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December 27, 2011
Shareowners Press Chevron to Acknowledge Environmental Liabilities in Ecuador
    by Robert Kropp

Even as Chevron's liability for a November oil spill in Brazil reaches billions of dollars, the company still refuses to disclose to shareowners the risks associated with an $18 billion court judgment against it in Ecuador. Second of a two-part series.


There may be major corporations with poorer corporate governance records than Chevron, but it is unlikely that many have been as tied to systemic human rights and environmental abuses as the US-based oil and gas giant.

SocialFunds.com recently reported on Chevron's complicity with human rights abuses by the military regime in Burma. As shareowner activist Simon Billenness explained, "The payments that Chevron makes to the military regime are booked under the regime's exchange rate of six kyat to a dollar, when in reality in the marketplace it's several hundred to a dollar. What that means is that it helps the regime launder the money."

In addition, Chevron is part of a consortium building the Yadana Gas Project, which, according to EarthRights International, "has been marred by serious and widespread human rights abuses committed by pipeline security forces on behalf of the companies, including forced labor, land confiscation, forced relocation, rape, torture, murder."

Furthermore, as Larry Dohrs of Newground Social Investment said in reference to a shareowner resolution requesting that the company's board give holders of 10% of outstanding common stock the power to call a special shareowners meeting, "An issue highlighted in the resolution is the Doe v. Unocal lawsuit, which was settled just weeks prior to Chevron acquiring Unocal in 2005. There were 13 Burmese plaintiffs who won an out-of-court settlement that used the word compensation. The amount was never made public, but it was published in Business Week as $30 million and I haven't seen anyone challenge that. It pencils out to about $2.5 million per plaintiff."

"People who worked in the area where the pipeline was told me that about 5,000 people have similar claims against the consortium," Dohrs continued. "Were a class action suit to be brought together, and were a settlement to be reached with similar compensation, only on a much larger scale, we're talking about the possibility of billions of dollars."

Even the potential amount of that claim pales in significance compared to Chevron's liability in Ecuador, where an Ecuadorian court earlier this year awarded plaintiffs damages totaling $18 billion in a lawsuit charging that Texaco dumped billions of gallons of waste byproduct from oil drilling in the rainforest, and burned hundreds of millions of cubic feet of gas and waste oil into the atmosphere. Chevron purchased Texaco in 2001, eight years after the lawsuit was originally filed.

A resolution co-filed by Newground, requesting that Chevron recommend a candidate with environmental expertise for its board, specifically references the lawsuit in Ecuador.

"To continue to say there is no merit and we're not going to end up paying anything is a completely unrealistic approach for management," Dohrs said. "But that continues to be the story they tell shareholders. We're very worried that that's not accurate."

"In our resolution we quote one of their own in a sworn legal statement saying that the company is at risk of irreparable damage to its reputational and business relationships," he continued. "Well, it is important to note that's not what they're telling shareholders."

The statement to which Dohrs referred was made by Chevron's Deputy Comptroller Rex Mitchell, who said that a seizure of the company's assets as payment of its liabilities in the lawsuit "would disrupt Chevron's supply chain and operations," and "damage Chevron's business reputation as a reliable supplier."

Mitchell's statement was revealed in a repor t on Chevron's liabilities in Ecuador, co-authored by Billenness and Sanford Lewis.

As a result of the discrepancies in Chevron's disclosures, Trillium Asset Management asked the Securities and Exchange Commission (SEC) in May to 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."

Billenness said, "The key point of this resolution on environmental expertise is that you have a company with environmental liabilities now, in Ecuador and Brazil, which have been quoted in the billions. When is the company going to add to its board of directors people with the necessary expertise to oversee management and how they handle these massive liabilities?"

"It's clear to us as shareholders that the board has been asleep at the wheel," Billenness continued.

The liabilities in Brazil to which Billenness referred arose from an oil spill off the coast there that spilled about 3,000 barrels of crude oil in November. The resolution initially quoted potential damages of over $80 million. However, since then the amount has skyrocketed into the billions. Brazil's environmental agency fined Chevron $5.4 billion for the spill this month, and the company faces an $11 billion lawsuit as well.

Another shareowner resolution directs Chevron's board to adopt a policy to ensure the separation of the positions of Chairman of the Board and Chief Executive Officer.

"Management's handling of the case in Ecuador, and the lack of board oversight in this area, highlights the dangerously poor level of corporate governance at Chevron," Billenness said. "Having a board of directors where the CEO is also the Chair means that he is basically overseeing himself. You see the results of this poor corporate governance in the utter inability of the board to oversee management in these critical areas. These are the bitter fruits of poor corporate governance."

"Shareholders are going to pay the price," Dohrs said. "The executives are well compensated and oftentimes they're long gone with their bonuses by the time these long-term liabilities come home to roost."

"These are interesting places where environmental and human rights issues intersect," he continued. "Oftentimes human rights abuses and environmental abuses go hand-in-hand and are found in the same places."

 

 
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