” Lev Janashvili, managing director atcorporate-governance researcher GMI Ratings, said in an interview.“Independence is not an honorific distinction that cannot beremoved once conferred.”

The SEC also denied GE's request for permission to block an itemfrom appearing on its proxy statement that would require twonominees for each board seat, according to a letter on itswebsite.

“As far as the SEC is concerned, in 99 percent of cases theseletters are where it stops and the company acknowledges it lost andhas to include them,” Robert McCormick, chief policy officer atGlass Lewis & Co, a San Francisco-based proxy advisory firm,said of the proposals.

GE's proxy will include a shareholder proposal to eliminatestock option grants and bonuses for executives, limitingcompensation to salary increases linked to annual profits, thecompany said in a Dec. 18 letter to the SEC.

Regulators cited that proposal in Jan. 17 and Jan. 23 repliesallowing GE to exclude propositions put forth by the CommunicationsWorkers of America Employee Pension Fund and the AFL-CIO ReserveFund. Those proposals were similar, GE said.

The company also won approval to block another item seeking torequire a report on the safety of spent nuclear fuel stored atGE-designed reactors because two of the three shareholdersproposing it didn't own sufficient stock, and the last submittedher proposal after the company's Nov. 14 deadline.

GE said in an SEC filing last week that it reduced the thresholdfor shareholders to call a special meeting to 10 percent from 20percent.

The deadline for shareholders to submit business forconsideration at next year's meeting is being moved earlier by morethan two months, GE said. Glass Lewis's McCormick said that kind ofshift isn't a widespread practice.

“With the advance notice deadline, the further they are inadvance, the more of a burden they create for shareholders,” hesaid.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.