By Thomas Gryta
General Electric Co.'s board won't claw back compensation from
former CEO Jeff Immelt and other executives over GE's accounting
issues or Mr. Immelt's use of a backup corporate jet, ending a
three-year probe into allegations of misconduct at the
conglomerate.
The investigation didn't find evidence to support shareholders'
claims of fraud and abuse, and pursuing litigation against former
leaders wasn't in the company's interest, according to the law firm
that GE's board hired to run the process.
"The company does not have a sound legal claim to bring against
any current or former officer, director or employee of the company,
or against KPMG," lawyers at Cravath Swaine & Moore LLP said in
a letter dated Dec. 31 and reviewed by The Wall Street Journal.
Since November 2017, GE's board received 11 formal requests from
shareholders with allegations for the board to investigate,
including that executives and directors breached their fiduciary
duties and violated securities laws, according to Cravath's
letter.
A GE spokeswoman confirmed the board's conclusions and said, "We
have significantly enhanced our disclosures and internal controls
and are a stronger company today." A representative for Mr. Immelt
declined to comment. Lawyers representing some of the shareholders
didn't immediately respond to requests for comment.
It is relatively rare for corporate boards to claw back
compensation from former executives. Wells Fargo & Co.'s board
took back $69 million from former CEO John Stumpf because of a
sales scandal during his tenure. McDonald's Corp. sued to claw back
severance paid to former CEO Steve Easterbrook, who left after a
probe into sexual relationships with employees. Mr. Easterbrook is
fighting in court, saying the company knew about his relationships
when it negotiated his severance.
Mr. Immelt didn't receive any severance when he left GE in the
middle of 2017, a year when his compensation totaled $8.1 million.
He received $21.3 million in compensation in 2016, his last full
year as chairman and CEO.
The manufacturing giant also faced an accounting probe by the
Securities and Exchange Commission, which it recently settled for
$200 million without admitting or denying the SEC's claims. GE and
its former executives have denied allegations by shareholders that
fraud or wrongdoing were responsible for large write-downs and the
collapse in its profits and stock price.
The Justice Department opened a criminal investigation into GE's
accounting more than two years ago but that probe has gone quiet,
according to people familiar with the matter. GE hasn't heard from
investigators in a long time, the people said.
The SEC probe and shareholders' allegations mainly related to
GE's long-term-care insurance portfolio and deterioration of its
power business around the time of Mr. Immelt's departure in
mid-2017. KPMG, the company's auditor at the time, was also named
in some of the shareholder letters as aiding and abetting the
purported misbehavior. A KPMG spokesman declined to comment.
The shareholders asked the board to investigate and potentially
sue individuals to recover damages and claw back compensation.
Under a shareholder derivative complaint, any recovered damages are
typically returned to the company.
The Journal reported in October 2017 that for much of Mr.
Immelt's 16-year tenure as CEO the company had a spare aircraft
follow Mr. Immelt's corporate jet to destinations around the globe,
according to people familiar with the matter. GE had received an
internal complaint about the practice years before it was ended,
the Journal reported.
In 2017, Mr. Immelt told the Journal the practice wasn't
something he had requested or approved.
In December 2017, GE's board formed a special committee to
investigate claims about the backup jet and other allegations
raised by shareholders. Cravath's letter said it reviewed thousands
of documents and conducted dozens of interviews, including with Mr.
Immelt and other former executives. Most of the members of GE's
board have changed since 2017.
GE's board concluded there is no "sound legal basis" to bring
claims against current or former employees or directors. Even if
there were such a basis, the board decided that "any such
litigation would not be in the best interest of the company and its
stockholders," the letter states.
The board's Dec. 11 decision came days after GE agreed to settle
the SEC's claims.
No changes to GE's prior financial statements were required by
the SEC. "We are pleased to have reached an agreement that puts the
matter behind us," the company said last month.
When the accounting issues came to light, GE's stock tumbled in
2017 and 2018, erasing more than $200 billion in market value. The
company slashed its dividend to a token penny a share and twice
switched leaders, installing Larry Culp as CEO in October 2018. GE
also decided to change auditors after more than a century with
KPMG, hiring Deloitte starting in 2021.
Shareholder lawsuits continue, including a complaint charging
that GE's risk disclosures and accounting practices amounted to
fraud on the part of former executives. Plaintiffs in that case
asked a federal judge to consider the SEC complaint as the two
sides argued over a motion from GE and the former executives to
dismiss the three-year-old case.
In a letter last month to U.S. District Judge Jesse Furman of
New York, lawyers representing GE and the former executives said
the court shouldn't take the SEC's findings into account, and that
even if it did, "nothing in the SEC Order supports any inference"
of intentional wrongdoing.
Ted Mann contributed to this article.
Write to Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
January 05, 2021 15:47 ET (20:47 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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