Chevron in Ecuador

The archive of the Clean Up Ecuador campaign website

Chevron CEO Watson Tarred His Legacy by Using Corrupt Witness and Fumbling Environmental Issues, Lawyers Say

After Seven Years, Watson Leaves Chevron With "Bleak" Long-term Prognosis

Amazon Defense Coalition (ADC)
Contact: Karen Hinton at +1.703.798.3109

New York, NY – Chevron's surprise announcement that CEO John Watson is stepping down was due to massive cost overruns in Australia and his refusal to adequately deal with huge environmental liabilities in Ecuador and California that will tar his own legacy, according to environmentalists and a new analysis published by rainforest communities on The Chevron Pit.

Watson also approved a $2 million bribe to an admittedly corrupt Ecuadorian witness, Alberto Guerra, to lie in U.S. federal court as part of a desperate attempt to evade paying a historic $12 billion Ecuador environmental judgment, the largest ever against an oil major for pollution, said Paul Paz y Mino, Associate Director of the environmental group Amazon Watch.

"Watson failed across the board when it came to environmental issues and ethics," said Paz y Mino, whose team has been monitoring the company for almost two decades. "Under his watch, Chevron's liabilities in Ecuador increased by $12 billion while thousands of people in California continue to suffer the health impacts of the company's toxic contamination from a refinery in the Bay Area.

"Watson also will be remembered as one of the worst leaders of any major oil company when it comes to transitioning to a clean energy future," he said. "That's unfortunate for Chevron shareholders, for the people of Ecuador and the United States, and for the planet as a whole as we see time and again with catastrophic climate events.

"Chevron's next CEO will need to seriously step up the company's game on the environment and he must do so in an ethical way by respecting the rule of law," said Paz.

The shake-up likely will result in Chevron Vice-chairman Mike Wirth taking over the top post at the company, according to news reports. Wirth is known as a "pencil-pusher" who can cut costs to the bone as the fossil fuel industry continues to shrink given the rapid growth of clean energy alternatives, said Paz.

The analysis on the Chevron Pit – the site maintained by advocates for the affected Ecuadorian communities – concluded that Watson "will be remembered far more for saddling Chevron with huge environmental liabilities than for delivering value to shareholders" as well as for approving the illegal payments to Guerra. Guerra later admitted he lied repeatedly under oath in U.S. federal court to try to help Chevron evade paying the Ecuador judgment.

"Watson's legacy is to leave Chevron with a bleak long-term prognosis," according to the analysis. "While the fossil fuel industry faces unprecedented structural pressures, Chevron is arguably in a worse position that its peers" for various reasons, including:

  • The company faces a $12 billion liability in Canada to Ecuadorian indigenous villagers who are gaining ground in their two-decade litigation to force the oil giant to clean up the billions of gallons of toxic waste it admitted to dumping in the rainforest. The liability issued after courts in Ecuador reviewed voluminous scientific evidence, including 105 technical evidentiary reports. Watson was among those at Chevron who had insisted back in 2001 that the trial be held in the South American nation.

    "While Chevron left Ecuador in 1992, the company's toxic legacy – including roughly 1,000 open-air toxic waste pits – continues to cause grievous harm to the local population," said the analysis. "Under Watson's recommendation, Chevron bought Texaco in 2001 by overpaying for its assets and he now owns the Ecuador problem."
  • In Australia, Watson oversaw a "disastrous" bet on the Gorgon natural gas project, now the company's largest and riskiest foreign investment. Not only has the price of gas plummeted since the decision to invest in Australia, the cost overruns for the $54 billion project are estimated to be $20 billion or enough to wipe out the company's entire profit for three years at current oil prices, according to The Financial Times.
  • Watson compounded his problems in Australia by trying to cheat tax authorities in the country. After Chevron promised Australia major tax revenues from Gorgon, courts in the country found that Watson oversaw a "bait and switch" where a Chevron subsidiary in Delaware made loans at exorbitant, above-market interest rates to the Australia subsidiary that was funding the massive project.

    Paying interest back to its own subsidiary on the above-market loans essentially wiped out the Chevron profits in Australia, cheating the country of an estimated $1 billion in tax revenue. In a landmark court decision that provides other countries with a new blueprint for how to stop tax dodging by Chevron and other multinationals, the company was hit with one of the largest back tax bills in Australian history. (This report from the International Transport Workers' Federation summarizes part of Watson's tax dodging in Australia and elsewhere.)

    Watson suffered a final and humiliating capitulation in Australia just weeks ago when he dropped Chevron's final appeal in the tax case. If other countries follow suit and challenge Chevron's tax avoidance schemes, the company could face billions of dollars of additional tax liabilities around the world, according to reports.
  • In the California town of Richmond, just across the bay from San Francisco, major fires at a Chevron refinery under Watson's tenure spewed so much toxic waste into the air that 15,000 local residents have been forced to receive medical attention. "Rather than shut down or at least update the refinery, Watson tried to take over the town by financing a slate of candidates for city council while secretly funding an on-line newspaper to spew pro-Chevron propaganda," said the analysis on The Chevron Pit.
  • Watson also lost the confidence of several major shareholders. At the company's annual meeting last May, a whopping 39% of Chevron shareholders voted in favor of a resolution critical of his leadership and his "material mishandling" of the Ecuador litigation in particular. The resolution urged the company's Board of Directors to fire Watson as its Chairperson while allowing him to retain his CEO job.

"Watson has continually refused to separate the CEO and Chairperson positions in violation of best practices for corporate governance," said Simon Billenness, who works with Chevron shareholders. "This is seen by many institutional shareholders as a major governance flaw."

In the Ecuador matter, Watson could have settled the claims years ago for what the analysis calls "a relative pittance" but instead chose to try to pummel the indigenous villagers into submission by hiring at least 60 law firms and 2,000 lawyers and investigators – a massive expense described as another Watson-generated "cost suck" in addition to the Gorgon overruns. The company is estimated to have paid hundreds of millions of dollars to the Gibson Dunn law firm, whose lawyers coached Guerra for 53 days before he lied on the stand in the federal court case, according to a new 33-page report presented by lawyers for the villagers.

Steven Donziger, the American attorney who has been representing the Ecuadorians in the environmental litigation, said Watson's desire to fight the claims of his clients with massive resources only made matters worse for the company. Donziger spent several hours deposing Watson under oath in 2013.

"Mr. Watson's decision to spend massively on lawyers rather than compensate the company's victims in Ecuador increased Chevron's environmental liabilities by billions," Donziger said. "Watson also wasted shareholder funds by giving an army of corporate defense lawyers a blank check to attack some of the most vulnerable people on the planet.

"These moves amounted to a monumental waste of shareholder funds, they caused Chevron severe reputational harm around the world, and they prompted serious challenges to Watson's leadership from large shareholders which became yet another unanticipated cost," he added.

"My own view is that Mr. Watson was hot-headed and vindictive about being defeated in court by indigenous groups," Donziger added. "Intent on exacting revenge, he got carried away and crossed the ethical line by going along with company lawyers who bribed a key witness. That is now backfiring in a major way. No ethical CEO would tolerate such misconduct."

Watson also approved at least $15 million for the corporate espionage firm Kroll to try to enlist journalists to spy on the lawyers representing the Ecuadorians, including Donziger. The CEO of Kroll admitted in a sworn deposition that Watson had paid for 20 to 30 written reports on every aspect of Donziger's life in an unprecedented effort to discredit adversary counsel. (For background on Sam Anson, Kroll's lead operative on the Chevron espionage campaign, see this blog.)

Watson also failed to deal with an earlier attempt by Chevron to corrupt the Ecuador trial by using a convicted felon and a company employee, Diego Borja, to try to secretly entrap the trial judge in a fake bribery scandal. Chevron spirited Borja out of Ecuador after the scandal was exposed, and Watson kept paying the lawyers who orchestrated the Borja fiasco. Most of them still work for the company in Ecuador.

The analysis also pointed out that under Watson Chevron has tried to "buy its way out of its litigation problems" by spending heavily in the political world. Watson ordered Chevron to donate huge sums to the Trump inauguration. He also donated Chevron funds to the Clinton Foundation and the U.S. State Department at the same time his team was inappropriately lobbying the Obama Administration to try to take steps to kill off the Ecuador case.

The failure to properly manage the Richmond refinery is another example of Watson's "shortsightedness" when it comes to environmental issues, said Paz.

"Chevron's next CEO needs to seriously step up Chevron's game on the environment or the company risks being left behind," said Paz. "He should start by firing the company's outside counsel on the Ecuador case and by abiding by the court judgment there. He also needs to disclose to shareholders how many billions of dollars Chevron has spent fighting the Ecuadorian indigenous groups in court."

In the Ecuador matter, Chevron faces a critical court hearing October 10 in Toronto that will help determine whether the villagers can seize company assets to pay for their clean-up. Chevron has an estimated $25 billion of assets in Canada.