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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 the case."

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 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 continues.

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."

In 2011, Trillium Asset Management wrote to the Commission, expressing its concern over "disclosures and omissions" in the company's annual report.

"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 Chevron
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 company."

"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."

One of 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."

In December, 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 "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."

Billenness and 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 Critics
$18 Billion Judgment Against Chevron Stands
Chevron Hits Sustainable Investors with Subpoenas over Ecuador


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