Text size General Electric hosted its annual shareholder meeting in Tarrytown, New York on Wednesday. An annual shareholder meeting is a chance for smaller shareholders to grill a CEO about corporate governance and the direction of a company. GE’s event was no exception. New CEO Larry Culp faced tough questions from individual investors and General Electric (ticker: GE) retirees about accounting, cash flows, and pensions among other topics. Culp mainly stuck to his recent script, reflecting that the company is in the early stages of a multiyear turnaround. GE’s stakeholders seemed satisfied on Wednesday, giving Culp the benefit of the doubt for now. Culp went off script and appeared more relaxed at one point during the annual shareholder meeting when speaking about lean manufacturing. A small shareholder, Melody Jackson, raised the issue. “We’re going to bring one of my mentors, a former Toyota lean executive (sic), to our Greenville facility,” explained Culp. “We’re going to have probably the top 50 executives in the company on the shop Greenville for a week going through a real live Toyota white Kaizen lean event.” Lean manufacturing, and its connection to Japan and Toyota (TM) goes all the way back to post-World War II Japan, when American engineer Edward Deming introduced quality control concepts that morphed into today’s “six-sigma,” “lean manufacturing” and “kaizen management.” These terms are pervasive in industrial companies today. Six-sigma refers to the statistical tidbit that a process produces only 3 defects out of a million chances. Said in the reverse, the process produces a quality outcome 99.999% of the time. That’s “five-nines” quality. Lean manufacturing refers to manufacturing systems that eliminate waste and excess inventory from the manufacturing process. And “kaizen” is a Japanese word for continuous improvement, something six-sigma and lean manufacturing practitioners strive to achieve. Toyota is considered a leader in the field of lean manufacturing and the classic engineering book “The Machine That Changed The World” is the story of Toyota remaking its manufacturing system. Investors don’t often get to hear about what makes a CEO tick. Culp’s interest and palpable excitement about lean manufacturing was something outside the typical, dry management presentation. Of course, there is no guarantee that lean manufacturing can fix all of GE’s ills. And every business attempts to reduce waste and improve quality. Still, Culp had good results with lean manufacturing when he ran Danaher (DHR) from 2000 to 2014. Danaher stock returned 14% a year on average over that span, far better than the 6% return of the Dow Jones Industrial Average. Only time will tell if Culp will get similar results with lean initiatives at GE, but shareholders appear willing to give him the chance. “I’m here this morning to support Chairman Culp and all the members of our current Board of Directors,” said one shareholder, Bill Freeda during the Q&A session. “This isn’t the position I have taken in recent years, but I believe Chairman Culp and the current board deserve the opportunity to right this trouble ship.” That summed up the feeling in the room. For now, investors are willing to give Culp and his management philosophy a chance. That’s a big change from last year when investors were concerned with GE’s balance sheet and management turnover. Write to Al Root at allen.root@dowjones.com<doc-sep>TARRYTOWN, N.Y. (Reuters) - General Electric Co Chief Executive Larry Culp said on Wednesday that the company will likely have weaker quarters for the rest of the year after a surprisingly good start in the first quarter. General Electric Co. Chief Executive Officer Larry Culp mingles with shareholders at the company’s annual meeting in Tarrytown, New York, U.S., May 8, 2019. REUTERS/Alwyn Scott The 127-year-old Boston-based conglomerate is struggling to recover from a $23 billion loss last year and Culp, who was named CEO in October, asked investors for patience during a turnaround that he expects will take two more years. GE’s results will balance out through 2019 and its profit and cash flow forecasts are unchanged, Culp said at his first annual meeting as the company’s CEO. GE faces several hundred million dollars in increased costs because of tariffs on imports from China, he said, in response to a question from former presidential candidate Jesse Jackson, who was among about 200 attendees. Shareholders elected GE’s slate of 10 directors and all management proposals passed, company officials said at the meeting. But an executive compensation proposal passed with 70.5 percent of the vote and 29.5 percent against, GE said, which was a relatively low level of support for such measures. Institutional Shareholder Services (ISS) had recommended shareholders vote against top executives’ pay, citing concerns about directors’ discretion to set pay. Shareholders approved allowing GE to trim its minimum board size to seven members from 10, though GE intends to appoint two more directors. Culp said a smaller board is more flexible and can talk more easily “around a smaller table.” A measure to keep KPMG as GE’s auditor passed with a wider margin than last year, despite concerns that KPMG did not raise alarms about aspects of GE’s accounting that regulators are now investigating. A shareholder proposal to split the CEO and chairman roles won about 27 percent of the votes. ISS had recommended a vote for the proposal, saying GE “would benefit from the most robust form of independent boardroom oversight.” GE set its 2019 financial targets last week, which call for a cash outflow of up to $2 billion. “It’s still tough for me to say that out loud,” Culp said on Wednesday, referring to the $2 billion figure. “But that is our reality.” The meeting, held at a hotel about 30 miles north of New York City, was smaller and less contentious than last year’s meeting at a GE 3-D printing factory near Pittsburgh, where about 225 attended and union members protested outside. Before the meeting, Chief Financial Officer Jamie Miller told reporters that one of the biggest changes under Culp is that GE is focusing on operations in quarterly reviews of its business. In the past, such reviews were more high level and focused on financial results first and operations second, she said, noting she and Culp met with aviation on Monday, healthcare on Tuesday and plan to meet with the power business in about two weeks. During the tail end of former CEO Jeff Immelt’s 16-year tenure, GE spent more than $15 billion building up its industrial business only to see most of those investments sour in 2017 and 2018. GE also sold most of its capital business, which had supported its earnings growth, while demand for its power business has fallen sharply. One investor said Immelt’s actions had cost shareholders dearly and asked the company to try to recover money paid and still being paid to the former GE leader. “Clawbacks would be in order” if the board found serious misconduct, Culp said, but not for poor business decisions.<doc-sep>
Text size General Electric is hosting its 2019 annual meeting of shareholders Wednesday in Tarrytown at a nondescript Marriott hotel. This is CEO Larry Culp’s second annual meeting with GE and his first as the chief executive. An annual meeting is all about corporate governance. It is the chance for shareholders—the actual owners of a company—to have their voices heard on issues that fall outside of the normal course of business. Instead of talking about sales and profit margins, shareholders vote on issues such as board composition, auditors, and other proposals submitted from inside and outside the company. In his opening remarks, Culp spoke about recent changes to corporate governance undertaken by the company. “A year ago the board was 18 people large, now we have 10,” explained Culp to the assembled crowd, adding, “that changes the [boardroom] dynamic dramatically.” Culp joked the board can now fit around a smaller table. What’s more, six of the 10 corporate directors have been with General Electric (ticker: GE) less than two years. GE has many new voices guiding the company. Culp added GE would go through a bid process with its auditor, KPMG, after this audit cycle. That’s noteworthy. KPMG has been under fire from GE Investors after General Electric suffered large, unexpected losses in its insurance and power divisions. Famously, the GE’s write down charge for its Alstom power assets was greater than what the company paid for the business in 2015. KPMG hadn’t responded to a request for comment at the time of publication. About 300 investors showed up for the meeting. These aren’t the institutional fund managers that hold General Electric stock in large mutual funds. Those investors are probably hard at work managing their portfolios and connecting to the GE meeting over the web. Instead, the attendees in Tarrytown are individual investors of all ages, walks of life and geographies. They have strong opinions about many issues and come prepared with facts. One of the issues addressed by an individual shareholder was the supplementary pension earned by former Jeffery Immelt. The investor wanted Immelt’s $5 million annual pension clawed back. Culp answered that claw backs are usually reserved for misconduct and not for business decisions that didn’t go as originally envisioned. A supplementary pension is a plan that falls outside government insured Erisa plans. Erisa is short for the Employment Retirement Income Security Act of 1974. It, among other things, mandate the funding of corporate pension plans and mandates the level of benefits that the government will insure. Corporate executive usually make too much money to be fully insured by the U.S. government, so separate plans are set up. “Good words and tough questions are welcome in equal measure,” Culp told investors. That’s a smart approach to take with GE shareholders who still feel burned by the stocks recent performance. GE stock fell 45% and 57% in 2017 and 2018, respectively. GE stock is up 40% year to date after gaining 0.5% to $10.16, far better than the 11% gain in the Dow Jones Industrial Average in 2019. The stock was $10.85 the day before Culp was named CEO. This post was updated to reflect GE’s closing stock price. Write to Al Root at allen.root@dowjones.com