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June 01, 2013

Investors Square Off with Chevron CEO at Shareowner Meeting
    by Robert Kropp

Shareowner advocate Simon Billenness cites the company's $19 billion legal quagmire in Ecuador in requesting a lower threshold for calling special meetings while Atossa Soltani of Amazon Watch is ejected from meeting at request of CEO John Watson. -- Much against the wishes of corporate management, Chevron's annual general meetings of recent years have prominently featured shareowner resolutions and demonstrations by activists addressing the $19 billion judgment against the company for environmental destruction in Ecuador. That the company continues to mislead investors regarding the risks of enforcement actions to its operations and business relationships has prompted investors to question the quality of its corporate governance on a number of fronts.

At this year's meeting, Green Century Capital Management introduced a first time resolution calling on the company to refrain from political spending activities. In the aftermath of Citizens United, corporate political expenditures made the 2012 Presidential elections the most expensive in American history, ignoring research indicating that such expenditures may in fact erode share value.

Chevron gained especial notoriety when, less than one month before the election, it made a $2.5 million contribution to the Congressional Leadership Fund, a Republican super PAC. Public Citizen responded to the contribution by requesting that the Federal Election Commission investigate the legality of such a contribution by a federal contractor.

"Chevron has not been able or willing to demonstrate that its use of company funds generates any value to shareholders," Leslie Samuelrich of Green Century said. "During a time when public opinion for corporate involvement in politics is plummeting, shareholders are also concerned about the reputational and business risks that may be associated with Chevron’s highly visible involvement in politics."

The four percent vote in favor of the resolution raises the question of whether too many mainstream institutional investors continue to simply push the vote with management button; but as a first time resolution the proposal gained enough support to return on next year's proxy ballot at Chevron.

A resolution filed by members of the Interfaith Center on Corporate Responsibility (ICCR), calling for improved disclosure about the company's hydraulic fracturing activities, continued to gain strong support, receiving about 30% of the shareowner vote at the meeting.

"By its own admission Chevron knows what it should do, yet continues to drag its feet on implementation putting the health of millions of communities at great risk," Sr. Nora Nash of the Sisters of St. Francis of Philadelphia said before the meeting. "How does a company of its size and status justify this position?"

The real drama centered on Chevron's response to the $19 billion judgment in Ecuador. A recent report by attorney Graham Erion cited misleading investors, misrepresenting court records, and continuing to claim the lawsuit is fraudulent, "despite overwhelming evidence submitted by the company at trial that pointed to its own guilt."

"The cumulative list represents a stunning portrait of a company that ignores its obligation to provide full, true and plain disclosure of material facts as required by law," the report argues. "Given the need to protect the investing public from securities fraud, any of the above examples should be worthy of investigation by the Securities and Exchange Commission."

Introducing a resolution on behalf of Investor Voice and Zevin Asset Management, shareowner advocate Simon Billenness called on the company to lower the threshold for calling a special meeting.

"Since last year's AGM, communities in Ecuador—awarded a $19 billion judgment against Chevron for pollution of their lands and waters—have filed suit in Canada, Brazil, and Argentina to seize company assets," Billenness said at the meeting. "In Argentina, a court has frozen $2 billion of Chevron's assets."

"A Chevron lawyer summed up the legal strategy in this case as 'fight till hell freezes over and then fight it out on the ice,'" Billenness continued. "Just how many shareholders wish to be dragged to hell by the company's lawyers? This shareholder certainly does not." One-third of shareowners voted in favor of the proposal.

Atossa Soltani of Am azon Watch said at the meeting, "The crisis in Ecuador has ballooned into a $19 billion guilty verdict and the company continues to evade justice. CEO Watson should be fired for his gross abuses and mismanagement." When Soltani exceeded the two-minute limit for statements from the floor, Watson had him ejected from the meeting.

As dramatic as much of this year's meeting may have been, it could be just a preamble for what is to come. Despite Chevron's efforts to avoid having Watson deposed in the lawsuit, a federal judge recently ruled that he would have to testify. Watson led the merger of Chevron with Texaco in 2002, even though Ecuadorian plaintiffs had already filed the lawsuit.

"There is little doubt that Mr. Watson has relevant knowledge," said Magistrate James Francis in his ruling.

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