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CASE STUDY: HOW A LARGE AMERICAN COMPANY CHOSE TO TREAT A SMALL SHAREHOLDER

BACKGROUND

1. In 2004 an Australian finance subsidiary of the General Electric Company of the United States seized a car belonging to a customer who was not in arrears.

2. The incident was featured on national television and depicted GE in a rather poor light.

3. This perturbed a shareholder, who asked the company for its side of the story.

4. Two months later the company sent a reply to the shareholder - a response which failed to answer the main questions.

5. The shareholder felt that the matter was important enough not to be swept under the carpet. He accordingly gave notice to the company of the resolution which is set out in the letter which is reproduced below.

6. The company then approached the United States regulatory authority, the Securities and Exchange Commission, for permission to exclude the resolution from the agenda of the annual meeting.

7. The SEC replied, saying that it would not intervene.

THE RESOLUTION

SHAREOWNER PROPOSAL FOR PROXY STATEMENT

As a long-standing holder of [number] shares in General Electric Company I hereby notify you that I intend to submit the following proposal at next year's annual general meeting:

BE IT RESOLVED: That the Board of Directors review the management of the group's operations in Australia to ensure that actions harmful to the reputation of the company such as those described in the letter to the company which is reproduced below do not recur:

"As a shareholder in GE I was perturbed to see on national television in Australia on Channel 7, on 9 July 2004, an item which was seriously damaging to the reputation of the company and its goodwill.

"It involved an illegal and heavy-handed repossession by the company's subsidiary AGC of a motor vehicle leased by a customer who was not in arrears.

"In effect the subsidiary company:

  • stole the vehicle
  • stole the personal possessions in it
  • defamed the customer
  • refused to discuss the matter by telephone
  • failed to apologise when found to be in error.

    "This criminal action would appear to put at risk valuable licences held by the company.

    "Please advise what steps have been taken:

  • to prevent recurrences of such errors
  • to discipline those responsible
  • to compensate the victim of this atrocity."

    STATEMENT IN SUPPORT

    Two months later the company's reply to this letter from one of its owners which, while polite, failed to respond to the key questions, citing Australian privacy legislation as the reason for this. However, the letter was concerned with general principles and did not seek personal information relating to the victim (who had in any case waived her rights to privacy by appearing on national television).

    The company had apparently refused an invitation to put its side of the story on air at the time, but instead issued a media release which the television station chose to ignore.

    The contents of media releases by definition are meant to be in the public domain. Notwithstanding that, the company refused a specific request to supply a copy of the statement concerned. This seems extremely poor public relations and only confirms the suspicion that the company was in the wrong and had something to hide.

    ANALYSIS

  • The company's action was undemocratic in seeking to deny its owners an opportunity to discuss an important issue.

  • The company demonstrated a guilty conscience, as otherwise it would have included the resolution in the usual way and just provided its arguments for a vote against the proposal - the customary practice for shareholder-initiated proposals which are not favoured by a board of directors.

  • This would have allowed discussion by the owners of the business of an important issue affecting its reputation.

  • The action also involved a gross overkill: a 40-page submission to the SEC with its attendant legal costs, just in order to silence one small shareholder.

  • The company went to enormous trouble to nitpick every sentence - an expensive waste of shareholders' money.

  • The solicitors used were obviously very experienced in suppressing shareholders rights.

  • It is disappointing to note that the SEC appears not to be on the side of shareholders.

  • Furthermore, its action seems to be against the spirit of the First Amendment, which allows free speech.


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    This page http://users.bigpond.net.au/renton/936.htm was last updated on 2006-03-09