Chevron CEO John
Watson seems nervous about the Ecuadorian villagers who won
a $9.5 billion judgment against his company for dumping toxic waste into the
rainforest.
Apparently Watson
is so nervous that he and Chevron
General Counsel R. Hewitt Pate are making elaborate plans to move the company’s
2014 annual meeting from company headquarters near San Francisco to a rented
petroleum museum in Midland, in the hinterlands of west Texas and a five-hour
drive from the nearest metropolitan area of Dallas-Ft. Worth.
It is worth
noting that Watson and Pate are making these elaborate plans – which will
include flying in top management and Board members on a corporate jet -- despite
the company’s self-proclaimed “victory” in March in a New York civil fraud case
against the villagers and their lawyers.
As we recount here,
the verdict is nothing more than a Pyrrhic victory resulting from the obvious biases of an activist American judge who tried to overrule Ecuador's Supreme Court on questions of Ecuadorian law. We predict the decision will not survive appeal and in any event will either backfire against Chevron in enforcement courts abroad or be ignored.
Why are Watson and Pate are going to such great lengths to find a friendly location?
The deaths of
many Ecuadorians from cancer are happening on their watch, and interest is
running on the judgment to the tune of several million dollars per month as Chevron
faces asset seizures in Canada, Brazil, and Argentina. The duo so bungled the company’s legal
strategy in Ecuador – which included unethical and illegal efforts to sabotage the
proceedings in the very forum where Chevron insisted the trial be held -- that Chevron now faces what is probably the largest court judgment in
the history of environmental law. For
their work as the ultimate corporate insiders, Watson last year took home $24 million while Pate deposited around
$6 million.
Watson, a
hot-tempered man who in 2010 had five dissident shareholders forcibly
removed and arrested
at an annual meeting, might believe that few of his critics will show up in
Midland given that there are scant commercial flights to the town’s small
airport. For the last decade, Chevron’s
annual meeting near San Francisco invariably attracted a large protest
involving Ecuadorian villagers who would enter via proxies and confront Watson
directly.
Midland is a town
of 120,000 that was founded as a train depo at the midway
point between Forth Worth and El Paso. Now located near several major oil
fields, the town has an industry-funded petroleum museum which Chevron will rent
for its meeting and provide funds for to renovate its exhibit space.
Among Watson’s Ecuador-related problems that are certain to be front and center
during his stay in Midland:
· Enforcement actions filed by the Ecuadorian
villagers targeting billions of dollars of Chevron assets are advancing in
Canada, Brazil, and Argentina. Last
week, Canada’s Supreme Court said it would hear a narrow Chevron technical
appeal on November 7. If the court
rejects Chevron’s appeal, as is expected, there will be a quick trial to
determine whether the villagers can seize some of Chevron’s $15 billion worth
of assets in the country to pay for the entirety of their judgment.
· Chevron shareholders are voting on three
resolutions that criticize Watson and his team for their mishandling of the
Ecuador litigation. One resolution takes
direct aim at Watson by trying to split his dual roles of CEO and Chairman,
long considered an outdated corporate governance practice. Two years ago, that resolution received a
whopping 38% favorable vote from all Chevron shares.
· Another shareholder resolution that cites the
Ecuador liability calls for the company to appoint a board member with
environmental expertise. Another would make it easier for shareholders to call
special meetings.
· Among the prominent Chevron shareholders backing
the shareholder resolutions related to Ecuador are the New York State Common
Retirement Fund, Trillium Asset Management, Amnesty International, the
Unitarian Universalist Association, and the Swedish insurer Folksam, which has
$32 billion under management. The New
York fund owns about $800 million of Chevron stock.
· Watson also must face the fact that several
high-profile celebrities have sided with the villagers and are urging the
company to pay for a clean-up in Ecuador.
Among them are Sting, Trudie Styler, Roger Waters, Danny Glover, Mia
Farrow, Brad Pitt, Jada Pinkett Smith, and Cher. At the recent 25th anniversary celebration of
the founding of Sting and Trudie’s Rainforest Foundation, Chevron’s Ecuador contamination
was messaged throughout an event that featured performances by Paul Simon,
James Taylor, Dionne Warwick, and Renee Fleming.
· In the
meantime, Ecuador President Rafael Correa has launched a global diplomatic
offensive against Chevron to force it to comply with a unanimous ruling of
Ecuador’s Supreme Court that it pay for a clean-up of the rainforest. And just last week, communities
from five countries called for a boycott of all Chevron products to take place
on May 21 of this year – an action that could spread around the world and
become permanent, according to observers.
We tracked down our friend Chris
Gowen, a professor of ethics at the Washington College of Law and a member of
the trial team defending the villagers in the oil giant’s retaliatory RICO
case. We asked him what it means for Watson to move the annual meeting to a place like Midland.
Gowen said: “Watson appears to be
trying to drown out the voices of his shareholder critics by increasing the
hassle factor involved in confronting him face to face. Public shareholder meetings like this are
required by law, and any move that has the effect of diminishing the rights of
shareholders to question company management is highly questionable.”
A director at the environmental
group Amazon Watch, which has organized several protests against Chevron over
its refusal to meet its legal obligations in Ecuador, was more blunt.
“Watson is squandering
shareholder resources and leaving a huge carbon footprint by flying on a
corporate jet to the hinterlands to avoid being confronted about his disastrous
policies that violate human rights, most notably in Ecuador,” said Paul Paz y Miño,
Online Director with the advocacy group.
It is not surprising that Watson
would prefer to conduct the meeting in Midland given his unflattering history
of grappling with his own shareholders and critics. When challenged publicly, he often looks more like a fool
than a skilled corporate executive.
In 2010, during his first annual
meeting as CEO and Chairman, Watson famously
cut off the microphone when villagers from Ecuador’s rainforest tried to
confront him with evidence of the company’s environmental crimes in their home
country. He later became so infuriated that he had the Houston police arrest
five well-known critics of the company, including Han Shan (a U.S. spokesperson
for the villagers) and Antonia Juhasz, the author of The
True Cost of Chevron documenting the company’s environmental abuses around
the world.
Chevron also has a
long history of trying to deny the Free Speech rights of its many critics. Just two weeks ago, the company booted
Paz y Miño from a Chevron-sponsored event to promote energy sustainability
hosted by the Oakland Metropolitan Chamber of Commerce. The company also started its own newspaper
and has tried to fund friendly political candidates in the nearby town of
Richmond, where Chevron was found to have committed criminal violations at a
local refinery that caused a spate of health problems.
Watson also has been under
criticism for his conflicts of interest on the Ecuador matter. Watson was the Chevron executive who
engineered the company’s takeover of Texaco (which operated in Ecuador from
1964 to 1992), apparently without
adequately vetting it for its liability despite the pending litigation.
In the last two years alone,
Watson’s personal compensation was far higher than the total amount Chevron
claimed to have spent in the mid 1990s engaging in a remediation of its
environmental problems in Ecuador, which the court there found to be
fraudulent. Watson’s yearly compensation
is roughly the equivalent of the combined annual incomes of all 30,000
rainforest residents who originally sued the company.
Several reports (see here
and here)
by a Canadian securities lawyer demonstrate how Watson failed to adequately
disclose the Ecuador risk to the public markets, leading to calls by shareholders
and a U.S. Congresswoman for an
SEC investigation of the company.
Expect Watson's problems with shareholder disclosure to be another major issue at the
Midland meeting.
When powerful corporate
executives go to great lengths to duck the little people, the move often
backfires. Driving five hours from
Dallas to Midland is not that great a sacrifice for a villager whose life has been threatened by Chevron's scorched-earth litigation strategy. And when
shareholders arrive in Midland, they might have something to say about the
expenditure of company funds for Watson and his entourage to travel in high
luxury to a remote Texas town.
Watson might be hoping for a calm meeting. We predict a showdown in
Midland.
Background on Ecuador litigation
Chevron operated in Ecuador under the Texaco brand from 1964 to 1992. By its own admission, it dumped billions of gallons of toxic waste water into the rainforest, poisoning an area the size of Rhode Island and leaving behind more than 900 toxic waste pits that still contaminate soils and groundwater.
The
long-suffering indigenous and farmer communities in Ecuador originally filed
their claims in a New York federal court in 1993, but Chevron successfully
fought to have the matter shifted to Ecuador where it promised to abide by any
adverse judgment. Chevron filed 14 sworn
affidavits praising Ecuador’s court system.
Once the Ecuador trial
began in 2003 and evidence against Chevron mounted, the company shifted
gears and began to attack Ecuador’s courts and the lawyers who represented the
villagers. Two Ecuadorian appellate
courts – including Ecuador’s highest court, the National Court of Justice -- have
unanimously affirmed the trial court decision against the company, which was
based on eight years of litigation, 220,000 pages of evidence, and 105
technical reports. The trial court also
imposed a punitive penalty after Chevron lawyers threatened
judges with jail time and tried to sabotage the proceedings by filing
duplicative motions, including 39 in one 50-minute period.
As part of its
scorched-earth retaliation campaign, Chevron sued five different lawyers who
have represented the Ecuadorian communities, three funders of the lawsuit, the
scientific consultancy that advised the legal team, and all 47 rainforest
villagers named on the lawsuit. The company named numerous other environmental
advocacy groups and individuals as "non-party co-conspirators" (a public
relations term with no legal effect) in an attempt to intimidate people into
abandoning the cause of the rainforest communities, said Paz y Miño of Amazon
Watch.
For background on
the overwhelming evidence against Chevron relied on by the Ecuador court, see this
document; this video;
and this 60
Minutes segment.
For evidence of Chevron’s
long-term strategy to demonize the Ecuadorian communities and their lawyers,
see this
internal memo from the company’s public relations consultant, Sam Singer.
Singer has been accused of secretly
paying bloggers to parrot Chevron’s talking points without disclosing
Chevron’s role.
For a letter
signed by 43 U.S. civil advocacy groups criticizing Chevron for targeting its
critics, see here. For background on
Chevron’s retaliatory RICO case, see this summary
document and these
legal petitions.