Monday, December 10, 2012

New York Times: Chevron Management Attacks Its Own Shareholders

Embattled by a $19 billion judgment in Ecuador, Chevron’s management team -- headed by CEO John Watson and General Counsel R. Hewitt Pate -- seems to be forgetting that shareholders actually own the company where they work. In their increasing arrogance, these fine men seem to ignore this basic truism of the corporate form.
This disturbing phenomenon at Chevron has become even more evident in an article published Sunday by one of the top business writers for The New York Times, Gretchen Morgenson. Morgenson weighed in on Chevron's attempt to intimidate and harass an institutional shareholder for urging the company to take responsibility for one of the world's largest environmental disasters in Ecuador. Chevron has undertaken an aggressive legal strategy against the Ecuadorians who filed the lawsuit and any shareholder who has raised questions over management’s mishandling of the litigation.
Morgenson reports that Trillium Asset Management, which oversees $1 billion in sustainable investments and is a Chevron shareholder, has been subpoenaed by the company in its so-called "extortion" case against the Ecuadorians and their lawyers and consultants. Trillium, as Morgenson points out, has asked the Securities and Exchange Commission to determine if Chevron has "adequately explained" its litigation risk. It also sponsored a shareholder resolution last year requiring Chevron’s Board of Directors to hire an independent expert to analyze its environmental practices. 
Essentially, Morgenson suggested that Watson and his team have an obligation to shareholders to answer their questions and grant them their right to criticize the company without trying to intimidate them into silence.
 She writes, "Trillium's activities do not seem outlandish. Hiring an independent environmental expert to sit on a board is a common shareholder request these days and asking the S.E.C. to review a company’s disclosures is fair game for shareholders. And yet, the receipt of the subpoena seems to indicate that Trillium’s work has drawn the company’s wrath. It is not alone."
Morgenson explains that Chevron also has attacked another large shareholder, the pension fund of New York that owns approximately $800 million of Chevron stock. Chevron has asked for an investigation into State Comptroller Thomas DiNapoli for calling on Chevron to settle the case as a way to mitigate its risk. See here.
Although Morgenson did not touch on it, Watson seems to have created a delusional psychological shell for company management.  When it comes to the Ecuador risk, he continues to mislead shareholders as demonstrated by this chilling report by securities lawyer Graham Erion. His recent comments to the Council on Foreign Relations – where he inserted himself personally into the litigation -- have to be disconcerting to any shareholder.  
In short, given his utter failure to confront the Ecuador reality honestly, shareholders can now reasonably question whether Watson is even fit to lead the company. It is already publicly documented that he suffers from a conflict of interest on the matter, having been a lead Chevron official who never adequately vetted Texaco for the Ecuador liability when Chevron bought the company in 2001.  We note that last year Watson suffered a series of stunning rebukes from shareholders at the company’s annual meeting related to the Ecuador matter. 
Read the entire article in The New York Times here.

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