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January 05, 2013
Top Sustainable Investment Stories of 2012, Part 5
by Robert Kropp
In a cautionary tale of poor corporate governance, the year for Chevron began with a court in
Ecuador upholding the $18 billion judgment against it for environmental damage, and ended with the
company's lawyers serving subpoenas on its own shareowners.
Monsanto was a deserving recipient of Green
America's biggest corporate fool award this year—its corporate practices "enable factory
farming and put small farmers out of business," Green America stated, and Monsanto continues "to
push genetically modified crops in the developing world, which results in locking farmers into
cycles of debt and dependence on chemical crop inputs"—but the dubious distinction is awarded on
April Fool's Day. The year that Chevron has experienced since then may encourage reconsideration of
the most deserving recipient.
For Chevron, the year began with a decision by an
appeals court in Ecuador upholding the $18 billion judgment against it for environmental damages to
the Ecuadoran Amazon rainforest. Three appellate court judges found that Chevron had "staged
incidents that encumbered the process of the trial." The appellate panel also upheld a decision
that Chevron should pay the costs of the plaintiffs due to the "flagrant bad faith it exhibited in
Ecuadorian Court Upholds $18 Billion
Judgment Against Chevron
Shareowner advocate Simon Billenness wrote in a report,
"Chevron's defenses to enforcement actions have greatly narrowed." A second report,
authored by Graham Erion, an attorney for the rainforest communities, stated in its first sentence,
"Chevron's management is publishing false or materially misleading information regarding its $18.1
billion judgment in Ecuador for causing environmental damage."
"When things happen, you
have to adjust what you're telling investors," Erion told SocialFunds.com in May. "That's what
Chevron hasn't been doing. This company said nothing about Ecuador until its 2008 10K, and if you
look at what they said then they've been saying the same thing for three years. Yet there's been an
enormous change in the legal position."
"They're disclosing what their spin is," Erion
continued. "That's not what a 10K is for. It's probably the most heavily regulated and scrutinized
document that a company puts out. How Chevron is managing this risk is information that investors
are looking for. It's precisely the information that's supposed to be in a 10K."
Is Chevron in
Violation of Securities Law?
Following the publication of Erion's report, three
sustainable investment organizations—the Unitarian Universalist Association (UUA), Zevin Asset Management, and Newground Social Investment—wrote to the Securities and Exchange
Commission (SEC), requesting that it launch an investigation into "evidence that the company is
violating securities laws by repeatedly making misrepresentations and material omissions regarding
its adverse judgment in Ecuador of $18.1 billion for despoiling the environment."
"Chevron's continued failure to disclose these risks is potentially harmful to investors and
the integrity of the financial markets that your agency is charged with protecting," the letter
Another coalition of investors—led by the $150.3 billion New York State Common
Retirement Fund and including 40 institutional investors with total assets under management of $580
billion, also wrote to Chevron, requesting that the company disclose to shareowners "the risks to
its business and its operations from any enforcement of the $18 billion judgment."
2011, Trillium Asset Management wrote
to the Commission, expressing its concern over "disclosures and omissions" in the company's annual
"We request that the staff review whether Chevron has appropriately disclosed to
shareholders the scope and magnitude of financial and operational risk from a recent adverse legal
judgment in Ecuador," Trillium wrote.
Shareowners Ask SEC to Investigate
Investors Write to Chevron Again
A shareowner resolution calling for separation of the Chair and CEO positions at Chevron
was filed by UUA, and attracted the support of 38% of voters. Both positions are held by John
Watson, who has persisted in describing the court decision as "a fraud being perpetrated on our
"For Watson to lose a vote to this degree shows a shocking degree of anger by
shareholders over the Ecuador liability and his role in failing to fully disclose material risks to
investors," Billenness said.
Shareowners Voice Support for
Environmental and Governance Resolutions at Chevron
Even the US Supreme Court refused
to hear Chevron's bid to overturn the $18 billion judgment against it. But instead of abandoning
its efforts to avoid its corporate responsibility, as it did in September when it paid a $17.3
million fine to Brazil for an offshore oil spill that released an estimated 155,000 gallons of
crude oil, Chevron remains intransigent regarding Ecuador.
According to the Amazon Defense Coalition, "Chevron has
launched a retaliation campaign by trying to gain access to years of activity of the private email
accounts of 101 people who have some connection to the lawsuit – including about 15 summer interns
who worked on the case years ago while in college or attending law school."
Chevron's targets, Australian law professor Kevin Jon Heller, wrote, "It is unacceptable for a
party to litigation to try to obtain private information from a blogger-journalist who has
criticized its tactics. Tactics like this need to be exposed and resisted."
Chevron rounded out an ignoble year by setting its high-powered law firm on its own shareowners.
Gibson, Dunn, & Crutcher served Billenness, Trillium, and others with subpoenas. The subpoena
requested that Billenness provide not only documents pertaining to his work on Ecuador, but to all
other shareowner action taken by him.
"Chevron is not just asking for documents pertaining
to the Ecuador case," Billenness told SocialFunds.com. "That Chevron is asking for everything is
the unprecedented and invasive part of the subpoena."
"Instead of a meeting, we get
subpoenas," he continued. "One would think that if they really wanted to know about shareholder
actions, they would meet with the shareholders who requested the meeting."
other shareowner advocates have re-filed three resolutions from last year's proxy season, rewriting
them to include the implications of the recent legal developments.
"To what extent is
Gibson Dunn damaging Chevron's relationship with its long-term shareholders through these hardball
legal tactics?" Billenness asked.
Chevron Wants Access to Emails of
Billion Judgment Against Chevron Stands
Chevron Hits Sustainable Investors
with Subpoenas over Ecuador
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