The board, the management team and I remain committed to performance with integrity. In other words, we believe that you can get great financial performance with the highest standards of governance and compliance. These concepts are compatible and mutually reinforcing.
Since 2002, we have stayed on a path that includes: a strong and independent board with a presiding director; increased transparency in financial reports and investor meetings; and alignment of CEO and executive compensation with investor interests. Our work has been recognized. The Financial Times’ annual global survey of CEOs named GE the world’s most respected company for the seventh consecutive year and placed us first for corporate governance. The Dow Jones Sustainability World Index also named us to their list for our environmental, social and economic programs.
I like and respect our Board of Directors. Its presence is felt throughout the Company. Ralph Larsen, our presiding director, is an excellent sounding board for me and has strong input into the board’s agenda. The board interacts with our leaders in formal and informal settings. Roger Penske attended Commercial Finance’s annual kickoff meeting; Claudio Gonzalez meets regularly with our Latin America team; Sandy Warner regularly attends Corporate Audit Staff and Controllership Council meetings; and Shelly Lazarus gives us great insights on our marketing campaigns. Our directors do a great job on the technical “rules of governance.” But they also “feel“ the culture because they know the people.
The financial report accompanying this letter is historic in that it is our first one covered by Section 404 of The Sarbanes-Oxley Act of 2002 (SOX). Thanks to Keith Sherin, our excellent CFO, our 380-person Corporate Audit Staff and our team of global business controllers, we are compliant from day one. Our Audit Committee, led by Sandy Warner, has been at the center of this process for the last two years. I appreciate all of their hard work.
But what does it mean to you? Is it a “check-the-box” bureaucracy based on an overreaction to the market scandals of yesterday? None of us likes more regulation, but I actually think SOX 404 is helpful. It takes the process control discipline we use in our factories and applies it to our financial statements. Implementing SOX 404 cost GE $33 million in 2004. But we think it is a good investment.
Frequently, I get asked whether new regulations and intensified scrutiny have taken the fun out of being a CEO. Sometimes I read about members of the business community fighting to reduce standards and return things to the way they were.
Investors should demand high standards of governance and great performance. Some managers failed investors in the late ‘90s. Companies were destroyed, value was lost, and billions are being paid because of fraud. This happened. SOX 404 is by no means perfect, but it is a price we are willing to pay to restore investor trust.
To me it is clear: I work for you. We live in a new day. High standards are good. At GE we embed governance and integrity in the operating culture. It starts with Ralph Larsen, our presiding director, and touches every member of the Company. Your management team is spending all of its time growing the Company with the highest integrity. We will not spend any time or resources defending the standards of yesterday.
High standards facilitate growth. They are not a burden. They are good for all of us.
 |
 |
 |