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."
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."
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
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.
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
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
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.
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."