General Electric Co.’s board won’t claw back compensation from former CEO Jeff Immelt and other executives over GE’s accounting issues or Mr. Immelt’s use of a backup corporate jet, ending a three-year probe into allegations of misconduct at the conglomerate.
The investigation didn’t find evidence to support shareholders’ claims of fraud and abuse, and pursuing litigation against former leaders wasn’t in the company’s interest, according to the law firm that GE’s board hired to run the process.
“The company does not have a sound legal claim to bring against any current or former officer, director or employee of the company, or against KPMG,” lawyers at Cravath Swaine & Moore LLP said in a letter dated Dec. 31 and reviewed by The Wall Street Journal.
Since November 2017, GE’s board received 11 formal requests from shareholders with allegations for the board to investigate, including that executives and directors breached their fiduciary duties and violated securities laws, according to Cravath’s letter.
A GE spokeswoman confirmed the board’s conclusions and said, “We have significantly enhanced our disclosures and internal controls and are a stronger company today.” A representative for Mr. Immelt declined to comment. Lawyers representing some of the shareholders didn’t immediately respond to requests for comment.
It is relatively rare for corporate boards to claw back compensation from former executives. Wells Fargo & Co.’s board took back $69 million from former CEO John Stumpf because of a sales scandal during his tenure. McDonald’s Corp. sued to claw back severance paid to former CEO Steve Easterbrook, who left after a probe into sexual relationships with employees. Mr. Easterbrook is fighting in court, saying the company knew about his relationships when it negotiated his severance.
Mr. Immelt didn’t receive any severance when he left GE in the middle of 2017, a year when his compensation totaled $8.1 million. He received $21.3 million in compensation in 2016, his last full year as chairman and CEO.
The manufacturing giant also faced an accounting probe by the Securities and Exchange Commission, which it recently settled for $200 million without admitting or denying the SEC’s claims. GE and its former executives have denied allegations by shareholders that fraud or wrongdoing were responsible for large write-downs and the collapse in its profits and stock price.
The Justice Department opened a criminal investigation into GE’s accounting more than two years ago but that probe has gone quiet, according to people familiar with the matter. GE hasn’t heard from investigators in a long time, the people said.
The SEC probe and shareholders’ allegations mainly related to GE’s long-term-care insurance portfolio and deterioration of its power business around the time of Mr. Immelt’s departure in mid-2017. KPMG, the company’s auditor at the time, was also named in some of the shareholder letters as aiding and abetting the purported misbehavior. A KPMG spokesman declined to comment.
The shareholders asked the board to investigate and potentially sue individuals to recover damages and claw back compensation. Under a shareholder derivative complaint, any recovered damages are typically returned to the company.
The Journal reported in October 2017 that for much of Mr. Immelt’s 16-year tenure as CEO the company had a spare aircraft follow Mr. Immelt’s corporate jet to destinations around the globe, according to people familiar with the matter. GE had received an internal complaint about the practice years before it was ended, the Journal reported.
In 2017, Mr. Immelt told the Journal the practice wasn’t something he had requested or approved.
In December 2017, GE’s board formed a special committee to investigate claims about the backup jet and other allegations raised by shareholders. Cravath’s letter said it reviewed thousands of documents and conducted dozens of interviews, including with Mr. Immelt and other former executives. Most of the members of GE’s board have changed since 2017.
GE’s board concluded there is no “sound legal basis” to bring claims against current or former employees or directors. Even if there were such a basis, the board decided that “any such litigation would not be in the best interest of the company and its stockholders,” the letter states.
The board’s Dec. 11 decision came days after GE agreed to settle the SEC’s claims.
No changes to GE’s prior financial statements were required by the SEC. “We are pleased to have reached an agreement that puts the matter behind us,” the company said last month.
When the accounting issues came to light, GE’s stock tumbled in 2017 and 2018, erasing more than $200 billion in market value. The company slashed its dividend to a token penny a share and twice switched leaders, installing Larry Culp as CEO in October 2018. GE also decided to change auditors after more than a century with KPMG, hiring Deloitte starting in 2021.
Shareholder lawsuits continue, including a complaint charging that GE’s risk disclosures and accounting practices amounted to fraud on the part of former executives. Plaintiffs in that case asked a federal judge to consider the SEC complaint as the two sides argued over a motion from GE and the former executives to dismiss the three-year-old case.
In a letter last month to U.S. District Judge Jesse Furman of New York, lawyers representing GE and the former executives said the court shouldn’t take the SEC’s findings into account, and that even if it did, “nothing in the SEC Order supports any inference” of intentional wrongdoing.
Ted Mann contributed to this article.
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