By Robert Kropp, SocialFunds.com
31 May 2014
The Permian Basin in Texas is one of the largest oil and gas producing regions in North America. Its name derives from the thick deposit of rocks there dating back to the Permian era. While it may have made traveling easier for shareowner advocates has Chevron held its annual general meeting in California, the oil and gas company decided to locate it at its Permian Basin Petroleum Museum in Midland, Texas, instead.
Ironically, scientists now believe that the end-Permian extinction, the largest mass extinction event in the planet's history thus far, was caused at least in part by ocean acidification, one of the driving factors in the anthropogenic sixth mass extinction now underway. Climate change, due largely to the indiscriminate burning of fossil fuels, is the primary cause of ocean acidification as well as abrupt changes in habitat that contribute further to the current mass extinction of species.
Enough shareowner advocates made their way to Midland anyway, to challenge Chevron on a number of environmental, social, and corporate governance (ESG) issues. According to the 2014 Proxy Preview of As You Sow, seven ESG related resolutions were filed with Chevron, more than any other company except ExxonMobil, which had the same number. All seven made it onto Chevron's proxy ballot this year, which strongly suggests that the trend toward more positive corporate engagement noted recently by many sustainable investors does not extend to this particular company.
The major issue confronting Chevron and its shareowners – the ongoing legal battles over a multibillion dollar judgment against it for environmental destruction in Ecuador – was not addressed directly by a shareowner resolution, although three governance related proposals referred to it. Also, Chevron took the unusual step of including a statement on the issue in its proxy statement, in which it continued to describe the legal action as "illegitimate" and "the product of fraud."
In a blog post written on the eve of the meeting, Simon Billenness, shareowner advocate for the Unitarian Universalist Association (UUA), wrote, "Chevron management’s mishandling of the case in Ecuador demonstrates a failure of corporate governance at the company. As a result, shareholders have proposed overhauls of the company’s corporate governance."
"In response, Chevron’s management has largely ignored these shareholder concerns and even retaliated against its shareholder critics," Billenness continued.
Billenness talked with SocialFunds.com about Chevron and the Ecuadorian judgment.
"Chevron is using Judge Kaplan's ruling for everything they can get out of it," he said, referring to a recent court ruling which, according to Burt Neuborne, the Founding Legal Director of the Brennan Center for Justice at the New York University School of Law, sends "an unmistakable message of American judicial arrogance to the rest of the world that can only result in increased levels of reciprocal judicial suspicion and hostility, with negative consequences for the transnational rule of law."
Despite the ruling, however, a Canadian appeals court has ruled that the Ecuadorian plaintiffs can seek enforcement of a $9.5 billion judgment against Chevron by taking action against the assets held by Chevron in Canada.
Judge Kaplan's ruling will be tested in a US appeals court, Billenness said, which has already struck down one of his earlier rulings favoring Chevron. Furthermore, he added, "The plaintiffs don't even have to go to the US to get the judgment satisfied."
In his role as shareowner advocate for UUA, Billenness moved the resolution calling on Chevron's board to separate the positions of CEO and Board Chair, both of which are currently held by John Watson.
Referring directly to the ongoing legal battle, Billenness stated at the meeting, "In sworn testimony, an officer of this company has stated that any enforcement of that judgment 'unless stopped...is likely to cause irreparable injury to Chevron’s business reputation and business relationships.'"
"Since that sworn statement was made, the board of directors has signed off – not once, but three times – on financial statements that fail to disclose management’s assessment of this clearly material risk," he continued. "Did the board sign off on false and misleading financial statements? Or did the sworn testimony represent perjury? I don’t know but the board needs to set the record straight and soon."
Billenness also moved a second proposal, "to give holders of 10% of outstanding common stock the power to call a special shareowners meeting."The resolution also refers directly to Ecuador, and states, "We believe that management has mishandled a number of issues in ways that significantly increase risk to shareholders. Therefore, shareholders would benefit from greater access to special meetings as circumstances require."
A third resolution, filed by New York State Comptroller Thomas DiNapoli, calls for the appointment of a board member with environmental expertise, and states, "Chevron has been repeatedly cited for allegedly harmful environmental practices."
Another resolution calls on the company to report on risks associated with hydraulic fracturing. Two more address corporate political and lobbying expenditures, and one addresses country selection criteria with specific reference to Burma.
Chevron's board opposed all seven resolutions, but all received votes in favor substantial enough to allow for their return to the company's proxy ballot next year in accordance with Securities and Exchange Commission (SEC) guidelines. And unless the company gets much more serious about its dialogues, Billenness and other sustainable investors will surely be in attendance, no matter where the meeting is held.