In a letter to shareholders and employees, CEO John Flannery owns up “to what is going well and what is not.” He admits that GE had a “very tough year” and asks investors to look past company troubles. Flannery says, “Many people have lost faith in us. I have not. As difficult as 2017 was for everyone connected with GE, it was also a chance to reflect on what this Company means and why it exists.
“For our investors and many others, this is a “show me” moment. We need to explain to you what moving forward looks like and what we’ll do differently to build a stronger GE. In a lot of ways, this feels familiar to what I saw when I became the CEO of Healthcare and the business had been struggling. There are things we need to fix. But we can. We know how to. And we will.” Read the entire letter here.
Here are some of the changes that have been instigated:
First, the company will lower earnings based on new accounting and an SEC investigation.
Per Reuters, GE will restate its earnings for 2016 and 2017 as it adopts a new accounting standard, according to a regulatory filing (last) Friday.
The updated accounting standard, which will take into account revenue from long-term contracts, will result in a 13 cent cut in reported earnings per share for 2016 and a cut of 16 cents per share for 2017, according to the company’s 10-K filing.
GE is adopting the new accounting standards as the Securities and Exchange Commission investigates the company over its accounting for long-term service contracts.
Next, GE is making executive changes.
Michael Holston will join GE as the Senior Vice President, General Counsel and Secretary effective April 9, 2018. In this role, Holston will lead the company’s global legal, compliance and ethics, corporate secretary and environment health & safety organizations. Holston will report to GE Chairman and CEO John Flannery.
Flannery said, “Mike brings more than 25 years of experience working across multiple industries. He is an accomplished legal strategist and litigator as well as an expert in managing compliance. I look forward to working with him as he leads our world-class legal organization.”
Holston joins GE from Merck & Co., Inc. where he served most recently as Executive Vice President and General Counsel. He succeeds Alex Dimitrief, who was named Senior Vice President and President & CEO for GE’s Global Growth Organization in December 2017.
GE also announced a new 2018 Board of Directors slate, which includes three new candidates:
- H. Lawrence Culp, Jr., former Chief Executive Officer and President of Danaher Corporation
- Thomas W. Horton, former Chairman and Chief Executive Officer of American Airlines
- Leslie F. Seidman, former Chairman of the Financial Accounting Standards Board (FASB)
The new Board of Directors will consist of 12 directors, including three new candidates, consistent with the Company’s previously announced plan to reduce the size of its Board.
More information about the three new candidates for the board can be found here.
The following nine incumbent directors will stand for reelection: Sébastien M. Bazin, W. Geoffrey Beattie, John J. Brennan, Francisco D’Souza, John L. Flannery, Edward P. Garden, Risa Lavizzo-Mourey, James J. Mulva and James S. Tisch. Jack Brennan will stay on as Lead Director to facilitate the transition to a new Lead Director and new Board leadership in the coming year and will not stand for reelection in 2019.
GE Lead Director Jack Brennan said: “The 2018 board slate aligns the Board with the future of the Company. We are adding proven world-class expertise in capital allocation, aviation, accounting and financial reporting. The new Board is unified in its mission to work with John Flannery and GE’s senior leadership team to drive the Company’s focus on superior performance and to maximize the long-term value of GE’s world-class businesses for our shareowners. The smaller Board will also help to promote the heightened engagement and sense of accountability that we want to drive at every level of the Company.”
Brennan continued: “On behalf of GE and its Board, I want to thank the directors who have decided not to stand for reelection – Marijn Dekkers, Susan Hockfield, Peter Henry, Andrea Jung, Steve Mollenkopf, Shelly Lazarus, Jim Rohr and Mary Schapiro – for their dedicated service to the Company. The reconstitution of our Board was a constructive and collaborative exercise that demonstrated the quality and integrity of all our directors. It was a comprehensive evaluation that everyone undertook with one goal in mind – to build the very best Board for GE and its shareowners.”
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