Annual Meeting Dominated by Issues Relating to Ecuador Environmental Catastrophe
Amazon Defense Coalition
26 May 2011 - FOR IMMEDIATE RELEASE
Contact: Karen Hinton at +1.703.798.3109
San Ramon, CA – With an $18 billion judgment in Ecuador hanging around its neck, Chevron's management now faces the unpleasant prospect of an SEC probe and a growing revolt among large shareholders upset with the company's failure to contain the risk related to the historic environmental lawsuit.
Chevron's annual meeting yesterday was dominated by issues relating to the Ecuador liability, which was handed down by an Ecuador court in February after an eight-year trial. New York State Comptroller Thomas DiNapoli, who manages $780 million in Chevron stock, called on the company "to face reality" and resolve the lawsuit, which is currently under appeal by both parties in Ecuador.
"The entire case is looming like a hammer over shareholders' heads," said DiNapoli, trustee of the $140.6 billion New York State Common Retirement Fund. "Investors don't derive any benefit from this never-ending courtroom drama."
Separately, the private fund Trillium Asset Management has requested that the Securities and Exchange Commission (SEC) undertake a staff review to determine whether Chevron "has appropriately disclosed to its shareholders the scope and magnitude of financial and operational risk" from the Ecuador judgment.
In a letter to the SEC, Trillium highlighted the contradiction between Chevron's efforts to publicly downplay the litigation to shareholders while claiming in court filings it would suffer "irreparable harm" if the Ecuador judgment were to be enforced. The letter also questions whether certain statements made to shareholders about the litigation have been misleading.
Other challenges faced by Chevron management after the annual meeting:
- A growing shareholder revolt. Representatives of 21 different funds with $156 billion of assets broke with company management and signed a statement saying the Ecuador judgment was "likely enforceable" and urging the company "to take a fresh look at its options to address Texaco's legacy in the Ecuadorian rainforest." Among those signing were the New York State Comptroller, the AFL-CIO, Boston Common Asset Management, Pinnacle Investment Advisors, and Trillium.
- Pressure on company management for failing to contain the risk stemming from Ecuador. The investor statement asserted that Chevron's management "displayed poor judgment" in failing to negotiate a reasonable settlement before the Ecuador trial court decision. This poor judgment, said the statement, "has led investors to question whether [Chevron's] leadership can properly manage the array of environmental challenges and risks that it faces."
- Direct confrontation with indigenous groups and environmentalists. Humberto Piaguaje, an indigenous leader from Ecuador, attended the shareholder meeting and directly confronted CEO John Watson. "You must own up to your responsibility to my people in Ecuador," Piaguaje said, to widespread support among the shareholders in attendance.
In his press release, New York State Comptroller DeNapoli was even more critical, describing the likelihood of Chevron paying a damage award in Ecuador as "inevitable."
The letter also directly challenged the claim of Chevron's management that the Ecuador judgment is without merit and therefore will not be enforced. The letter said that a preliminary injunction from a U.S. court blocking enforcement has no bearing on whether the judgment can be enforced outside the United States, given that Chevron has assets in dozens of countries totaling tens of billions of dollars.
In another sign of management weakness on the Ecuador issue, roughly 25% of shareholders voted for a resolution yesterday that would require Chevron's Board of Directors to appoint a member with a high level of experience and expertise in environmental matters. The resolution expressed concern about Chevron's practices in Ecuador, the Niger Delta and Kazakhstan.
In past shareholder meetings, Chevron has been heavily criticized for violating environmental and human rights laws in Ecuador. The Ecuador court found that Chevron deliberately dumped billions of gallons of toxic waste into the rainforest, decimating indigenous groups and causing widespread health problems that threaten thousands of people with cancer.
Chevron operated in Ecuador from 1964 to 1992 via its predecessor company, Texaco. Texaco and then Chevron had asked a U.S. federal court to shift the lawsuit to Ecuador, thinking it could control the judiciary in that country. The plaintiffs had wanted the case to be heard in the United States.
Last year, Chevron CEO John Watson – who is notoriously thin-skinned – lost control of the annual meeting and five environmental activists with legitimate proxies were arrested and charged with trespassing. Chevron's liability appears to be the largest ever faced by an oil company for environmental damage. Evidence at trial proves the damage dwarfs that caused by the BP Gulf spill, according to lawyers for the plaintiffs.