General Electric Co. must allow shareholders to vote on a proposal that would limit the terms of two of its longest-serving board members, the Securities and Exchange Commission has ruled.
That plan would bar independent directors elected from 1998 to 2013 from running again after serving 15 years, according to correspondence with the SEC in which GE sought to block the vote. Former Avon Products Inc. Chief Executive Officer Andrea Jung and Young & Rubicam Inc. ex-CEO Ann Fudge would be the first to feel its effects, GE said.
“The proposal is a thinly veiled attempt to question the competence and business judgment of Ms. Jung and Ms. Fudge, and to remove them from the board” in violation of SEC rules, Ronald Mueller, an attorney for Fairfield, Connecticut-based GE at Gibson Dunn & Crutcher LLP, wrote in a letter to regulators.
The messages offer a glimpse of the agenda for GE’s April 24 annual meeting in New Orleans weeks before proxy materials are mailed. GE received permission to exclude at least five propositions, including two duplicating a motion limiting executive pay on which it already intended to allow a vote.
“We do not comment on our proxy statement before it has been filed,” Seth Martin, a GE spokesman, said today by e-mail when asked about the exchanges with the SEC. He said Jung and Fudge weren’t available to comment on the shareholder proposal.
Dennis Rocheleau, GE’s retired labor-relations manager, proposed the board term limits. Rocheleau advanced proposals in 2008 and 2009 that GE said targeted Jung and Fudge, and criticized them in comments at annual meetings between 2008 and 2012, Mueller wrote in his Dec. 18 letter to the SEC.
Jung, 54, who joined GE’s board in 1998, stepped down as CEO of Avon last year after a tenure that encompassed slumping earnings, a foreign-bribery scandal and a takeover attempt. Fudge, 61, a member since 1999, left Young & Rubicam in 2006 after a stint marked by client losses.
“I harbor no ‘animus’ toward Director Fudge or Director Jung,” Rocheleau wrote in a Jan. 17 letter to the SEC. “What my proposal represents is simply an earnest effort to enhance corporate governance 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 500 Index. The shares have outperformed in 2013, rising 12 percent to beat the S&P 500’s 6 percent advance.
Jung and Fudge both won election at last year’s annual meeting with more than 90 percent of the votes cast, including abstentions, according to a SEC filing in April 2012.
“We do not believe that GE may omit the proposal from its proxy materials,” Adam Turk, an SEC attorney, wrote GE on Jan. 30 in response to the company’s efforts to bar a vote on term limits. Florence Harmon, an SEC spokeswoman, didn’t immediately return a phone call seeking comment on the decision.
GE’s 23-member board is led by Chairman and CEO Jeffrey Immelt and has 19 directors who don’t work for the company, including Jung and Fudge. The longest-serving member is Douglas Warner, the former JPMorgan & Co. chairman, who was first elected in 1992. Under the proposal going to a vote, directors elected in 2014 or later would have a 10-year term limit.
“Over time, relationships among board members get more intertwined and more complex,” Lev Janashvili, managing director at corporate-governance researcher GMI Ratings, said in an interview. “Independence is not an honorific distinction that cannot be removed once conferred.”
The SEC also denied GE’s request for permission to block an item from appearing on its proxy statement that would require two nominees for each board seat, according to a letter on its website.
“As far as the SEC is concerned, in 99 percent of cases these letters are where it stops and the company acknowledges it lost and has to include them,” Robert McCormick, chief policy officer at Glass Lewis & Co, a San Francisco-based proxy advisory firm, said of the proposals.
GE’s proxy will include a shareholder proposal to eliminate stock option grants and bonuses for executives, limiting compensation to salary increases linked to annual profits, the company said in a Dec. 18 letter to the SEC.
Regulators cited that proposal in Jan. 17 and Jan. 23 replies allowing GE to exclude propositions put forth by the Communications Workers of America Employee Pension Fund and the AFL-CIO Reserve Fund. Those proposals were similar, GE said.
The company also won approval to block another item seeking to require a report on the safety of spent nuclear fuel stored at GE-designed reactors because two of the three shareholders proposing it didn’t own sufficient stock, and the last submitted her proposal after the company’s Nov. 14 deadline.
GE said in an SEC filing last week that it reduced the threshold for shareholders to call a special meeting to 10 percent from 20 percent.
The deadline for shareholders to submit business for consideration at next year’s meeting is being moved earlier by more than two months, GE said. Glass Lewis’s McCormick said that kind of shift isn’t a widespread practice.
“With the advance notice deadline, the further they are in advance, the more of a burden they create for shareholders,” he said.