Chevron CEO John Watson awakened today following a rollicking shareholder meeting facing the hard reality that the company’s huge expenditures to try to kill off the $12 billion Ecuador environmental case have fundamentally failed, with the affected indigenous villagers “more animated than ever” following a major shareholder rebuke of the company.
One institutional shareholder, Zevin Asset Management, cited Watson’s “material mishandling” of the litigation to propose that he be removed as Chevron’s Chairman. The resolution receive the support of 39% of all shares, a huge sum given that any vote over 10% is usually considered a fantastic success.
A second shareholder resolution stemming from the Ecuador liability, calling for greater shareholder power to call special meetings, won 31% of the vote. A third, calling for the appointment of a director with expertise in environmental liability, won 20%. Both far exceeded expectations, said Luis Yanza and Simon Billenness, who work with Chevron shareholders on behalf of the affected Ecuadorian communities.
“We are thrilled to receive the support of shareholders in pointing out that Watson is not only morally wrong by attacking indigenous groups in Ecuador, but that he is actively misleading the financial markets regarding the growing risk faced by the company from our litigation,” said Yanza, a Goldman Prize winner and Ecuador community leader.
“We are more animated than ever to carry this campaign forward and recover all funds necessary from Chevron to do a comprehensive clean-up of our ancestral lands,” he added.
Chevron’s Ecuador liability stems from findings by three layers of courts in Ecuador in 2013 that the oil giant deliberately dumped billions of gallons of toxic waste into the rainforest, decimating indigenous groups and causing an outbreak of cancer that has killed or threatens to kill thousands of innocent civilians. Chevron operated in Ecuador under the Texaco brand from 1964 to 1992.
The high level of shareholder support for the resolutions calling into question Watson’s management of the case is not the CEO’s only problem with the Ecuador liability.
Watson, who makes roughly $30 million annually in compensation, also must contend with the fact that Chevron faces an impending trial in Toronto over an effort by the affected Ecuadorian communities to seize company assets to pay for the entirety of the judgment, which is growing by an estimated $300 million annually due to statutory interest. Chevron owns critically important oil fields, refineries, and other assets in Canada.
Chevron also faces another enforcement action over the Ecuador judgment in Brazil, where efforts by the company to block the case thus far have failed.
Carlos Guaman, the president of the Ecuador-based Amazon Defense Coalition, which represents the affected communities, also warned Watson that the group was planning to file new judgment enforcement actions to encumber Chevron assets in other jurisdictions if they did not try to settle the matter within a “reasonable” time frame. “Our people are dying because of Chevron’s pollution, so we have no choice but to bring as much pressure as possible to bear on the decision makers,” he said.
At yesterday’s shareholder meeting, which took place far from Chevron headquarters in the Texas oil town of Midland, Watson and his management team vigorously opposed the three resolutions related to the Ecuador liability and appeared uncomfortable when questioned about the company’s litigation strategy in the case. In 2009, Chevron launched a major legal assault on the villagers and their lawyers as evidence of the pollution mounted in Ecuador, where the company had insisted the trial be held and where it had accepted jurisdiction.
In all, Chevron has spent an estimated $2 billion defending itself against the legal claims of the villagers by using at least 60 law firms and 2,000 lawyers – easily considered the most expensive corporate defense ever. The affected communities have virtually no money, so the battle is a total mismatch in terms of resources, said Yanza.
Steven Donziger, the Harvard-educated U.S. human rights lawyer who has advised the Ecuadorian communities for two decades, said he was pleased to see shareholders challenge Watson. “This is an important development that highlights the fact that many shareholders view Watson as a man of extremely poor judgment and excessive emotionalism on the issue of the Ecuador litigation,” he said.
“We also believe Watson has authorized the use of shareholder dollars to support an unethical and illegal strategy that has involved the bribery of a critical witness and outright fraud,” he said. “It is our view that the Chevron machinations in Ecuador are not good for the environment nor for the people of Ecuador, and are very bad for Chevron shareholders in the United States.”
The Chevron annual meeting “was a resounding victory for the rainforest communities of Ecuador who are on a historic path to hold Chevron accountable for its toxic dumping and fraudulent cover-up in Ecuador,” said Billenness, who works as a liaison between the affected Ecuadorian communities and institutional shareholders.
Billenness confronted Watson at the meeting with a growing problem that has put a stake in heart of his defense in the Ecuador case – the apparent bribery by Chevron lawyers of the company’s star witness, Alberto Guerra. Chevron paid Guerra $2 million and its lawyers coached him for 53 days before putting him on the stand in U.S. courts, where forensic evidence and his later admissions proved he lied repeatedly to help Chevron evade paying the Ecuador judgment.
Chevron’s payments to Guerra appear to violate federal law and might subject company officials and their lawyers – led by Randy Mastro of the firm Gibson Dunn & Crutcher — to criminal prosecution, according to a blog from the environmental group Amazon Watch that promoted more than 100,000 responses to the company.
Watson, however, refused to answer a question about Guerra and cut off the microphone when Billenness persisted. Watson also showed a short video calling the Ecuador case the “the legal fraud of the century” — a comment that lawyers for the villagers say is part of Chevron management’s own racketeering scheme to mislead the markets and the company’s own shareholders to evade paying the judgment.
In his terse comments during the annual meeting about the Ecuador case, Watson also failed to mention that the affected communities in Ecuador are making huge advances in pursuing Chevron’s assets in Canada, where the country’s Supreme Court recently ruled unanimously in their favor.
He also ignored a groundswell of support for the Ecuadorian villagers from 17 human rights groups and 19 international legal scholars, who recently filed legal briefs in the case. A bombshell new report documents how Chevron fabricated evidence and bribed a witness before a U.S. court to try to undermine the Ecuador judgment, potentially exposing company officials and their lawyers to criminal prosecution.
Zevin Asset Managment slammed Chevron management in the supporting statement for its resolution, which is on file with the Securities and Exchange Commission.
“Legal and environmental risks facing Chevron also illustrate the importance of more independent oversight,” the company wrote. “Proponents are concerned that Chevron’s management has materially mishandled legal matters brought against the company by communities in Ecuador – in ways that increased liabilities for the Company, currently amounting to more than $9 billion.
“Moreover, proponents are concerned about the adequacy of the Company’s disclosure of those risks to shareholders,” the statement says. “Finally, proponents are deeply troubled that the Company has evidently sought to intimidate longstanding shareholders who questioned the Company’s approach to these issues.”
Rep. James McGovern (D-MA), the only U.S. congressperson to visit the affected area, also sent a letter to President-elect Obama describing the horrid living conditions caused by Chevron’s dumping practices. Chevron also has been criticized for trying to silence an anti-Chevron activist in Canada, for trying to intimidate lawyers and scientists for the villagers by suing them privately under racketeering laws, and for trying to shut down dissent by issuing subpoenas to more than 100 journalists, bloggers, and even some of its own shareholders who have questioned management.
In 2010, his first year as CEO, Watson lost his cool at the shareholder meeting and had five people arrested who had challenged him over Ecuador.
Deepak Gupta, a prominent U.S. appellate lawyer who represents U.S. attorney Donziger (the main target of Chevron’s retaliation campaign), recent called Chevron’s litigation strategy an “intimidation model” in an interview with Rolling Stone magazine.