Corporate Governance Mechanism

Corporate Governance Mechanism - Transcript

TERM PAPER OF COMPANY LAW
TOPIC CORPORATE GOVERNANCE MECHANISM

COMPANY GENERAL ELECTRIC GE
SUBMITTED TO
MRS GAGANDEEP BHATARA LECT
SUBMITTED BY MUKIBUR AHMED
REG NO 10904756
ROLL NO R1908B30
SECTION RR1908
COURSE BBA MBA INT
ACKNOWLEDGEMENT
It is not until you undertake the project like this one that you realize how massive the effort it really is or how much you must rely upon the Selfless efforts and goodwill of others There are many who helped me with this project and I want to thank them all from the core of my heart
I owe special words of thanks to my Teacher Mrs Gagandeep Bhatara for her vision thoughtful counseling and encouragement at every step of the project I am also thankful to the teachers of the Department for giving me the best of knowledge and guidance throughout the project
And last but not the least I find no words to acknowledge the financial assistance moral support rendered by my parents in making the effort a success All this has become reality because of their blessings and above all by the grace of god
INTRODUCTION TO GENERAL ELECTRIC
The General Electric Company or GE is an American multinational conglomerate corporation incorporated in the State of New York The Company operates through five segments Energy Infrastructure Technology Infrastructure NBC Universal NBCU Capital Finance and Consumer Industrial In 2010 Forbes ranked GE as the world s second largest company based on a formula that compared the total sales profits assets and market value of several multinational companies The company has 304 000 employees around the world GE had established various principles with regard to corporate governance and put in place various systems and processes to implement them
GE and its employees are committed to being a good corporate citizen through high ethical standards leadership in corporate governance environmental compliance and community engagement GE continues to earn the respect of the business world Once again GE topped Fortune magazine s top 500 companies It holds 6th position consecutively for the second time GE is recognized as being among the world s best run companies and was named the World s Most Respected Company for 2003 for the sixth consecutive year by the Financial Times GE was also presented with the Catalyst Award 2004 for its innovative effective and measurable initiatives to advance women employees GE was honored as one of the 100 Best Companies for Working Mothers GE has a long and proud history of supporting the communities where its employees live and work Contributing more than 140 million and over one million volunteer hours worldwide in 2003 GE is making an impact in local communities educational standards and the environment in its communities all over the world
BACKGROUND NOTE OF GENERAL ELECTRIC
GE was established in 1892 in New York following a merger between Thomson Houston and Edison General Electric GE s financial strength and its research focus contributed to its initial success In the 1920s GE joined AT T and Westinghouse in a radio broadcasting venture
The company acquired Radio Corporation of America RCA but sold off its stake in 1930 In the 1940s GE faced major industrial relations problems due to the increasing clout of labor unions In the 1950s GE streamlined its management practices by establishing various management techniques like MBO SWOT analysis and strategic planning In the 1960s the company entered into new businesses like nuclear power and aircraft engines to increase growth
GENERAL ELECTRIC IN INDIA
GE is imagination at work From jet engines to power generation financial services to water processing and medical imaging to media content GE people worldwide are committed to turning imaginative ideas into leading products and services that help solve some of the world s toughest problems GE serves customers in more than 140 countries and employs more than 300 000 people worldwide
GE installed India s first hydropower plant in 1902 Today GE s global businesses have a prominent presence in the country The Company participates in a wide range of manufacturing services and technology businesses and seeks to be a partner to India s growth GE s revenues in India are approximately 2 6 billion and it employs over 12 000 people across the country
SERVICES PROVIDED BY GE TO ITS EMPLOYEES
Employee Programs
United Way
Parenting assistance
Elder care assistance
Financial assistance
GEstarscholarships for children of GE employees
Legal advice
Work advice
CORPORATE GOVERNANCE
Corporate governance is the set of processes customs policies laws and institutions affecting the way a corporation is directed administered or controlled Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed The principal stakeholders are the shareholders management and the board of directors Other stakeholders include labor employees customers creditors e g banks bond holders suppliers regulators and the community at large
Corporate governance is a multi faceted subject An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal agent problem A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency with a strong emphasis shareholders welfare There are yet other aspects to the corporate governance subject such as the stakeholder view and the corporate governance models around the world It is a system of structuring operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders creditors employees customers and suppliers and complying with the legal and regulatory requirements apart from meeting environmental and local community needs
MAIN ISSUES IN CORPORATE GOVERNANCE
Role of Board of Directors
Composition of the Board
Audit Committee
Shareholder s Committee
CORPORATE GOVERNANCE IN GENERAL ELECTRIC
1 Role of Board and Management
GE s business is conducted by its employees managers and officers under the direction of the chief executive officer CEO and the oversight of the board to enhance the long term value of the Company for its shareowners The board of directors is elected by the shareowners to oversee management and to assure that the long term interests of the shareowners are being served Both the board of directors and management recognize that the long term interests of shareowners are advanced by responsibly addressing the concerns of other stakeholders and interested parties including employees recruits customers suppliers GE communities government officials and the public at large
2 Functions of Board
The board of directors has eight scheduled meetings a year at which it reviews and discusses the performance of the Company its plans and prospects as well as immediate issues facing the Company Directors are expected to attend all scheduled board and committee meetings In addition to its general oversight of management the board also performs a number of specific functions including
selecting evaluating and compensating the CEO and overseeing CEO succession planning
providing counsel and oversight on the selection evaluation development and compensation of senior management
reviewing monitoring and where appropriate approving fundamental financial and business strategies and major corporate actions
assessing major risks facing the Company and reviewing options for their mitigation and
ensuring processes are in place for maintaining the integrity of the Company the integrity of the financial statements the integrity of compliance with law and ethics the integrity of relationships with customers and suppliers and the integrity of relationships with other stakeholders
3 Qualifications
Directors should possess the highest personal and professional ethics integrity and values and be committed to representing the long term interests of the shareowners They must also have an inquisitive and objective perspective practical wisdom and mature judgment We endeavor to have a board representing a range of experience at policy making levels in business government education and technology and in areas that are relevant to the Company s global activities
Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively and should be committed to serve on the board for an extended period of time Directors should offer their resignation in the event of any significant change in their personal circumstances including a change in their principal job responsibilities
Directors who also serve as CEOs or in equivalent positions should not serve on more than two boards of public companies in addition to the GE board and other directors should not serve on more than four other boards of public companies in addition to the GE board Positions held as of November 2002 in excess of these limits may be maintained unless the board determines that doing so would impair the director s service on the GE board
The board does not believe that arbitrary term limits on directors service are appropriate nor does it believe that directors should expect to be renominated annually until they reach the mandatory retirement age The board self evaluation process described below will be an important determinant for board tenure Directors will not be nominated for election to the board after their 73rd birthday although the full board may nominate candidates over 73 in special circumstances
4 Independence of Directors
A majority of the directors will be independent directors as independence is determined by the board based on the guidelines set forth below
All future non management directors will be independent GE seeks to have a minimum of ten independent directors at all times as independence is determined by the board based on the guidelines set forth below and it is the board s goal that at least two thirds of the directors will be independent Directors who do not satisfy GE s independence guidelines also make valuable contributions to the board and to the Company by reason of their experience and wisdom
For a director to be considered independent the board must determine that the director does not have any direct or indirect material relationship with GE The board has established guidelines to assist it in determining director independence which conform to or are more exacting than the independence requirements in the New York Stock Exchange listing requirements NYSE rules In addition to applying these guidelines the board will consider all relevant facts and circumstances in making an independence determination
The board will make and publicly disclose its independence determination for each director when the director is first elected to the board and annually thereafter for all nominees for election as directors If the board determines that a director who satisfies the NYSE rules is independent even though he or she does not satisfy all of GE s independence guidelines this determination will be disclosed and explained in the next proxy statement
In accordance with NYSE rules independence determinations under the guidelines in section a below will be based upon a director s relationships with GE during the 36 months preceding the determination Similarly independence determinations under the guidelines in section b below will be based upon the extent of commercial relationships during the three completed fiscal years preceding the determination
a A director will not be independent if
the director is employed by GE or an immediate family member is an executive officer of GE
the director receives any direct compensation from GE other than director and committee fees and pension or other forms of deferred compensation for prior service provided such compensation is not contingent in any way on continued service
an immediate family member receives more than 120 000 per year in direct compensation from GE
the director is affiliated with or employed by GE s independent auditor or an immediate family member is affiliated with or employed by GE s independent auditor and such immediate family member personally works or worked on GE s audit or
A GE executive officer is on the compensation committee of the board of directors of a company which employs the GE director or an immediate family member as an executive officer
b A director will not be independent if at the time of the independence determination the director is an executive officer or employee or if an immediate family member is an executive officer of another company that does business with GE and the sales by that company to GE or purchases by that company from GE in any single fiscal year during the evaluation period are more than the greater of two percent of the annual revenues of that company or 1 million
c A director will not be independent if at the time of the independence determination the director is an executive officer or employee or an immediate family member is an executive officer of another company which is indebted to GE or to which GE is indebted and the total amount of either company s indebtedness to the other at the end of the last completed fiscal year is more than two percent of the other company s total consolidated assets
d A director will not be independent if at the time of the independence determination the director serves as an executive officer director or trustee of a charitable organization and GE s discretionary charitable contributions to the organization are the greater of 200 000 or one percent of that organization s annual consolidated gross revenues during its last completed fiscal year GE s automatic matching of employee charitable contributions will not be included in the amount of GE s contributions for this purpose
5 Size of Board and Selection Process
The directors are elected each year by the shareowners at the annual meeting of shareowners Shareowners may propose nominees for consideration by the nominating and corporate governance committee by submitting the names and supporting information to Secretary General Electric Company 3135 Easton Turnpike Fair field CT 06828 The board proposes a slate of nominees to the shareowners for election to the board The board also determines the number of directors on the board provided that there are at least 10 Between annual shareowner meetings the board may elect directors to serve until the next annual meeting The board believes that given the size and breadth of GE and the need for diversity of board views the size of the board should be in the range of 13 to 17 directors
6 Board Committees
The board has established the following committees to assist the board in discharging its responsibilities
audit
management development and compensation
nominating and corporate governance and
Public responsibilities
The current charters and key practices of these committees are published on the GE website and will be mailed to shareowners on written request The committee chairs report the highlights of their meetings to the full board following each meeting of the respective committees The committees occasionally hold meetings in conjunction with the full board For example it is the practice of the audit committee to meet in conjunction with the full board in February so that all directors may participate in the review of the annual financial statements and Management s Discussion and Analysis of Financial Condition and Results of Operations for the prior year and financial plans for the current year The Board reserves oversight of the major risks facing the Company and has delegated risk oversight responsibility to committees of the Board as follows the audit committee oversees the Company s risk assessment and risk management guidelines policies and processes as well as risk relating to the financial statements and financial reporting process of the Company and GE Capital Services the public responsibility committee oversees risks relating to public policy initiatives the environment and similar matters the management development and compensation committee oversees risk related to senior executive compensation and the nominating and corporate governance committee oversees risk related to corporate governance
7 Independence of Committee Members
In addition to the requirement that a majority of the board satisfy the independence standards discussed in section 4 above members of the audit committee must also satisfy an additional Securities and Exchange Commission independence requirement Specifically they may not accept directly or indirectly any consulting advisory or other compensatory fee from GE or any of its subsidiaries other than their directors compensation As a matter of policy the board will also apply a separate and heightened independence standard to members of both the management development and compensation committee and the nominating and corporate governance committee No member of either committee may be a partner member or principal of a law firm accounting firm or investment banking firm that accepts consulting or advisory fees from GE or any of its subsidiaries
8 Meetings of Non Management Directors
The board will have at least three regularly scheduled meetings a year for the non management directors without any management directors or employees present The chairman of the management development and compensation committee will preside at such meetings The non management directors may meet without management present at such other times as determined by the presiding director
9 Board Leadership
The CEO serves as the chairman of the board The independent directors have appointed the chairman of the management development and compensation committee to serve as the presiding director The presiding director leads meetings of the non management directors and performs such other functions as the board may direct including advising the nominating and corporate governance committee on the selection of committee chairs advising and determining with the concurrence of the chairman the agenda for board meetings determining with the chairman of the board the nature and extent of information provided to the board in advance of board meetings and working with the chairman of the board to propose an annual schedule of major discussion items for the board s approval and providing leadership to the board if circumstances arise in which the role of the chairman may be or may be perceived to be in conflict and otherwise act as chairman of board meetings when the chairman is not in attendance The presiding director also has the authority to call additional meetings of the non management directors
10 Self Evaluation
As described more fully in the key practices of the nominating and corporate governance committee the board and each of the committees will perform an annual self evaluation Each November each director will provide to an independent governance expert his or her assessment of the effectiveness of the board and its committees as well as director performance and board dynamics The individual assessments will be organized and summarized by this independent governance expert for discussion with the board and the committees in December
11 Setting Board Agenda
The board shall be responsible for its agenda At the December board meeting the chairman of the board and the presiding director will propose for the board s approval key issues of strategy risk and integrity to be scheduled and discussed during the course of the next calendar year Before that meeting the board will be invited to offer its suggestions As a result of this process a schedule of major discussion items for the following year will be established including discussion of key material risks Prior to each board meeting the chairman of the board will discuss the other specific agenda items for the meeting with the presiding director who shall have authority to approve the agenda for the meeting The chairman of the board and the presiding director or committee chair as appropriate shall determine the nature and extent of information that shall be provided regularly to the directors before each scheduled board or committee meeting Directors are urged to make suggestions for agenda items or additional pre meeting materials to the chairman of the board the presiding director or appropriate committee chair at any time
12 Ethics and Conflicts of Interest
The board expects GE directors as well as officers and employees to act ethically at all times and to acknowledge their adherence to the policies comprising GE s code of conduct set forth in the Company s integrity manual The Spirit The Letter GE will not make any personal loans or extensions of credit to directors or executive officers other than consumer loans or credit card services on terms offered to the general public No non management director may provide personal services for compensation to GE other than in connection with serving as a GE director The board will not permit any waiver of any ethics policy for any director or executive officer If an actual or potential conflict of interest arises for a director the director shall promptly inform the CEO and the presiding director The nominating and corporate governance committee shall resolve any such conflicts If a significant conflict exists and cannot be resolved the director should resign All directors will recuse themselves from any discussion or decision affecting their personal business or professional interests The nominating and corporate governance committee shall resolve any conflict of interest question involving the CEO a vice chairman or a senior vice president and the CEO shall resolve any conflict of interest issue involving any other officer of the Company
13 Reporting of Concerns to Non Management Directors or the Audit Committee
The audit committee and the non management directors have established the following procedures to enable anyone who has a concern about GE s conduct or any employee who has a concern about the Company s accounting internal accounting controls or auditing matters to communicate that concern directly to the presiding director or to the audit committee Such communications may be confidential or anonymous and may be e mailed submitted in writing or reported by phone to special addresses and a toll free phone number that are published on the Company s website
Comments complaints and concerns are initially processed by the GE Corporate Ombudsperson s Office which acknowledges receipts to the person submitting the communication The Corporate Ombudsperson s Office supplies any such communication that relates to accounting internal accounting controls or auditing matters or a summary directly to the audit committee chair Depending on the nature of the issues or concerns raised the Corporate Ombudsperson s Office also regularly provides copies or summaries of other comments complaints and concerns directly to directors
With respect to all other communications the Corporate Ombudsperson s Office provides regular reports to the Audit Committee and GE s presiding director at least four times a year These reports summarize the communications by subject matter and frequency and break out significant concerns The reports also include a summary of the status of significant matters that are under review or investigation in response to a concern This approach ensures that concerns are raised to the directors in an effective manner that accurately informs them of the nature and frequency of the concerns
The presiding director or the audit committee chair may direct that certain matters be presented to the audit committee or the full board and may direct special treatment including the retention of outside advisors or counsel for any concern addressed to them The Company s integrity manual prohibits any employee from retaliating or taking any adverse action against anyone for raising or helping to resolve an integrity concern
14 Compensation of the Board
The nominating and corporate governance committee shall have the responsibility for recommending to the board compensation and benefits for non management directors In discharging this duty the committee shall be guided by the following goals compensation should fairly pay directors for work required in a company of GE s size and scope compensation should align directors interests with the long term interests of shareowners and the structure of the compensation should be simple transparent and easy for shareowners to understand As discussed more fully in the key practices of the nominating and corporate governance committee the committee believes these goals will be served by providing 40 of non management director compensation in cash and 60 in deferred stock units Each year the nominating and corporate governance committee shall review non management director compensation and benefits
15 Succession Plan
The board shall approve and maintain a succession plan for the CEO and senior executives based upon recommendations from the management development and compensation committee
16 Annual Compensation Review of Senior Management
The management development and compensation committee has primary responsibility for assisting the board in developing and evaluating potential candidates for executive positions including the CEO and for overseeing the development of executive succession plans As part of this responsibility the committee oversees the design development and implementation of the compensation program for the CEO and the other executive officers The committee evaluates the performance of the CEO and determines CEO compensation in light of the goals and objectives of the compensation program The CEO and the committee together assess the performance of the other executive officers and determine their compensation based on initial recommendations from the CEO
17 Access to Senior Management
Non management directors are encouraged to contact senior managers of the Company without senior corporate management present To facilitate such contact non management directors are expected to make two regularly scheduled visits to GE businesses a year without corporate management being present
18 Access to Independent Advisors
The board and its committees shall have the right at any time to retain independent outside accounting financial legal or other advisors and the Company shall provide appropriate funding as determined by the board or any committee to compensate such independent outside advisors as well as to cover the ordinary administrative expenses incurred by the board and its committees in carrying out their duties
19 Director Education
New directors participate in an orientation program provided by the general counsel and the chief financial officer Each new director shall within three months of election to the board spend a day at corporate headquarters for personal briefing by senior management on the Company s strategic plans its financial statements and its key policies and practices In addition directors shall be provided with continuing education on subjects that would assist them in discharging their duties including regular programs on GE s financial planning and analysis compliance and corporate governance developments business specific learning opportunities through site visits and board meetings and briefing sessions on topics that present special risks and opportunities to the Company The Company will also provide the directors with access to outside educational programs pertaining to the directors responsibilities such as directors colleges
20 Policy on Poison Pills
The term poison pill refers to the type of shareowner rights plan that some companies adopt to make a hostile takeover of the Company more difficult GE does not have a poison pill and has no intention of adopting a poison pill because a hostile takeover of a company of our size is impractical and unrealistic However if GE were ever to adopt a poison pill the board would seek prior shareowner approval unless due to timing constraints or other reasons a committee consisting solely of independent directors determines that it would be in the best interests of shareowners to adopt a poison pill before obtaining shareowner approval If the GE board of directors were ever to adopt a poison pill without prior shareowner approval the board would either submit the poison pill to shareowners for ratification or would cause the poison pill to expire without being renewed or replaced within one year
21 Majority Vote Standard
Section 6 of the Certificate of Incorporation and Article II Section C of the By Laws set forth the Company s majority vote standard for the election of directors as follows The vote required for election of a director by the shareholders shall except in a contested election be the affirmative vote of a majority of the votes cast in favor of or against the election of a director nominee at a meeting of shareholders In a contested election directors shall be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election An election shall be considered contested if as of the record date there are more nominees for election than positions on the board of directors to be filled by election at the meeting In any non contested election of directors any incumbent director nominee who receives a greater number of votes cast against his or her election than in favor of his or her election shall immediately tender his or her resignation and the board of directors will decide through a process managed by the nominating and corporate governance committee and excluding the nominee in question whether to accept the resignation at its next regularly scheduled board meeting The board s explanation of its decision shall be promptly disclosed on Form 8 K filed with the Securities and Exchange Commission
22 Stock Ownership Requirements
All non management directors are required to hold at least 500 000 worth of GE stock and or deferred stock units while serving as a director of GE Directors will have five years to attain this ownership threshold The non management directors are required to hold for at least one year the net shares obtained from exercising stock options after selling sufficient shares to cover the exercise price taxes and broker commissions In addition as described more fully in the key practices of the management development and compensation committee our senior executive officers are required to own specified amounts of GE stock set at a multiple of the officers base salary rates
23 Shareowner Approval of Severance Benefits
If the board were to agree to pay severance benefits to any of the senior executive officers named in the summary compensation table in the company s proxy statement the Company would seek shareowner approval of such benefits if i the executive s employment was terminated prior to retirement for performance reasons and ii the value of the proposed severance benefits would exceed 2 99 times the sum of the executive s base salary and bonus For this purpose severance benefits would not include a any payments based on accrued pension benefits b any payments of salary or bonus amounts that had accrued at the time of termination c any restricted stock units paid to an executive who was terminated within two years prior to age 60 d any stock based incentive awards that had vested or would otherwise have vested within two years following the executive s termination and e any retiree health life or other welfare benefits
24 Potential Impact on Compensation from Executive Misconduct
If the board determines that an executive officer has engaged in conduct detrimental to the Company the board may take a range of actions to remedy the conduct prevent its recurrence and impose such discipline as would be appropriate Discipline would vary depending on the facts and circumstances and may include without limit 1 termination of employment 2 initiating an action for breach of fiduciary duty and 3 if the conduct resulted in a material inaccuracy in the company s financial statements or performance metrics which affect the executive officer s compensation seeking reimbursement of any portion of performance based or incentive compensation paid or awarded to the executive that is greater than would have been paid or awarded if calculated based on the accurate financial statements or performance metrics provided that if the board determines that an executive engaged in fraudulent misconduct it will seek such reimbursement These remedies would be in addition to and not in lieu of any actions imposed by law enforcement agencies regulators or other authorities
CONCLUSION
The corporate governance practices of both public sector and private sector companies are almost similar It is found that the corporate governance practices exert great influence on the performance of the company Companies which are having good governance practices will have good image among the investors and public as a whole
Though a lion s share of the focus in the Satyam episode was on the role of the independent directors experts believe the role of auditors is now in spotlight Experts believe that it is the institutional investors who have the tools bandwidth and clout to extract information and play an activist role as had happened in Satyam s case in ensuring that managements don t go off track If institutional investors act collectively they can demand the required changes at companies they have invested in While the corporate governance framework in the country is seen at par with other developed markets the same has to be implemented in letter as well as spirit
Additionally shareholders should ensure that the composition of Board of Directors is a balanced mix of independent directors and management appointees This would help keep a check on the internal processes of the company With shareholder activism on the rise the proactive role of institutional investors will also make the company management more accountable While things have improved substantially over the last five years experts believe that more needs to be done which will further improve disclosure levels and make managements accountable
Good public sector governance relies on keeping pace with best practice in private sector corporate governance That is of harnessing the potential that corporate governance principles and practices can offer Importantly however it also requires an understanding of the tensions and gaps that arise in the transposition of corporate governance from the private to public sector so that public sector corporate governance can be modified accordingly
REFERENCE
HYPERLINK http www ge com www ge com
HYPERLINK http www scribd com doc 29705004 Corporate Governance in GE E2 80 93 http www scribd com doc 29705004 Corporate Governance in GE E2 80 93
HYPERLINK http www ge com company governance board committees html http www ge com company governance board committees html