General Electric Co. Chairman John F. Welch Jr. told shareholders at the company's annual meeting today that GE had taken steps to prevent a recurrence of the alleged contract fraud that led to its suspension from defense contract work last month.
But Welch declined to comment on another matter, the persistent reports that GE is considering a "white knight" acquisition of CBS Inc. to rescue the communications giant from the clutches of broadcaster Ted Turner.
"After all the publicity we've had on the Defense Department issue, we would like to be called a white knight by anyone," he jested.
GE was charged last month in a 108-count federal indictment with falsifying time cards in 1980 to overcharge the government $800,000 for contract work at the company's space systems division. Following the indictment, the company was suspended for about three weeks from defense work -- one of its major lines of business.
In a separate dispute, GE has been asked by Air Force Secretary Verne Orr to return $168 million in allegedly excess profits for military jet-engine production over the past few years. GE has argued that the profits were justly earned and declined Orr's request, which was made the same day the contract suspension was announced.
The suspension was lifted last week for all GE divisions but the space systems unit, and Welch said the company was negotiating with the Air Force to have that suspension lifted as well.
"We are rigorously implementing new policies and institutional safeguards to minimize the chance that an incident of this type can occur in the future," Welch told GE's shareholders. "We are determined to turn this disappointment into a companywide opportunity -- an opportunity for all of us to rededicate ourselves to the highest standards of ethics, not just in our government relations but in every aspect of every business in which we are engaged. . . .
"A company that demands excellence, in personnel, in products and in performance, begins with excellence in integrity," Welch said.
Welch said shareholders were "absolutely justified" in being disappointed over the incident.
Welch dealt with another recent spate of criticism of General Electric in his remarks to shareholders: complaints that the company has used investment tax credits to greatly reduce its corporate income taxes in recent years. Last year, GE had $2.3 billion in profits on $27.9 billion in sales, but paid only $180 million in federal income taxes.
Welch defended the company's practices as necessary to make major investments that just happened to take advantage of tax laws allowing investment costs to be written off against federal corporate income taxes.
"General Electric became a lightning rod, and the tax consequences of our investment strategy became the target of a variety of politically appealing names -- greed, loopholes, tax-dodging, or whatever else happened to fit a headline," Welch said. "We call it something else, something very different. We call it an investment in America, a belief in America and in American jobs, and we know it works."