Professional Documents
Culture Documents
By:
Devang Acharya (212198982)
Kevin Liu
Aditya Nair (212228003)
Somanshu Prasad (212281556)
Zhengran (MAX) Zhu (212140000)
Section: MGMT1040 W
Prof: Bill Woof
Submission Date: April 2, 2013
List of Values
Yes/No/Date/$
No info/Comments
Anti-Harassment Policy
COMMUNITY RESPONSIBILITIES
Total Company Giving ($)
Donations
Charitable Foundation
Environmental Awards
Environmental Convictions
Waste Reduction Program
EMPLOYEE RELATIONS
Percentage of Workforce Unionized
How Many Employed
Number of Strikes (Last Ten Years)
Staff Training
100%
Total: 305,000
4 Major Strikes
Yes; all employees are trained upon
commencement of working at GE and
throughout their employment. There are
special leadership training programs for
fresh college graduates.
No information available.
No information available.
Yes; many of GEs programs support
personal philanthropy and empowers
employees to address the needs of highrisk neighbourhoods. It frequently appears
on GI Job Magazines Top Military
Friendly Employers and offers Junior
Officer Leadership Programs for
reservists. All employees are offered
discounted shopping through LifeMart, a
private online marketplace.
Yes; GE operates GE HealthAhead
dedicated to bringing wellness to GE
employees and their family members.
No information available.
No; all of GEs reports are delivered to
shareholders none to employees. It does
frequently publish GE Reports and has a
site for retirees
(http://www.ge.com/retirees/).
Yes; GE offers assistance in adoption
processes and counselling to new parents
on finding a work-life balance.
Yes; (see above under Community
Development Programs)
Accidents
Accounting Fraud
Lack of Independence
Assessment Report
When evaluating the ethical grade of a corporation, the corporate report card (CRC) is a useful
and effective tool to measure an organizations success in initiating and maintaining their ethical
duties. It is unfortunate, then, that one single criterion is insufficient to evaluate any single
company due to the different environments that they operate. There is many non-conventional,
novel or unique means for a corporation to meet their responsibilities as well as efforts that are
not completely philanthropic. While many should strive to hit as many Yes responses on the
CRC as possible, their efforts must not be bound to these categories. General Electric (GE) is an
excellent example of the modern shift from those outdated standards. Evident in all its initiatives
under incumbent CEO Jeffrey Immelt, GE is leading the world in maximizing revenue growth
while preserving the sustainability of the Earth (or so they say). This report will strive to unearth
the powerful PR, lobbying and waiting strategies that GE implements beneath its heavily-funded
marketing campaigns. It will justify why GE deserves a C GRADE (6.0 out of 10 60%) in the
face of convinced consumers that they are the worlds greatest, greenest and healthiest
corporation.
GE follows a very simple philosophy; they do not have a mission statement but rather a list of
value that they aggressively pursue. Its operating philosophy revolves around four core values;
build, power, move and cure. These core values are what drive imagination at GE; they are
helping to build a better world by helping to finance and build better infrastructure, developing
mobile medical equipment and investing in renewable energy resources. (GE, 2013) In-depth
research has proven that GE continues to stand behind these strong principles in their new
initiatives.
To support their mandate, GEs Code of Conduct clearly defines acceptable and unacceptable
behaviour. The Sprit and The Letter dictates the protocols that employees, managers and
executives abide by. While the last sign-off was in June 2005, it strongly outlines how
whistleblowers can report malpractices and unethical business activities. On paper, at least. As
observed in the Khaled Asadi v. GE case, GEs whistleblower protection policy is weak in
practice. Khaled Asadi was former executive at GE Energy in Iraq. Asadi had opposed the hiring
of a woman closely tied to Iraqs Senior Deputy Minister of Electricity because he believed that
this would violate the Foreign Corrupt Practices Act and damage GEs reputation. She was
hired nevertheless in the midst of GE Energys $250 million contract negotiation with the
Ministry. Asadi raised the issue with his supervisor and the companys ombudsperson in late
2010 but his complaint was disregarded; he was pressured to step down from his position to be
put on another assignment. In 2011, Asadi was given an extremely negative performance review
was fired on June 24, 2011. GE Energy successfully secured the contract with the Iraqi
Electricity ministry, on the other hand, while Asadi lost his case as the Dodd-Frank Wall Street
Reform and Consumer Protection Act only applied on American soil. Clearly, GEs
whistleblower protection policies are only for show as, although GE encourages employees to
report unethical business practices, they do not provide the necessary protection in the event of
one. Asadi had the option to directly report his claim to the U.S. Securities and Exchange
Commission (SEC) but he decided to report the issue to GEs compliance program. For that, he
was fired.
In the wake of this incident, Forbes correspondent Erika Kelton found that GE was also
involved in lobbying the SEC to require whistleblowers to report internally to companies
internal compliance programs first instead of reporting wrongdoings directly to the SEC. The
argument that they made was SECs whistleblower program will make it harder and slower to
detect and stop corporate fraud by undermining the strong compliance systems set up under
Sarbanes Oxley Act of 2002 to ensure companies take whistleblowers seriously. Yet, when
Asadi reported internally he was fired instead of being treated seriously. GEs position on this
case is very hypocritical especially as it now claims that Asadi is not eligible for protection under
SECs whistleblower program since he reported internally first.
In essence, GEs whistleblower program is very ineffective because its behaviour will only
discourage employees from reporting corporate wrongdoing for the ethical betterment of the firm.
Legal action like the Asadi case cannot be fully detailed in the report card; in fact, GE scores
fairly well for management practices and consumer relations. The truth is, however, that
management is responsible for Asadis fall. The obvious recommendation is for GE to develop a
more anonymous and comprehensive internal compliance program to ensure that whistleblowers
can report sans the fear of employment repercussions.
Further rationale to why General Electric deserves a C grade is evident through the sensitive
business activities that it pursues. On July 23, 1992, GE pled guilty in federal court to civil and
criminal charges of defrauding the Pentagon on behalf of a former employee and an Israeli Air
Force General who diverted defense funds into their personal bank accounts, subsequently
investing them into military programs unauthorized by the United States. In addition, it has been
chastised for its sale of F-16 jet engines to the Israeli air force in the early 1990s as well as its
contribution to the development of nuclear warheads.
GEs operations have inadequate safety measures as well. It designed Japans Fukushima
Daiichi Nuclear Power Plant in 1971; however, the reactor exploded as a result of intense
pressure from the 2011 Thoku earthquake and tsunami. The design flaw was evident prior to the
disaster as the Nuclear Regulatory Commission (NRC) warned of 90 percent likelihood that GEdesigned nuclear equipment would be unable to contain radiation from spilling into the
environment in the event of a meltdown. They were unable to press charges, however, until an
accident occurred (which it did) due to inconclusive evidence. 15,882 people died in the
earthquake as a result and caused an estimated $235 billion in damages.
Alike to most multinationals, GE takes full advantage of the corporate tax code. Although the
Board of Directors and the business activities have a fiduciary duty to maximize profits for their
shareholder, tax evasion is not an ethical practice. At GE, the 1,000+ member tax department is
viewed as GEs profit centre. An article published in 2011 claimed that GE was likely to pay no
federal income tax at all in 2010. While GE is a villain for cheating the corporate tax system, the
real villain is the political system that drafts and enforces these lax tax regulations. There are a
few tax loopholes that the company takes advantage of; first, under the tax-loss carry forward
principle, GE was legally allowed to use GE Capitals substantial losses during the 2008 credit
crisis to reduce its tax payments. Second, the active financial exception (enacted in 1997) allows
companies to avoid tax payments on overseas profits if those profits were earned by actively
financing a deal or an investment. The rationale was to level the playing field for American
corporations as foreign multinationals get the same tax break in their home country. While it
only exists temporarily in the tax code, this exception always finds its way back to the code
following notorious lobbying and large campaign contributions. One of these lobbyists is GE.
According to corporate tax guru Robert Willens, GE takes advantage of a loophole they helped
create. The third loophole is one that most multinationals use shifting profits overseas. There
are no international laws to regulate these activities. GE particularly benefits through this crack
in the system as roughly half of GEs pre-tax profits are related to its financing activities, making
it easier to shift revenue across the world. The result? Instead of paying the regular 35 percent
rate, GE only merely pays 7.4 percent! Congress has happily paved the way for GEs tax
creativity. It is recommended that public advocacy groups pressure the government to revise the
tax code, eliminate temporary incentives and counteract the creative means for corporations to
escape their bills.
Despite a decent track record in employee relations, GE has been stricken by four prominent
strikes in the last ten years. Led by the International Union of Electric Workers-Communication
Workers of America (IUE-CWA) and the United Electrical, Radio and Machine Workers of
America (UE), 20,000 GE employees went on a national strike on January 1, 2002 to protest
GEs decision to raise healthcare co-payments. Without the consultation of union leaders,
workers were expected to pay $200 more each month to lessen the corporations burden of their
health insurance. It soon ended in 2003 when GE cancelled the raises and switched to other costcutting measures such as layoffs via outsourced work. There is a current strike, in fact, that
began on February 13, 2013 against GEs decision to outsource their work.
If a company is troubled within, outside trouble is imminent. The U.S. Center of Responsible
Politics determines that, as the 23rd biggest federal contractor to the U.S. Military (at $2.8 billion
in contracts), GE spent $15.6 million in 2011 in lobbying fees to government officials. It donates
money through its political action committee (PAC) to many officials in Washington. For
instance, GE contributed $5,000 over 2 years to Republican representative Chip Cravaack
between 2011 and 2013. Within two weeks of his defeat in the 2012 U.S. elections, GE donated
$1,000 to his successor (Democrat Rick Nolan) to quickly catch his attention long before other
donors line up before election season. Theres a misconception that corporate money cares
which party wins elections, says Russ Feingold, a former Wisconsin Democrat. The truth
iscorporate moneys only loyalty is to its own benefit. By lining up early, GE ensures that
their priorities will hold greater importance in Congress on top of their aggressive lobbying
techniques.
A lack of oversight from the Board of Directors is the missing element to restricting the
unethical use of corporate earnings earnings that should be distributed as dividends to
shareholders. According to Titans of the Enron Economy The Ten Habits of Highly Defective
Corporations by Scott Klinger, many of the Boards members have significant financial links to
the company. Roger Penske, for example, draws $1 million in consulting fees through a joint
collaboration between Penske Truck Leasing (his firm) and GE Capital. GE is also a client of
former U.S. Senator and member Sam Nunns law firm, a long-serving director since the Jack
Walsh era. These relationships with the firm cloud up the Boards sound judgment on behalf of
shareholders earnings. To shorten their social contract with the government, GE openly
embraces the revolving door. In their 2012 Proxy Statement, they state; Weendeavor to have
a Board representing a range of experiences at policy-making levels in business, government,
education and technology and in areasrelevant to the companys global activities. In this
sense, shareholders can certainly rest assured that GE is maximizing their leverage over the
federal government to maximize its profits. It is recommended that future Board appointments be
voted for during the Annual Meeting of Shareowners (as it is streamed live on the Internet)
where owners, as opposed to fellow Board members, evaluate the qualification of each candidate
for appointment.
The greatest detriment to GEs grade, in this reports assessment, is their environmental policy.
As expected, GEs PAC routinely donates thousands of dollars to six of the Dirty Dozen
Congressmen that consistently vote against clean energy and conservation initiatives. Extensive
efforts are taken to lobby two particular officials Senator Jim Inhofe (R-OK) and Congressman
Joe Barton (R-TX) that vehemently deny the existence of anthropogenic global warming. In
other words, these individuals continue to deter the governments efforts to pressure corporations
to act responsibly and respect the environment. Seeing failed efforts, GE initiated a $90 million
program called Ecomagination to overhaul the companys outdated objectives. This program
was expected to generate an additional $17 billion in revenue by 2008 as GE shifts its focus from
financial engineering to clean technologies, alternative energy and ecofriendly infrastructure. It
failed miserably as CEO Immelt admitted in May 2011 at a MIT-sponsored event, he took on
a connotation that was too elitist, If I had one thing to do over again I would not have talked so
much about green, he said, in reference to the high expectations set.
Much of Immelts rushed decision derived from GEs urgency to cover up its previous
environmental collapses under Jack Walshs leadership. For 21 years, he avoided the cleanup of
1,300,000 pounds of polychlorinated biphenyls (PCBs) that GE discharged in the Hudson River
(New York) between 1947 and 1977. By continuing to cite the lack of definitive proof in
scientific research (85 percent of studies suggested high toxicity in the compound), GE
committed a moral hazard by offloading their responsibility to the Environmental Protection
Agency (EPA). One of these studies that were cited (Kimbraugh study) was, in fact, sponsored
by GE and failed to meet appropriate scientific procedures such as the length of time that PCBs
remained in the fat tissue of animals. It later switched its campaign when it failed to prove the
unconstitutionality of the Clean Water Act (for which it was charged under) as the Act compels
corporations to clean up any toxic waste before and after it was passed. GE spent millions of
dollars on public announcements denouncing the dredging technique that the EPA planned to use,
explaining that uplifting the water would cause further spread of the chemical downstream all
to avoid paying the lengthy bill for the EPAs work. It was later discovered that GE knew about
the dangers of PCBs as far back as 1936; in this sense, GE applied the proactionary principle that
valued the imperative for growth that this compound had over the long-term environmental
hazards. It had, and continues to, leave the burden of proof to critics to disprove their views and
corner them into compensation. This report recommends that GE take on a relaxed precautionary
principle in the future where it respects conclusive, instead of definitive, scientific research and
clean up its own mess (versus paying another partys larger bill).
It is imperative that General Electric improves its business practices if it hopes to improve its
overall grade. This report believes that it is uniquely possible at GE as its CEOs are renowned for
their ability to significantly change long-standing corporate culture. Jack Walsh radically
changed the formerly staid bureaucratic culture into a lean and highly competitive organization
during his tenure. He clearly articulated his vision that GE would be number one or two in each
of its segments and, if they could not measure up, they would be sold. To push growth, Walsh
eliminated the notion of job security in lieu of competition, creativity and dynamism. He
demanded that decision-cycles be sped up, moving information quickly through the organization
and removing unnecessary bureaucratic layers along the way. This form of radical change was,
once again, initiated under Jeffrey Immelt, his successor. He announced in 2004 that four
changes would be required to keep the company on top: execution, growth, great people, and
virtue. The first three were consistent with the GE everyone knew. But Immelt noticed that
people perceived GE to be a laggard on social responsibility and vowed to change that. Once a
company too big to fail, he knew GE had to adapt to provide solutions for the worlds problem
and not just obey the law. Within months, he appointed GEs first Vice-President for Corporate
Citizenship and has published annual citizenship reports ever since.
This report believes that, as of 2013, General Electric is very deserving of its C grade. By
implementing all of the recommendations in this report, however, it will truly and permanently
improve its ethics report card score and more, outside of what the report card evaluates.
Bibliography
(Corporate Report Card & Assessment)
Kelton, Erica, Whistleblower Case against GE, New Report Show Real Motives for Attacks
on SEC Program. Forbes. 6 June 2012
<http://www.forbes.com/sites/erikakelton/2012/06/06/whistleblower-case-against-genew-report-show-real-motives-for-attacks-on-sec-program/>
Klinger, Scott. Titans of the Enron Economy: The Ten Habits of Highly
Defective Corporations. United for a Fair Economy. April 10, 2002
Malone, Scott. GE profit rises 8.3 per cent, meets estimates. Oct. 19 2012.
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Nocera, Joe. Who Could Blame G.E.?. The New York Times. April 4, 2011.
<http://www.nytimes.com/2011/04/05/opinion/05nocera.html?_r=2>
Responding to Local Needs in Economic Downturn. GE Citizenship.
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