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November 19, 2013

Shareowners Opt for Engagement to Press Chevron on Corporate Governance
    by Robert Kropp

Shareowner advocate Simon Billenness updates SocialFunds.com on judgment against Chevron in Ecuador, and explains why engagement with fossil fuel companies is more effective than divestment.

SocialFunds.com -- An Ecuadoran court ruled last week that a 2012 court decision finding Chevron liable for extensive environmental destruction was correct, but it did reduce the size of the penalty that Chevron must pay from $19 billion to $9.5 billion. Meanwhile, in New York, Chevron is pursuing a racketeering lawsuit in which it alleges that the Ecuadoran plaintiffs and their US attorney are guilty of fraud.

However, in September, Chevron dropped its monetary claim against the Ecuadorans, in order to avoid the uncertainty of a jury trial in New York involving a Californian oil company. The New York case is being heard by Judge Lewis Kaplan, who has consistently ruled in favor of Chevron and who was himself the subject of a petition for recusal.

Chevron also demanded that Kaplan prevent any evidence of the company’s record of environmental pollution in Ecuador from being aired in his courtroom.

Thus continues what shareowner advocate Simon Billenness describes as Chevron’s “scorched earth legal tactics;” or, in the words of Chevron’s own legal counsel, “fight till hell freezes over and then fight it out on the ice.” Billenness, himself the target of Chevron’s dubious legal choices in the form of a subpoena issued last year, described for SocialFunds.com the current state of legal affairs for the company.

“Here we are now with this final judgment of $9 billion,” Billenness said. “The plaintiffs can now go anywhere in the world where there are Chevron assets and ask to collect on this. And Chevron has little defense against that. Faced with all of these potential collection actions, to avoid damages Chevron has to win every single case.”

Likewise, Billenness noted of the federal racketeering case in New York, “All that Chevron can get out of this is a ruling by Judge Kaplan on the issue of fraud which they could then take to other countries to defend their assets from seizure.” However, Kaplan’s last injunction favoring Chevron was overturned by an appellate court.

Billenness is a member of the Unitarian Investment Association, which has for the past several years been the lead filer of a resolution calling for the separation of the positions of CEO and Chair. A fairly common corporate governance ask by now, but in the case of Chevron especially pertinent: its Chair and CEO, John Watson, was instrumental in driving Chevron’s acquisition of Texaco and thus its responsibility for the latter entity’s pollution in Ecuador as well.

“We think it makes no sense for John Watson to be his own boss,” Billenness observed.

Although the resolution was excluded last year due to a technicality, it received the support of 38% of shareowners in 2012. “We’re working on refiling the resolution,” Billenness said.

Additional resolutions have been filed by the New York State Comptroller’s office, calling on Chevron to add a member to their board of directors with environmental liability expertise. And Newground Social Investment has requested that the threshold be lowered for calling a special meeting of shareholders.

“What we as shareholders have been doing is question whether Chevron's legal strategy is in the best interest of shareholders and asking the company to consider alternatives such as settling the case,” Billenness said. “We're also asking the SEC to assure that Chevron totally discloses these risks to shareholders. This they still have not done despite discrepancies between their legal statements and their SEC statements.”

“We've been rebuffed in our efforts to discuss these issues with Chevron,” Billenness continued. “Instead the company has issued subpoenas against Trillium Asset Management and me, as well as a spurious ethics complaint against the New York State Comptroller. The subpoena was an attempt to harass and intimidate us into shutting up about their mishandling of the case in Ecuador. Management's effort to intimidate us has utterly failed.”

Nevertheless, Billenness added, Chevron shareowners continue to hold out hope for meeting at which their concerns can be aired. Asked if at some point joining the growing fossil fuel divestment movement might become an option, Billenness was unequivocal in his assertion that shareowner engagement is the better investment strategy.

“If Chevron does not fear shareholder activism, why did they subpoena me?” he asked. “Chevron would like nothing better than for us to divest our stocks. I'm not inclined right now to do anything that Chevron's management wants.”

Regarding the divestment movement in general, Billenness observed, “We're not seeing moves by big institutional investors to divest.”

“The University of Washington reached an agreement with its student divestment group, not to divest but in fact to use shareholder advocacy where they have fossil fuel holdings.”

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