General Electric Essay

ordinary galvanic is an American conglomerate currently ranked 9 on the parcel 500 list. The unbendable operates in four primary business segments Energy, Technology Infra anatomical structure, Capital Finance and Consumer / Industrial. Headquartered in Fairfield, CT, prevalent electric car has grown over the past 122 course of instructions into a financial behemoth realizing revenue in pointless of $146 billion in 2013. Throughout its existence, global galvanic has demonstrated an inconsistent record in damage of ethical presidency and responsible business practices. Like many of its peers, the steadfastly endured a twist of scandals, in particular in the late 1990s and into the 2000s. In response to these issues and in accordance with the Sarbanes-Oxley Act passed in 2002, general Electric has transformed its business practices and is now recognized as hotshot of the more respected players in the world of corporate establishment and honorable business practices. C ontemporary business practices moldd by the firm bedevil earned numerous accolades including 6 Best Global Brand (Interbrand) 10 Most Admired allege (Fortune) 180 Greenest Company (Newsweek)To down the stairsstand how this corporate evolution occurred, we need to understand the constitutional structure and managerial best practices utilized by superior general Electric and the nature of the statute law that necessitated this institutional change. What is Sarbanes-Oxley?The Sarbanes-Oxley Act of 2002 (SOX) is a federal law that mandated new or enhanced standards for all U.S. domain go with boards, management and world accounting firms. Drafted in response to a good turn of high-profile corporate scandals that occurred in the late 1990s and earliest 2000s by U.S. Senator Paul Sarbanes and U.S. Representative Michael Oxley the legislation imposed several powerful mechanisms designed to keep back corporate malfeasance and to protect investors. The most significant of thes e mechanisms included individual certification of corporate financial statements by top management, increased penalties for fraudulent activity and the separation of auditing and consulting functions in alfresco business agencies. (www.soxlaw.com) The overarching effect of this legislation was the increased scrutiny of financial statements submitted by publicly tradedcompanies and growing corporate auditing expenditures. (Sidime, 2007) Board Composition structure and governanceGeneral Electric has been a progressive company in preconditions of Board piece of music and governance. (see composition matrix attached)For decades, the company has demonstrated a desire to promote diversity in governance from three primary perspectives gender, race and age. In addition, General Electric had historically satisfied many of the obligations sketch in the Sarbanes Oxley legislation hygienic in advance of its passage including listing the definition of individual committees and the number o f committee meetings. (General Electric Annual Report 2000) One potential conflict that exists with the General Electric governance strategy is the combination of President / CEO and Chairman roles. This is a practice that the company has exercised since Ralph Cordiner combined these responsibilities in 1958 and continues today with Jeffrey Immelt serving in the role since 2001. An additional challenge that exists within the Board structure of General Electric is the lack of term limits. Nominated individuals are approved annually through a volume of votes present and may continue to serve indefinitely. This issue was debated recently when takeholders proposed a 15 year term limit of Board service along with separation of the CEO / Board Chair role. The measure was foiled in a lopsided vote held during the companys April 2013 Board meeting. (Catts, 2013)Audit CommitteeConsisted of outside directors. Held 5 meetings in 2000. Reviewed the activities and independence of GEs item-b y-item auditors as well as the firms financial reporting processes. Composed of independent directors. Held 11 meetings in 2003. to review the activities and independence of GEs external auditorsand the activities of GEs internal audit staff too reviewed GEs system of disclosure controls and procedures. Composed of independent directors. Held 12 meetings in 2013. Primary responsibilities include make oution of independent auditor, review the independent audit, oversee the firms financial reporting activities and accounting standards. Tenure combination of property & stock. $75,000 annual foot plus $2,000 per meeting. Combination of cash & stock. $250,000 base, 10% premium for service on auditing or fee committee. Removed contingent service reward of 5,000 shares. Combination of cash, stock & other. $250,000 base. Average wages = $302,457The moral of the story as it relates to Board structure and Governance within General Electric is that while the firm did work to shore up its regulatory and oversight positions post SOX the company had exercised the basic principles outline in the legislation for some time. Performance Metrics & Executive CompensationGeneral Electric has functioned for decades under the doctrine of hiring, motivating, rewarding and retaining its executive leaders through compensation. The company has maintained an executive compensation object lesson that includes salary, bonuses and stock options as the vehicle to achieve this goal for decades. eon the total compensation packages at the highest levels of leaders are not as lucrative as they once were General Electric has adapted its compensation policies in order to remain competitive and compliant in an evolving business environment. 2000 poop WelchIn the year 2000, scallywag Welch stood without peer in the world of American business. Recently named Manager of the Century by Fortune Magazine, (Colvin, 1999) General Electric increased revenues to nearly $130 billion. During this y ear Mr. Welch earned $16,700,000 in salary and bonus. In addition, Mr. Welch was minded(p) 3,000,000 stock options which became exercisable upon retirement as well as 850,000 restricted stock options. The later options were granted by the board in appreciation of 20 years of service to GE. Furthermore, Mr. Welch was granted a split-dollar disembodied spirit insurance policy contingent upon execution of a personal consulting contract (up to 30 days annually) at the discretion of the acting CEO. Final terms of the consulting contract and retirement package are not listed, just now the value is estimated to be north of $420 million.2003 Jeffrey ImmeltJeffrey Immelt emerged as the new CEO of General Electric following a highly publicized succession process in 2001. Perhaps due to his relatively short land tenure to this point, but more likely due to the passage of the Sarbanes-Oxley Act overall executive compensation was revise at General Electric in 2003. In addition to a more res ponsible base salary, executive bonuses and stock options were much more clearly outlined and delineate in the 2003 proxy statement. spot the Board Compensation Committee does state Werely upon judgement and not rigid guidelines or formulas or short-term changes in our stock price in determining the amount and mix of compensation elements for distributively executive officer official documents include an element of specificity not previously available to investors. Mr. Immelt was paid a $3,000,000 base salary and bonuses totaling $4,325,000 a 10% increase from the previous year.In addition, Mr. Immelt was granted 250,000 performance share units in lieu of stock options. This is the most significant change related to executive compensation policies that occurred at General Electric post SOX. From the 2003 GE Proxy Statement These performance share units are think to recognize the unique position of the GE CEO. The committee believes that the CEO of GE needs no memory board comp ensation, and that his equity compensation should be focused entirely on performance and alignment with investors. This change in policy effectively linked 50% of the CEOs equity compensation directly to the companys cash generation performance the remaining 50% would only convert to shares if specific shareholder return metrics were met. In short the better the performance of the firm the better the compensation for Mr. Immelt. Finally, select executives at GE (including Mr. Immelt) were granted 3-year performance incentive awards. These awards would be paid only upon achievement of ex-directory specified goals related to earnings per share, revenue growth, return on total capital and cumulative cash generated.2013 Jeffrey Immelt forthwith, the evolution of executive compensation continues at General Electric. The 2013 Proxy Report provides a thorough and defined description of all elements and metrics used to determine final executive compensation. Following essentially the e quivalent compensation model initiated in 2003, Jeffrey Immelt realized total compensation (including projected pension value) of $20,592,769. Leadership, Ethics & steadfastly ValuesGeneral Electric is a perfect case study in the evolution of an American business. Formed in 1892 primarily as an electric company, the firm has grown into a global dynamo. Today the company operates in several areas including finance, appliances and power systems. This type of evolution and growth does not happen by accident, it is the result of visionary leading a quality that has existed within GE for a century. Founded by one of this countrys greatest innovators, General Electric has embodied the vision of Thomas Edison since its inception. The company has dabbled, innovated and revolutionized a number of industries throughout its existence. This truth is a testament to the men that have lead the organization throughout the years. (see past leaders attached) More recently, present-day General Elec tric has been molded primarily by twain individuals who utilized their personal skill to direct the company through a challenging time. jak Welch (1980 2001)Jack Welch joined GE in 1960 as a junior chemical engineer. Early in his tenure, Welch considered divergence the organization citing a frustration with an overwhelming bureaucracy that existed within the firm. Welch was convinced to stay and worked his way up the ranks becoming Chairman and CEO in 1980. Welch became one of the most successful executives in the history of the join States during his tenure, growing the value of the company by 4000%. He accomplished this by imposing leadership genius practices throughout the company. Welch promoted strong businesses by limiting bureaucratic inefficiencies, trimming inventory and closing factories. His governing philosophy at GE was that a company should either be number 1 or number 2 in a particular industry or it should get out of that business.Welch adopted Motorolas Six S igma quality program in 1995 to further streamline operating efficiencies. In addition, Welch instituted a taut method of assessing organizational performance and leadership termed Session C. The goal of this program is to provide feedback and identify talent to managers within the organization. During Jack Welchs tenure, General Electric became wildly profitable and became recognized as the leading(prenominal) organization in terms of operating efficiency and profitability. Mr. Welchs methods, while successful were generally exacting and focused on two specific issues profitability and efficacious compliance. Jeffrey Immelt (2001 present)Jeff Immelt was groomed to lead General Electric from a young age. Immelts father worked for GE in the Aircraft Engines Division. After receiving his A.B. in Applied mathematics from Dartmouth College, Immelt earned an M.B.A.from Harvard. Jeffrey Immelt formally joined General Electric in 1982 and began his professional ascent. Following a publ ic and high-profile transition Immelt was challenged with the difficult task of replacing legendary GE CEO Jack Welch in 2001. Immelt was instantaneously dealt two unparalleled challenges upon assuming the position the terrorist attacks of September 11, 2001 and to a lesser extent the public backfire attached to the prominent accounting scandals that occurred at the turn of the century. Immelt began to create an impact immediately, adopting a more people-oriented memory access to management than the efficiency-minded approach that had governed GE for the preceding two decades. Immelt launched a series of effectiveness-oriented measures that encouraged innovation and risk-taking. Immelt also began to look to developing markets in search of opportunity.Finally, Jeffrey Immelt moved GEs operational focus to areas not previously considered concentration on long-term growth over short-term gains, infrastructure development with an tenseness on green energy and increased marketing ef forts focused on social responsibility. The contrast amongst these two vastly different yet extremely effective leaders provides an interesting snapshot of the effect of the evolution in American business following the corporate scandals of the late 1990s and early 2000s. While General Electric was not directly attached to a major scandal during that era, the timing of GEs leadership transition was fortuitous. While there is certainly room for a chicken vs. crank debate regarding the change in managerial philosophy at GE the change in leadership at the top of the company definitely provided an opportunity to shift course in the post-SOX business world. incorporated Sustainability & Social ResponsibilitySimilar to many traditional American manufacturing powers, General Electric did not exercise sustainable business practices for the bulk of its existence. This, of course, was not uncommon in American industry. However, at the turn of the century, the outset mention of social res ponsibility appeared in a GE company document. Integrity the Spirit and the garner of Our Commitment was a comprehensive document outlining the companys policies related to privacy, supplier relationships, working with governments, environment, wellness and safety. The initial draft of this document was essentially a rule book seeking to achieve legal compliance inthe various nations where General Electric conducted business. The following year, (2001) two share owner proposals sought-after(a) to amend and bolster the Integrity statement Share Owner Proposal No. 2 which essay to improve the quality of life for employees and their communities by allowing collective bargaining, eliminating discrimination & intimidation and promoting free labor, as well as Share Owner Proposal No. 3 which called for the Board to discontinue and renounce a PR campaign initiated by the General Electric Company that downplayed the dangerous effects of PCBs dumped in the Hudson river by the company.The GE Board of Directors voted against both proposals. The reality of the Boards actions demonstrates that the early years of General Electrics sustainability and social responsibility programs were based in superficial statements only. In 2003, General Electric launched an inter fighting(a), electronic version of its Annual Report. This new medium included a section devoted to the Citizenship initiatives active within the company. The two paragraph overview acknowledged the need for a modern corporation to practice environmental compliance, leadership in corporate governance and high ethical standards. The document lists various social programs back up by the organization and its employees including nebulous philanthropic and volunteer efforts. While a step in the in effect(p) direction, an outside observer may still question the level of commitment GE expressed to its sustainable programming. The strategy did not contain the measurable, quantifiable objectives required to effective ly execute a large-scale sustainability program. (Epstein, 2003)Today, General Electric has created and maintains a robust, independent website dedicated to corporate sustainability. www.gesustainability.com outlines GEs commitment to long-term sustainable business practices including internal processes, (people, governance, compliance and health & safety) sustainability initiatives (health, energy & climate, water and natural resources) and progress (public policy, grassroots activism, lobbying, valet rights and research). Most importantly, the site lists and outlines performance metrics used to govern their processes including the GRI G3 Sustainability Reporting Guidelines. The end result of the GE sustainability program has been a complete remake of the GE brand identity. Today General Electric is recognized as a leader in corporate and social responsibility, receiving accolades from The HumanRights Campaign, ( bodied Equality) CR Magazine, (100 Best Corporate Citizens) Dow Jone s Sustainability Index (Sustainable Business Practices) and the US Presidents Volunteer Service Award amongst many others. In summary, General Electric is not a company without fault. Issues with comingling of responsibility at the top, lack of diversity in executives, and a series of accounting scandals in the early 2000s are a few of the complications that the organization has witnessed. However in terms of the ability of a large corporation to evolve in order to remain relevant throughout time, GE has fared better than most.Resources Catts, T. (2013, April 24). GE investors reject 15-year term limits for board members. Bloomberg. Retrieved from www.bloomberg.com/ parole /2013-04-24/ge-investors-reject-15-year-term-limits-for-board-members.html Colvin, G (1999, November 22). The ultimate manager in time of hidebound, formulaic thinking, General Electrics Jack Welch gave power to the worker and the shareholder. He built one hell of a company in the process. Fortune. Retrieved from www.archive. lot.com/magazines/fortune/fortune_archive/1999/11/22/269126/index.htm Epstein, M. & Roy, M. (2003). Improving sustainability performance specifying, implementing and measuring key principals. Journal of General Management. Vol.29, No. 1 2003. Sidime, A. (2007, February 18). The good and bad of Sarbanes-oxley. San Antonio Express-News. Retrieved from http//search.proquest.com/docview/262392306?accountid=12381 Rachel, E.S. (2002, October 29). GE adds 2 outside directors in move to boost governance. Wall path Journal. Retrieved from http//search.proquest.com/docview/398860308?accountid=12381 Watson, I. (2002, June 30). GE caught up in US accounting scandal. Knight Ridder Tribune Business News. Retrieved from http//search.proquest.com/docview/462671234?accountid=12381 General Electric Corporation. Wikipedia. Retrieved from www.en.wikipedia.org/wiki/general_electric Jack Welch. Wikipedia. Retrieved from www.en.wikipedia.org/wiki/jack_welch Jeffrey Immelt. Wikipedia. Retrieved from www.en.wikipedia.org/wiki/jeffrey_immelt General Electric Proxy Statements. (2000,2003,2013). SEC. Retrieved fromwww.sec.gov/archives/edgar/data The Spirit & The Letter (.pdf). GE.com. Retrieved from www.ge.com/files/usa/commitment www.soxlaw.com