By: Cydney Posner
The SEC today announced that it has settled an action against General Electric for failure to adequately disclose the retirement benefits that it had agreed to provide to former CEO Jack Welch. GE agreed to a cease-and-desist order.
In December 1996, GE and Welch entered into an employment and post-retirement consulting agreement, under which, following his retirement, Welch would receive lifetime access to the perquisites and benefits he had received as GE's chairman and CEO. GE's proxy statements disclosed the agreement and Welch's entitlement to "...continued lifetime access to Company facilities and services comparable to those that are currently made available to him by the Company," but did not provide any other specific information about the "facilities and services" Welch would receive in retirement. In addition, the agreement itself was filed as an exhibit to GE's 1996 annual report, and it stated that Welch was entitled to receive in retirement "continued access to Company facilities and services comparable to those provided to him prior to his retirement, including access to Company aircraft, cars, office, apartments, and financial planning services...."
However, the SEC did not view that disclosure to be "meaningful and complete disclosure." The SEC maintained that there were no other disclosures in GE's SEC filings that allowed investors to learn of many of the most significant "facilities and services" Welch had been provided prior to his retirement. As a result, investors would not be able to understand the full nature and scope of his benefits, which aggregated, in the first year following Welch's retirement, approximately $2.5 million in benefits, including "access to GE aircraft for unlimited personal use and for business travel; exclusive use of a furnished New York City apartment that, according to GE, in 2003, had a rental value of approximately $50,000 a month and a resale value in excess of $11 million; unrestricted access to a chauffeured limousine driven by professionals trained in security measures; a leased Mercedes Benz; office space in both New York City and in Connecticut; the services of professional estate and tax advisors; the services of a personal assistant; communications systems and networks at Welch's homes, including television, fax, phone and computer systems, with technical support; bodyguard security for various speaking engagements, including a book tour to promote his autobiography Jack: Straight from the Gut; and installation of a security system in one of Welch's homes and continued maintenance of security systems GE previously installed in three of Welch's other homes. " The message is that specifics and details matter (especially when they involve extravagance and end up being disclosed as part of a messy public divorce instead of in company filings).