U.S. Securities and Exchange Commission
Washington, DC 20549
NOTICE OF EXEMPT SOLICITATION
1. Name of the Registrant:
GENERAL ELECTRIC CO.
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2. Name of the person relying on the exemption:
CHANGE TO WIN INVESTMENT GROUP
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3. Address of the person relying on exemption:
1900 L STREET, NW, SUITE 900, WASHINGTON, DC 20036
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4. Written materials. Attach written materials required to be submitted
pursuant to Rule 14a-6(g)(1):
Page 1 of 2
March 28, 2013
Dear General Electric shareholder:
At the April 24, 2013 annual shareholder meeting of General Electric Co.
(NYSE: GE), we urge you to vote AGAINST the re-election of Douglas Warner,
the Audit Committee Chairman, given the Committee's failure to effectively
discharge its single most important responsibility: the selection of an
outside auditor that has the independence, objectivity and professional
skepticism to ensure investor confidence in the company's financial
statements and internal controls. Under Mr. Warner's leadership, the
Committee refuses to confront the serious challenges to independence
challenges to independence stemming from KPMG LLP's lengthy and lucrative
audit contract with our company. After more than a century of tenure, and
with current annual fees of around $100 million, we are concerned of the
risks, certainly in perception, that the engagement is simply "too big to
lose" for KPMG. At the same time, the Committee neglects KPMG's record of
service at GE, the firm's potential conflicts of interest and its flawed
approach to rotating the lead audit partner. Taken together, these facts
raise substantial doubts over KPMG's ability to exercise independent and
professional skepticism in assessing one of the most complex businesses in
the world.
With the board having rebuffed CtW Investment Group's efforts at engagement
and having prevented another investor (unaffiliated with the CtW Investment
Group) from raising the issue as a resolution at the 2012 annual meeting, we
believe shareholders have no choice but to hold Mr. Warner, a director of
more than 21 years, directly accountable for the failure to ensure the
highest level of independent and professional skepticism in the outside
audit function.
The CtW Investment Group works with pension and benefit funds sponsored by
affiliates of Change to Win - a federation of unions representing over six
million members - to enhance long-term shareholder value through active
ownership. These funds have over $250 billion in assets under management and
are substantial GE shareholders.
THE RISK OF INSTITUTIONAL LOYALTY IS TOO BIG TO IGNORE WITH KPMG'S CENTURY
OF TENURE AND $100 MILLION IN ANNUAL FEES
KPMG's contract with GE dates from 1909, making this one of the longest
audit relationships on record - 104 years of continuous service, which
appears to be more than five times the average auditor tenure for an S&P500
company. To place this in context, current calls for mandatory auditor
rotation by investors and regulators, including the European Commission, are
being driven by concerns over tenures of far shorter period - with
regulators considering requiring rotation after 20 years or even 10 years.
The recent PCAOB concept release on the issue, for example, spoke of the
possibility of a rotation requirement for tenures exceeding a decade.
Indeed, in his opening remarks at a public hearing on the concept release,
PCAOB Chair James R. Doty warned that "engagements that span decades, even a
century [. . .] are engagements that no partner wants to be the one to
lose."
Exacerbating the concern is the significance of the contract to KPMG, both
financially and reputationally. The audit fees may not be egregious
considering GE's size, but the contract is KPMG's largest for a
publicly-traded company in the US. The firm has received approximately $900
million in audit fees over the past 11 years and a total of $1.2 billion if
the various non-audit payments are included. Assuming a five percent
discount rate and that current annual fees continue in perpetuity, the
contract has a net present value of $2 billion, an immense sum. GE
is clearly a very valuable and important contract for KPMG to retain, a
point that seems reflected by the attendance of the firm's chairman at GE's
annual meetings. As former SEC Chairman Richard Breeden recently put it:
"The largest audits support the audit firm's core existence, and they pay
the pensions of the partners. That is something that every audit partner
understands, whether you tell them that explicitly or not."
THIS IS NOT A SOLICITATION OF AUTHORITY TO VOTE YOUR PROXY.
DO NOT SEND US YOUR PROXY CARD AS IT WILL NOT BE ACCEPTED.
Page 2 of 2
COMPOUNDING CONCERNS ARE THE TENS OF MILLIONS OF DOLLARS IN TAX SERVICES AND
OTHER NON-AUDIT FEES RECEIVED BY KPMG
Over the past five years, non-audit fees have averaged $24 million a year.
We believe this is an excessive level of outside services on both a relative
basis (21% of aggregate fees) and an absolute basis ($120 million over five
years amounts to a sizeable income stream). We are particularly concerned
about the $42 million in tax services over the past five years in light of
the negative attention our company's aggressive tax strategy attracted./1/
Furthermore, media reports allege KPMG loaned tax staff to GE in potential
violation of the Sarbanes-Oxley Act, a practice for which KPMG was recently
sanctioned by the SEC involving the firm's Australian office./2/
KPMG'S LEAD AUDIT PARTNER ROTATION UNDERMINES THE LOGIC BEHIND ROTATION
Our research indicates that William O'Mara, KPMG's lead partner for GE as of
last year, was previously KPMG's lead partner at Citigroup Inc., another
large audit client for KPMG. Meanwhile, KPMG's Frank Casal went the
other way, from serving as KPMG's lead partner at GE before being moved to
the lead at Citigroup. In light of this essential swapping of lead auditor
partners between some of KPMG's largest clients, we are worried about the
potential conflict of interest with Casal and O'Mara both, in effect, now in
the position of reviewing the others' prior work.
UNDER KPMG'S WATCH, THE SEC ACCUSED GE OF BENDING ACCOUNTING RULES "BEYOND
THE BREAKING POINT"
Three years ago, GE settled fraud allegations with the SEC for $50 million.
The SEC charged that on four different occasions in 2002 and 2003, GE
executives signed off on accounting decisions that were not in compliance
with the rules for how public companies must report their finances, with the
result that the company was able to accelerate more than $370 million in
revenue in 2002/03, increase net earnings in 2002 by $585 million
and avoid $200 million in pre-tax earnings in 2002. In the SEC statement
announcing the settlement, Robert Khuzami, Director of the SEC's Division of
Enforcement said "GE bent the accounting rules beyond the breaking point."
HALF OF THE AUDIT COMMITTEE'S MEMBERS HAVE OVERLY LENGTHY TENURES
In our view, the tenures of Mr. Warner (21 years on the board; 13 years on
Audit Committee), James Cash (16 years on the board; 11 years on Audit
Committee) and Robert Swieringa (11 years on the board and Audit Committee)
are each excessive, particularly as they date back to the period
investigated by the SEC. Warner's key role as chairman of the committee is
particularly troubling given that his board tenure is more than three times
the S&P500 average for audit committee members (6.3 years, the lowest of any
key committee). Although some institutional memory is valuable for the Audit
Committee of a company that is GE' size and complexity, we believe that
there are benefits in not having the chairmanship held by a director of such
lengthy tenure.
GE NEEDS A NEW AUDIT CHAIR AND A NEW OUTSIDE AUDITOR
Voting against the re-election of Douglas Warner will send a clear,
unambiguous signal to the Audit Committee: After more than a century of
service, it is time to stop rubber-stamping the retention of KPMG as our
outside auditor and bring in a new auditor that has no skin in the game with
respect to the previous accounting. If you would like to discuss our
concerns directly with us, please contact us at (202) 721-6060 or contact my
colleague Michael Pryce-Jones at michael.pryce-jones@changetowin.org.
Sincerely,
/s/ Dieter Waizenegger
Dieter Waizenegger
Executive Director, CtW Investment Group
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/1/ "G.E.s Strategies Let it Avoid Taxes Altogether," New York Times, March
24, 2011
/2/ "GE Auditor KPMG: Support Their Tax Strategy for 102 years," Forbes,
March 29, 2011
THIS IS NOT A SOLICITATION OF AUTHORITY TO VOTE YOUR PROXY.
DO NOT SEND US YOUR PROXY CARD AS IT WILL NOT BE ACCEPTED.