General Electric Co. (GE) CEO Jeffrey Immelt resigned from the Federal Reserve Bank of New York’s board of directors, citing “increased demands” on his time.
Immelt, 55, stepped down effective March 9, the New York Fed said in a statement Thursday (April 28). He noted in his resignation letter to New York Fed President William C. Dudley that his other commitments include the President’s Council on Jobs and Competitiveness, which he has led since January. Immelt had served as a regional bank director since January 2006, Bloomberg reported.
“I was very surprised that he even accepted the job on Obama’s council because being CEO of a diversified conglomerate like GE is more than a full time job,” said Sung Won Sohn, an economics professor at California State University-Channel Islands and former chief economist at Wells Fargo & Co. “He is probably stretched too thin.”
Immelt’s decision is unrelated to plans by the Fed later this year to begin supervising GE Capital, the Fairfield, Conn.-based company’s finance unit, GE spokesman Gary Sheffer said.
“Jeff enjoyed his five years on the board of the New York Fed and learned a great deal,” GE said in a statement. “He decided to step down to allow the opportunity for others to serve and to free up time to focus on other responsibilities.”
‘Too Big to Fail’
The Fed is poised to gain responsibility for non-bank financial firms deemed “too big to fail,” including GE Capital. The Dodd-Frank Act, signed into law by President Barack Obama in July, gave the central bank expanded authority over systemically important financial firms.
Immelt was a Class B director at the New York Fed, representing “the public,” and selected by member banks, according to the New York Fed statement. Class A directors at the Reserve Bank represent the member banks.
“Clearly now the Fed is going to be regulating a financial services company like GE Capital and I don’t think he should be sitting on the New York Fed board” as a Class B director, said Sohn, who is also vice chairman of retailer Forever 21 Inc. “If GE Capital were to get into any kind of trouble, it would be the New York Fed that would have to deal with it so I don’t think it’s appropriate for him.”
The New York Fed in December revised rules for its board of directors to avert conflicts of interest. Under Dodd-Frank, the three Class A directors are prohibited from appointing the president and first vice presidents of regional banks.
The New York Fed also restricted banker board members from “playing any role in bank supervision matters,” or naming the “senior leadership” for the bank supervision group, leaving those matters to board members representing the public, according to a Dec. 22 statement.
The New York Fed has since renamed its bank oversight division the Financial Institution Supervision Group, in a nod to its expanded authority.
GE CEO Jeffrey Immelt said the company has paid lower taxes over the past few years than what a company would typically pay mainly because of $32 billion in losses suffered by its GE Capital unit after the U.S. financial crisis of 2008.
He said GE’s taxes are expected to increase in 2011 as the company continues to recover and rebuild its profits, Market Watch reported.
The nation’s sixth-largest company has drawn sharp criticism after a New York Times article on how GE manages to reduce taxes — in 2010, it received a $3.2 billion benefit — often by lobbying Congress for special tax breaks.
The company has disputed many of the claims in the article and said it’s fully in compliance with U.S. law.
“Like any American, we do like our taxes low,” Immelt said.
Immelt offered a defense of his company during a speech at the Economic Club of Washington to outline how the U.S. can improve its economy and raise job growth. Earlier this year Barack Obama appointed Immelt to head the president’s Council on Jobs and Competitiveness, a somewhat controversial decision given the company’s extensive business with the federal government.
One way to achieve higher job growth, Immelt said, is to reform the domestic tax system like many other nations around the world are doing. He said the U.S. code increasingly discourages the creation of new businesses and investment.
“Our system is old, complex and uncompetitive,” said Immelt, reflecting the view of most American CEOs. He said he was willing as a chief executive to support reforms that would lower the corporate tax rate while eliminating unspecified loopholes or business tax breaks.
Immelt also said the federal government has to do a better job of getting rid of old and outdated regulations and not just pile new rules onto an already-creaky system of oversight.
Another goal of the jobs council, Immelt said, is to find ways to help small businesses grow. He said the creation of new small businesses after the 2007-2009 downturn is 23% lower than is typically the case following a recession.
Most of the ideas the council comes up with are unlikely to require any congressional legislation, he stressed. The one exception is trade. Immelt said lawmakers should act quickly to pass three pending free-trade deals with Panama, Colombia and South Korea.
“The rest of the world is signing free-trade agreements today as we speak,” he said.
In somewhat of a surprise, Immelt also declared companies are less likely to focus on countries with the lowest wages when deciding where to put a business.
Advances in technology and other factors have made it easier for companies to reduce costs wherever they go. As one example, Immelt said it only costs GE 10% more to operate a call center in the U.S. compared to India, where wages are much lower.
The company is also moving more manufacturing jobs in its appliance business back to the U.S. and plans to create 16,000 jobs at home over the next few years.
“I think the era of globalization around cheap labor is over,” he said.
What’s likely to become an even bigger factor in the future is the educational level of a nation’s workers. Like many business leaders, Immelt said the U.S. has to improve its education system, especially for math and science.
“We have more degrees in sports therapy than electric engineering,” Immelt said.