GE's disclosure journey reveals opportunities for other companies.
Before General Electric’s Chief Financial Officer Jeffrey Bornstein began to rethink the company’s annual report not many investors were paying attention to its dearth of information.
“In 2013 when we looked at how many people were accessing the 10-K from our website, there we about 100 downloads… and this is one of the most broadly held securities in the world,” Bornstein explained at the first annual Pacesetters in Financial Reporting Conference in New York this week. “After we made our first changes in 2015, within 15 days had 2,700 downloads. This year we had over 9,000, and if you count the new integrated report it is between 15,000 to 16,000 downloads.”
What GE’s financial executives did to revamp its 10-K took a significant effort and a focus on the use of plain language, graphics and forward looking point of view.
GE’s focus on disclosure began in 2008 with an effort to rework the company’s proxy, Bornstein explained. “Over 40 percent of our shareholders are retail investors, and there is no way you could ever expect a retail investor to get through what we were issuing since most analysts couldn’t get through it,” he said. “Once we completed the proxy, I asked the team to think about 10-K differently.”
The first step to the review occurred when Bornstein himself went through the process of putting together the annual report and the 10-K, an effort that took him and his team two months to prepare for.
“Often times I would read through the results and start taking notes,” Bornstein said. “I got our securities team, our accounting team and our FP&A team together and told them that this had become a compliance document. It had become a document for everyone except those that owned the company. Everything was looking backwards.”
After a first round of changes to the 10-K in 2015, GE made a major leap forward in disclosure this year when it issued an “integrated summary report” that combined information from GE’s annual report, proxy statement, and sustainability disclosures. The integrated summary looks to take the most important information from separate disclosures and put them into a single document.
“The thesis was that if this was the only thing the investor picked up and looked at in the reporting season, they would know where we are going strategically. What we think about capital allocation, what the results were versus what we expected them to be and how we remunerate the team for the performance we were reporting,” Bornstein said. “This created a consistent message with investors and describes how we are defining success and being clear with that was critically important.”
Despite the success, Bornstein said that GE is not done in its journey. He explained that his team is currently reviewing new disclosure initiatives around the company’s more esoteric financial strategies — such as hedging programs — as well as footnotes in the 10-K.
The process includes putting newly minted financial professionals at GE that take part in their Financial Management Program (FMP) in the driver’s seat.
“We have business people with 20 years to 30 years submitting disclosure to the FMPs,’ Bornstein said. “And I told the FMPs every time they give you a description of derivative and hedging that you don’t understand, kick it back.”•