Bad News Jeff

As I predicted when he was made Chairman of President Obama’s Economic Advisory Board, General Electric Chairman and Cheif Executive Officer Jeff Immelt is becoming an embarrassment for the Obama administration because he’s finding it hard to be a real American. First the Wall Street Journal reported on March 18 that he took a $4 million cash bonus for 2010 when GE workers were scrimping. Then last week the New York Times reported that despite a profit of $15 billion, GE paid no U.S. income taxes.

It’s not so much that GE paid no income tax to Uncle Sam. I mean, the rest of us all try very hard to take all the deductions and deferments the rules will allow us. So, in that respect, GE was acting just like virtually all its other fellow U.S. citizens. Rather, it’s that GE has a privilege and a power that 99.9 percent of U.S. citizens don’t have with regard to taxes. It spends hundreds of millions of dollars on political donations and lobbying efforts aimed at rewriting and reinterpreting the tax laws to favor special GE interests.

The usual argument used to justify this behavior is that the CEO of a company like GE has a fiduciary responsibility to his/her shareholders and that their mission is not to produce for the United States, but to produce for their shareholders.

That might be a convincing argument if GE didn’t take advantage of Uncle Sam’s largess and if it treated all the other countries in which it operates in the same way it treats the United States. But, of course, it does take advantage of Uncle Sam’s largess to the maximum possible extent and it does not treat all other countries as it treats the United States.

GE arguably wouldn’t be alive today had its vast financial arm, GE Credit, not been bailed out along with many of the nation’s other major banks by Washington during the recent financial crisis. Nor does GE hesitate to take advantage of the U.S. Export/Import Bank’s favorable financing terms for its exports. It is also quick to request U.S. government help in enforcing its patents and copyrights globally. It was also pleased to have the Obama administration’s support in concluding its recent joint venture with China’s Avic Corporation to which it will transfer avionics technology some of which was developed under U.S. government sponsored programs.

When a company depends to that extent on the largesse and support of the U.S. government, the argument for a fiduciary responsibility only to the shareholders rather than to the stakeholders represented by the government is simply disingenuous.

Moreover, this is reinforced by the fact that GE and other major companies act differently outside the United States. For example, in Canada, where it also operates, GE can’t favor shareholders to nearly the same extent as in the United States. That’s because under Canadian law only human citizens as opposed to corporate citizens are allowed to make political donations. The same is true to a greater or lesser extent in most other democracies. Only in America does GE get the exorbitant privilege of being allowed to make huge donations to the lawmakers whom it will later instruct on how to rewrite the tax laws in favor of shareholders.

Or, do you think that GE maintains a department of several hundred people working on how to alter China’s tax laws? Do you think it turns to the Chinese government for help in protecting its intellectual property? You’re laughing right?

Look, as I have said before, I think Immelt is a decent guy who wants to do the right thing. The problem is that as long as he’s head of GE he can’t really do the right thing for the United States, and in his role as head of the president’s economic advisory council, he can’t do the right thing for GE’s shareholders.

The answer is obvious. Either he ought to step down as chairman of GE or he ought to step down as chairman of the advisory council. To be honest, I really don’t understand why he insists on sticking with GE. Look, he just got the $4 million bonus plus he’s got millions in the bank already.

I mean, Jeff, how rich do you seriously have to be? Twenty five years from now hardly anyone will remember that you were chairman of GE. But if you could really seriously play a big role in getting America turned around, and I think you could, you’d go down in the history books. So the question is: would you rather make more money or make history?

Go for the history, man.