Investigations by non-management directors of Geico Corp., as well as by internal and outside lawyers and accountants, have uncovered no evidence to support the charges of improperly allocated expenses and inadequate public disclosure which were leveled by a former director on April 25.
At the annual meeting that day of Government Employees Life Insurance Co., the majority interest of which is owned by Geico Corp., outgoing Government Employees Life Director and Chairman Shelby Cullom Davis shocked his fellow officers and stockholders with these serious allegations about past practices and with requests for changes in company policy he said would protect minority owners.
Geico Corp. officers flatly denied Davis' charges in April but promised a full review by a panel composed of independent directors and by others.
Those investigations were completed in recent weeks. Although Geico Corp. Vice Chairman Paul Hanna declined to state how much these investigations cost, the figure is thought to be many thousands of dollars.
"Geico, its board and committees have spent substantial amounts of time and money on these matters - including the retention of special outside counsel and extra work by our independent certified public accounting firm - and have found the allegations to be without substance," states a report on the investigations prepared for company files and made a available to the Securities and Exchange Commission.
Davis was not at his investment offices in New York yesterday to comment on the outcome of Geico's investigations.
Geico Corp. is the holding company of Government Employees Insurance Co., a large automobile insurance firm. Several affiliates of the auto insurer - Government Employees Financial Co., Criterion Insurance and Government Employees Life - now are majority-owned by Geico Corp. after a series of stock purchases.
But there remains a significant minority interest in each of the companies, and Davis, a former ambassador to Switzerland, is among the large minority owners. He served not only as Government Employee Life's chairman but also as director of Geico Corp. Government Insurance, Criterion and the finance company.
Davis said that other persons had made the charges which he talked about at the annual meeting, but he has declined to tell various investigative panels the identity of such persons, Hanna said.
Davis' allegations amounted to a public bombshell, even though he had discussed some of the charges previously with officers and directors, and they had responded in some instances by following his suggestions, including expansion of company boards to include more outsiders.
Specifically, Davis alleged that expenses may have been charged improperly to the life company under an inter-company sharing of costs that includes all affiliated firms.
In addition, Davis asked for an investigation into certain aspects of a Geico Corp. offer for the life company's stock last fall. He said that owners of the life insurer did not receive all the "substantive current information about Government Employees Life from its majority stockholder, Geico."
The former life insurance company chairman also urged that the company consider buying its own shares on terms favorable to minority owners and that minority owners be promised that they could keep their shares "as long as they desired."
In an interview, Hanna said: "This was pitiful, a tempest in a teapot."
"There is not one shred of evidence" to support the allegations, Hanna said as he reviewed private company documents from directors, lawyers and accountants who studied the charges.
Hanna said the SEC has been provided copies of all the reports. "We've abolutely nothing to hide," Hanna said of the SEC staff study, which apparently is continuing.
Several internal and outside studies were made of the most serious charges by Davis concerning expense allocations and public disclosure.
The accounting firm of Ernst and Ernst, a law firm and company officials all looked at expense sharing. They found that the most recent policy, effective last Aug. 1, was reviewed and approved by audit committees of all the company boards. Davis was among the directors giving such approval as a member of the Geico audit committ. The life insurance firm paid about $315,000 to the sharing pool in 1978, down from $415,000 in 1977 and $342,000 in 1976.
"The independent certified public accounting firm. . . advised the four audit committees that the methods of expense accumulation and allocation between Geico and the affiliated companies for 1978 were fair and reasonable," according to an internal Geico report.
To investigate charges about disclosure, a committee of directors was formed, headed by American University President Joseph Sisco. Other members were Thomas Bolger, executive vice president of American Telephone and Telegraph Co.; former Criterion Chairman Alvin Kraus; Columbia University business professor and former Catholic University president Clarence Walton; and University of Chicago business professor Edward Wrapp.
These directors interviewed 16 persons, including Davis, and concluded that "the allegation made by Mr. Davis is not supported by the evidence gathered during these investigations."
On other points raised by Davis, the company noted that D.C. law prohibits life insurance firms from buying their own shares except in very limited circumstances, and said the idea of allowing minority ownership "as long as. . . desired" would not be in the best interests of stockholders because demand for stock by a potential buyer could be diminished.
Geico noted that three new outside directors were named to boards of the life insurance firm and Criterion, and that one new outsider was named to the finance company board at this year's annual meeting. Davis "has advised Geico that these elections satisfy his concerns," internal reports said.