March 16, 2011

Parsing General Electric’s 2011 Proxy Statement

If you are not among the many who have inputted their email address to receive notification of Mark Borges’ analysis of compensation disclosures as they are filed with the SEC, you are missing out. Here is the latest from Mark from his “Proxy Disclosure Blog” on (you can input your email address on the left side of the blog to receive notifications):

Who says that there’s nothing new in proxy statement design and content? Just when you think you’ve seen it all, companies come along with an innovative idea that has the potential to catch on big (sort of like the iPad).

I’m referring to General Electric’s proxy statement, which was filed on Monday. GE starts its proxy statement with a four-page “proxy summary.” It’s a CD&A Executive Summary on steroids; that is, it summarizes all of the key information from the proxy statement, not just executive compensation information related to its “Say on Pay” proposal.

As such, it covers the following topics:

– the date, time, and location of the Annual Meeting of Shareowners;

– the meeting agenda;

– the matters to be voted on at the meeting. along with Board of Directors’ voting recommendation and a cross-reference to where the item is addressed in the proxy statement;

– the nominees for the Board of Directors, including summary information on their occupation, qualifications and experience, independence status, committee membership, and other directorships;

– the identity of the company’s auditors, as well as a breakdown of their audit and non-audit-related fees for 2009 and 2010;

– the shareholder advisory votes on executive compensation and the frequency of future shareholder advisory votes on executive compensation (by the way, GE’s Board of Directors is recommending that future “Say on Pay” votes be held annually;

– a compensation elements table, with a brief description of the form and terms on each principal compensation component;

– a brief description of the key executive compensation actions and decisions for 2010; and

– a 2010 compensation table for the company’s Named Executive Officers, which is similar to the required Summary Compensation Table, but also provides a “Total Realized Compensation” column to show to difference between reported and realized pay in 2010.

It’s probably a natural progression in the evolution of proxy statements, as this year (perhaps for the first time) we’ve been forced to step back and look at the document as a communication tool first and foremost. I’m currently working with a couple of companies that are planning to do something similar in their proxy statements, so it’s obviously an idea that many companies have seized upon as they respond to the new shareholder advisory vote requirements of the Dodd-Frank Act.

It’s also a concrete example of the often-discussed concept of “layered disclosure.” While not a substitute for the substantive content of the proxy statement itself, it offers readers an additional way to obtain information about the annual meeting and related matters. I expect that some investors will be perfectly satisfied to rely on this summary as their primary (if not only) source of information.

At the same time, they have access to the full proxy statement for further detail. And, in addition to the full Compensation Discussion and Analysis, they have an Executive Summary for reference (as in past years, GE focuses on the details of its CEO’s compensation to illustrate its approach to “ay for performance”).

GE is the first company out of the gate with this disclosure and has, as usual, done an excellent job in presenting this new item. I expect that it may become a template that other companies (particularly GE’s peers) use, tailored to their own specific circumstances.

Join Mark, Dave Lynn and Ron Mueller for this webcast – “The Latest Compensation Disclosures: A Proxy Season Post-Mortem” – that I just calendared for June 21st on

The SEC’s Focus on Loss Contingency Disclosure

Lately, I’ve blogged several times about the controversy over loss contingency disclosures (eg. this recent blog on audit response letters). Here is an excerpt from this Cooley alert by Cydney Posner:

You might be interested in this article from The New York Times, which discusses the more extensive 10-K disclosure provided by big banks regarding their potential litigation and other legal exposure. Not only are the numbers enormous (e.g., $4.5B for JPMorgan), but what’s most interesting is that there are so many numbers disclosed at all. The quantitative specificity was apparently prompted by 2010 “Dear CFO” letters from the SEC reminding the banks that they are required to make disclosures when there is a “reasonable possibility” of a loss. The article reports that the SEC actually “followed up to make sure they would provide deeper information. One executive remarked the agency’s reminders were, put politely, forceful.” Only Morgan Stanley decided not to provide a catch-all number, opting instead to provide only its estimate for two separate lawsuits with potential aggregate exposure of $518M.

While attention may for the moment be focused on the big banks, there’s no reason to assume that the interest in more quantitative disclosure will stop there. In several fairly recent presentations (in addition to one aimed specifically at financial institutions), the accounting staff indicated that the absence of historical disclosure regarding “reasonably possible” losses could well be subject to comment, particularly when settlements are disclosed in future periods.

The SEC Staff on International Issues

We just posted the transcript from our recent webcast: “The SEC Staff on International Issues.”

Poll: How Many Chiefs of Corp Fin’s Office of International Corporate Finance?

The webcast noted above featured the current and a former Chief of Corp Fin’s Office of International Corporate Finance. Since the Office’s formation in the early ’70s, please guess how many Chiefs have served (including the current one, Paul Dudek):

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– Broc Romanek