General Electric is an American conglomerate currently ranked #9 on the Fortune 500 list. The firm operates in four primary business segments; Energy, Technology Infrastructure, Capital Finance and Consumer / Industrial. Headquartered in Fairfield, CT, General Electric has grown over the past 122 years into a financial behemoth realizing revenue in excess of $146 billion in 2013. Throughout its existence, General Electric has demonstrated an inconsistent record in terms of ethical governance and responsible business practices. Like many of its peers, the firm endured a number of scandals, particularly in the late 1990’s and into the 2000’s. 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 one of the more respected players in the world of corporate governance and honorable business practices. Contemporary business practices exercised by the firm have earned numerous accolades including: - #6 Best Global Brand (Interbrand)
- #10 Most Admired Company (Fortune)
- #180 Greenest Company (Newsweek)
To understand how this corporate evolution occurred, we need to understand the organizational structure and managerial best practices utilized by General Electric and the nature of the legislation 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. public company boards, management and public accounting firms. Drafted in response to a number of high-profile corporate scandals that occurred in the late 1990’s and early 2000’s by U.S. Senator Paul Sarbanes and U.S. Representative Michael Oxley; the legislation imposed several powerful mechanisms designed to curb corporate malfeasance and to protect investors. The most significant of these 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 outside business agencies. (www.soxlaw.com) The overarching effect of this legislation was the increased scrutiny of financial statements submitted by publicly traded companies and growing corporate auditing expenditures. (Sidime, 2007) Board Composition: structure and governance
General Electric has been a progressive company in terms of Board composition 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 outlined in the Sarbanes Oxley legislation well in advance of its passage including listing the definition of individual committees and the number of 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 majority of votes present and may continue to serve indefinitely. This issue was debated recently when shareholders proposed a 15 year term limit of Board service along with separation of the CEO / Board Chair role. The measure was defeated in a lopsided vote held during the company’s April 2013 Board meeting. (Catts, 2013)
* no mission or governance statement listed
The role of GE’s Board of Directors is clear: to oversee how management serves the long-term interests or shareholders and other...
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