Shareholder Communications: Kudos to GE's Immelt, Dominion

Writing shareholder communications is a thankless task. Most shareholders throw away the reports, and even the ones who keep them won't read the fine print. This apathy results because most companies do a terrible job communicating with their small shareholders. With the exception of Warren Buffett's annual reports, no company seems to spend much time being creative in their annual reports.

I read all the annual reports. I don't claim to understand everything I read, but I love reading them. Here are some highlights so far:

1. GE's 2008 annual report was excellent. Mr. Immelt continues to do a great job re-building his own and his company's reputation. When Mr. Immelt states, "I assure you that we will work hard to restore your trust, and we will continue to work hard to build GE for the long term," I believe him. Here are some other notable sections from the letter:

On government's expanding role:

The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.

On Wall Street:

The financial industry will radically restructure. There will be less leverage, fewer competitors, and a fundamental repricing of risk. It will remain an important industry, just different.

On America's future:

I run a global company, but I am a citizen of the U.S. I believe that a popular, thirty-year notion that the U.S. can evolve from being a technology and manufacturing leader to a service leader is just wrong. In the end, this philosophy transformed the financial services industry from one that supported commerce to a complex trading market that operated outside the economy. Real engineering was traded for financial engineering. In the end, our businesses, our government, and many local leaders lost sight of what makes a nation great: a passion for innovation.

You can read the full letter here.

2. Other companies also took their duty to communicate to shareholders seriously. Kudos to Dominion Resources, Inc. (D) for its transparent, detailed 2009 proxy statement. I've always believed companies should be as transparent as possible when it comes to compensation and other issues, and Dominion did a fantastic job this year. It even managed to do a decent job defending the indefensible--supplemental executive pension plans. You would think after being paid millions of dollars, executives could manage their retirements without further shareholder assistance, but most companies pay executives millions of dollars after their executives leave.

Dominion stated that much of its executive compensation is based on long-term goals, so it needed an extra carrot to attract top performers. In addition, it argued its supplemental pensions are tied to restrictive covenants such as non-competes, dissuading retired executives from working for competitors. (Some states, such as California, won't enforce non-competes, but Dominion isn't a California corporation.) Elsewhere in the report, Dominion supported its arguments with charts showing that most of its executives' compensation was tied to long-term goals rather than base salaries. I'm not saying I was convinced, but at least I can clearly understand Dominion's point of view.

So far, only Dominion and Wal-Mart (WMT) have caught my eye when it comes to outstanding shareholder reports. They deserve recognition for their outstanding work.

Dominion isn't perfect. Page five of its "2008 Summary Annual Report" has a picture of a television screen showing what appears to be a generic basketball game. No one but a huge basketball fan would notice anything unusual about the picture, and even then, you'd need a magnifying glass to notice anything non-generic. Now, I happen to be a huge basketball fan, and I recognized Grant Hill and Joe Dumars from their Detroit Pistons days. What's the problem? Grant Hill hasn't played for Detroit since 2000. Joe Dumars hasn't played for Detroit since 1999. That means Dominion used a picture that is at least nine years old. Do'h!

Comments

[pitboss33704:]

You praise Immelt's job performance which necessarily includes candor ? Get serious -
Just who in the hell was responsible for " real engineering being traded for financial engineering " ?
How much do you figure GE Capital has been responsible for the boggling losses experienced in GE's common stock ?
When were you ever long GE ?
Repeat : Get serious !

Apr 16 10:25 AM

[ex GE'er:]

Are you joking? Immelt is a blithering idiot that has ruined one of the finest companies in history. Go back and read every shareholder letter he's ever written. He begins every one with an apology over the share price and his performance. GE was once at the top of every corporate list for governance, innovation, management development, etc. And now look at where they are thanks to Jeff. He's a nice guy that has destroyed more personal wealth than Madoff.

Apr 16 11:22 AM

[jdubrox:]

I know you made a sizeable investment in GE many months ago. We all did and I commended you on making that purchase. I commended you because GE had "guaranteed" its dividend for the rest of 2009, and I distinctly remember Immelt's comment, "Don't even go there."

Well, GE has cut the dividend by 70% and lost its AAA credit rating. These were two of my biggest reasons for investing in GE to begin with. I feel lied to, and I even found an article about the class-action lawsuit against GE that has recently cropped up, claiming the company made fraudulent claims about its dividend and misled investors. Just a few weeks before cutting the dividend is when Immelt made his comment. Not all that much changed in those few weeks, and there's no way that he couldn't have seen this dividend cut coming.

I think that GE's leadership may be impaired, but I'm not on the board so I can't say for sure. I don't know how much of what's happening to GE is Immelt's fault. It could be that anybody running GE right now would be experiencing the same pain, but nobody knows. I decided not to buy more GE stock, especially since analyst estimates for earnings over the next few years are looking like sub-$1 earnings per share. And have you looked at GE's balance sheet lately? Talk about drowning under long-term debt...

Anyways, I read the proxy statement and annual report, too. They were delivered to me in the mail from my broker. I thought that a lot of the shareholder proposals were good, actually. A lot of those proposed items were items that would reveal GE's management's true performance. And what do you think the "Directors" recommended? They recommended that shareholders vote against every single one of them. The justifications were baloney, in my opinion, and it's obvious that the leadership is trying to hang onto their MASSIVE salaries, pensions, and fringe benefits for as long as they can. Eventually the underperforming members of GE's executive staff will be hung out to dry, much the same way they have left their company out.

Apr 16 01:39 PM

[Matthew Rafat:]

1. Methinks the gentlemen doth protest too much. Other than completely exiting the financial business, what could Immelt have done better? Immelt was not the only person who didn't see the financial train wreck coming--every major investment bank was caught by surprise, too. Even Goldman Sachs had to recently convert itself to a bank holding company.

Immelt deserves some recognition. GE going from 6/sh to 12/sh is a noticeable improvement. I said Mr. Immelt is doing a great job "re-building" his own and his company's reputation. The market seems to agree.

Apr 16 03:04 PM

[connorport:]

Right now its all talk. Immelt outsourced a lot of american jobs only to see the quality of the some products go through the floor. I am referring to some of their small and large motor manufacturing. Most of the motors interior parts were outsourced to Mexico where peasant workers built these windings on dirt floors. Only after several warranty issues and several canceled contracts did anyone take notice. The writing was on the wall before hand. This is just one example of a genius at work. GE will beat the streets but not by a quality showing, only because these analysts moved there numbers to a level that could be beat easily.


On Apr 16 03:04 PM Matthew Rafat wrote:

> 1. Methinks the gentlemen doth protest too much. Other than completely
> exiting the financial business, what could Immelt have done better?
> Immelt was not the only person who didn't see the financial train
> wreck coming--every major investment bank was caught by surprise,
> too. Even Goldman Sachs had to recently convert itself to a bank
> holding company.
>
> Immelt deserves some recognition. GE going from 6/sh to 12/sh is
> a noticeable improvement. I said Mr. Immelt is doing a great job
> "re-building" his own and his company's reputation. The market seems
> to agree.

Apr 16 03:28 PM

[pitboss33704:]

If anyone thinks that Immelt has done any kind of a satisfactory job while overseeing a company whose common stock fell from the mid 30's to $6 / and is now " back ' up to $ 12/ , well I am here to tell you that individual needs some acute care - I say to anyone who will listen , apply Jack's " rank 'em and yank 'em " policy and see how long Immelt would have survived - The only advice appropriate for Immelt at that point would have been : " don't let the door hit you on the way out Slick .. "

Apr 16 04:09 PM

[connorport:]

I think whats being said here is that GE's business model stood up for decades but Immelt rode the finance wagon as well as wall st and all the greedy bankers who were blinded by the quick green. Greed and ignorance is what brought the stock price down and the market, nothing else. I admire the banking institutions and companies who kept to their business models that have worked for years and weren't sucked into the vortex of massively greedy idiots. Its too bad Immelt put too many eggs in this basket. The stock price would probably be down slightly and the dividends would probably be intact and thousands of GE shareholders would probably be sitting on retirement right now. But i guess he did get that stock price from 6 to 12 which was a natural bottom bounce. 6 to 12 only works if you buy at 6 and sell at 12. It doesn't work when your average is $25. This would equate to -300% to a quick bounce back to -100%. When this stock makes its back to $25-30 i will be impressed then.


On Apr 16 03:04 PM Matthew Rafat wrote:

> 1. Methinks the gentlemen doth protest too much. Other than completely
> exiting the financial business, what could Immelt have done better?
> Immelt was not the only person who didn't see the financial train
> wreck coming--every major investment bank was caught by surprise,
> too. Even Goldman Sachs had to recently convert itself to a bank
> holding company.
>
> Immelt deserves some recognition. GE going from 6/sh to 12/sh is
> a noticeable improvement. I said Mr. Immelt is doing a great job
> "re-building" his own and his company's reputation. The market seems
> to agree.

Apr 16 04:27 PM

[buoy:]

I think he wrote a great letter. Now, lets see him make it work.

Apr 17 03:16 PM

[biomedlives:]

"Immelt was not the only person who didn't see the financial train
wreck coming--every major investment bank was caught by surprise, too. "

Immelt and other CEOs of financial institutions got substantial compensation to foresee events like the financial train wreck, and most of them failed miserably.

If Immelt believes that "what makes a nation great [is] a passion for innovation", what's he doing about keeping GE's R&D in the
U. S.?

Apr 21 03:49 PM

[rbblum:]

Something is amiss . . . BIG TIME. From the mouth and mind of GE's CEO Immelt: The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.

One slight problem comes to mind with that one thought: In order for the Obama ideology to grow and flourish, with or without Immelt's praise and support, the current US economy and traditional lifestyle must crash and burn. Upon which then will the new world as perceived by the Obama ideology will a new republic be born.


Not only is Immelt established a track record of being captain of the GE ship that has stalled and dwindled as a profitable business, he is calling for the US government to succeed where it has no business . . . actively interacting with business. And with a track record of an ever increasing, unsustainable national deficit, decreasing value of the US dollar, higher taxes, and a diminishing lifestyle, who really can justify and defend the new social and economic order of the US as envisioned by the Obama ideology?

Bottom line: Not only does the Obama ideology come up short with a strong foundation and very little structural support, the financial and monetary numbers do not add up. DO THE MATH.

May 12 05:55 PM