About Simon Billenness

Described by the New York Times “a super-specialist” in human rights advocacy, I have over 20 years of experience helping investors, non-profits, universities, communities, and unions use their power to hold corporations accountable. At the socially responsible investment firm Trillium Asset Management, I pioneered the use of shareholder pressure on oil, gas, and mining companies operating in countries racked by conflict and burdened by repressive regimes in Burma, China, East Timor, and Nigeria. I also worked with Greenpeace and U.S. PIRG to file the first shareholder resolutions at BP on climate change. As part of the Free Burma movement, I also championed the use of state and local Burma selective purchasing and investment laws. I co-authored the Massachusetts Burma Law with state rep. Byron Rushing and led the campaign to first enact and then defend the law from challenge at the World Trade Organization and in the U.S. Supreme Court. At Oxfam America, I helped communities around the world affected by Newmont – and other mining companies – organize support from shareholders and campaign to protect their lands and livelihoods. I also created a coalition of social investors that successfully pressed Procter & Gamble to start offering Fair Trade Certified coffee through its Millstone brand. As Co-chair of the Business and Human Rights Group of Amnesty International USA, I have built the capacity of staff and members to put effective pressure on companies to respect human rights. In this role, I often advise students, administrators, and faculty on how to influence university endowment investment policies. I currently serve on the Board of Directors of the U.S. Campaign for Burma and the Committee on Socially Responsible Investment of the Unitarian Universalist Association. I especially love my role as an advisory board member of both SumOfUs and the Harry Potter Alliance.

Investors to New Chevron CEO: Chart New Course on Ecuador

Investors have launched a new initiative to press Chevron to end its costly and risky legal battle against the Ecuadoran communities affected by its oil pollution.

In a letter sent on April 30th to the new CEO of Chevron, Michael K. Wirth, an international consortium of 36 institutional investors – that collectively represent US $109 billion in assets – urged the oil giant to enter a constructive dialogue on pressing issues that threaten Chevron’s long-term financial stability, including its $12 billion liability for oil pollution in Ecuador.

In November 2013, Ecuador’s highest court confirmed a landmark judgment against Chevron. At an April 2018 appellate court hearing in Toronto, Ecuadorian plaintiffs argued that they should be allowed to seize Chevron Canada’s assets to satisfy the $12 billion judgment against the company.

In the letter, investors challenge Chevron’s aggressive legal strategy against the
Ecuadorian plaintiffs and the company’s lack of willingness to negotiate an expedient and fair settlement. The joint letter also questions whether Chevron has adequately disclosed to investors the potentially massive financial risks of adverse legal outcomes. The investor letter invites CEO Wirth to schedule a meeting and embark on “a new path forward in dialogue with shareholders.”

Pat Miguel Tomaino, Zevin Asset Management’s Director of Socially Responsible Investing, said:

Investors lack confidence that Chevron’s executive team and board are sensitive to human rights and environmental risks. Acute legal risks are playing out in Canada, where the communities ravaged by Texaco pollution in Ecuador are mounting a formidable case.

 

However, Chevron won’t negotiate a settlement that would be fair to communities and clear the air for the company and its investors. Meanwhile, Chevron’s leaders are missing opportunities to avert the existential risk of climate change. Mr. Wirth needs to sit down with investors this spring.

Prior to Monday’s letter, investors have been vocal about their concerns about the state of risk management at Chevron.

Investor Voice, representing clients of Newground Social Investment and a co-sponsor of the international investor consortium, has re-filed for the sixth year a governance proposal to reduce to 10% the threshold for shareholders to call a Special Meeting. This common governance standard is deemed a ‘best practice’ by most institutional investors.

Bruce Herbert, Chief Executive of Investor Voice, said:

Shareholders urgently need the ability to discuss timely matters between themselves and with management – whenever the timing is appropriate, and following an agenda set by shareholders, not dictated by management.

 

This is especially needed at a company like Chevron that has created significant liabilities which were historically not disclosed through public filings, and where fast-moving legal actions threaten seizure of company assets.

Zevin Asset Management, the letter’s other co-sponsor, has filed a shareholder proposal for a vote at Chevron’s May 30 annual meeting in San Ramon, California.

Zevin’s shareholder proposal urges Chevron to appoint an independent board chair in order to better oversee risk management and executives’ strategy on climate change and litigation. Zevin filed the proposal at Chevron’s 2017 annual meeting where it received 39 percent support.

Herbert of Investor Voice added:

Though some issues that face Chevron are new and others have been allowed to fester, the ascension of a new CEO presents a unique opportunity for fresh thinking.
We remain optimistic, while also cognizant that items of this magnitude need to be addressed collectively. Toward that end, we co-organized this international consortium of investors to invite Mr. Wirth and Chevron to the table.

Chevron’s annual shareholder meeting on May 30th will give Chevron’s new CEO, Michael K. Wirth an opportunity to chart his new course for the company. Will he take this opportunity to break with his predecessor’s record of bombast and evasion regarding the company’s oil pollution liability in Ecuador?

Chevron Shareholders Challenge Management Over Ecuador Pollution

For many years, a significant and growing number of Chevron’s shareholders have become increasingly critical of management’s mishandling of the company’s liabilities stemming from its extensive pollution in Ecuador’s Amazon rainforest.

Starting with Texaco in the 1990s, the oil company’s annual meeting of shareholders has been the focal point of members of the communities sickened by the pollution in their ancestral lands. Joining these indigenous and campesino community members have been their allies, socially responsible investors and environmental and human rights advocacy NGOs, such as Amazon Watch and Amnesty International USA.

Socially responsible investors were the first shareholders to ask Texaco – and later Chevron – to clean up its pollution in the Ecuadoran Amazon and to reach a fair and equitable settlement with the affected communities. These social investors argue that, to succeed and grow, Chevron needs to win a steady stream of new projects around the world. To accomplish this, Chevron must secure legal permission from a government and also establish a “social license to operate” from local communities. By walking away from its responsibility for clean-up of its oil pollution in Ecuador, social investors have argued that Chevron has harmed its reputation with governments and local communities and thus threatens the oil company’s ability to secure permission for new exploration. So taking the long-term view, it is in the interests of shareholders for Chevron to abandon its protracted, opaque, costly, and high-stakes legal strategy and reach a fair and equitable settlement with the communities affected by its pollution.

Numerous shareholders have also expressed concerns that Chevron’s management still has not adequately disclosed the risks from its high-stakes legal strategy. For instance, Chevron has acknowledged in legal filings the serious risk to shareholders from enforcement of the $9.5 billion judgment against the company’s assets. Chevron Deputy Controller, Rex Mitchell, testified that such seizures of Company assets “would cause significant, irreparable damage to Chevron’s business reputation and business relationships.” Moreover, Chevron has stated that this injury to the company “would not be remediable by money damages.”

However, Chevron has yet to fully report these risks in either public filings or statements to shareholders. As a result, investors have repeatedly requested that the U.S. Securities and Exchange Commission investigate whether Chevron violated securities laws by misrepresenting or materially omitting information in regard to the multi-billion Ecuadoran judgment.

In addition, Chevron still has yet to agree to a meaningful dialogue on the larger issue of whether management’s current legal strategy on Ecuador is in the best interests of shareholders. There needs to be a robust dialogue between shareholders and management regarding the risks and costs of management’s current high-stakes legal strategy as opposed to reaching a reasonable settlement of the case.

In 2012, investors with over one-half trillion dollars assets wrote Chevron asking for full disclosure of risks to shareholders and a discussion with management about seeking an alternative to management’s legal strategy. Chevron did not even give these investors the courtesy of a response. Later that year, Chevron even subpoenaed dissident shareholders who had questioned management’s handling of the Ecuador case.

Given Chevron management’s disdain for the views of its own shareholders, Zevin Asset Management, Newground Social Investment, and New York State Comptroller Thomas DiNapoli have all pushed for corporate governance reforms to rein in Chevron’s unresponsive and out-of-control top management team.

For several years, the New York State Common Retirement Fund has filed a resolution asking Chevron to add to its board of directors a member with environmental expertise. Last year, that resolution gained the support of 20% of shares voted, considered a strong rebuke of management.

Newground Social Investment has filed a resolution with Chevron to lower the threshold of the percentage of shareholders required to call a special shareholder meeting. Last year, this resolution won 32% of the vote, again a high level support for a resolution opposed by management.

Zevin Asset Management has filed a resolution with Chevron to separate the position of CEO and Chair. In previous years, Chevron CEO John Watson also held the position of Chair of the Board of Directors. Generally, shareholders have long been critical of CEOs also serving as Chair of the Board that oversees them. Such CEOs are in effect their own boss. Last year, this resolution won 39% of the vote in a very powerful repudiation by shareholders of Chevron’s management.

Zevin Asset Management’s resolution bears close watching this year. The resolution addresses Chevron management’s mishandling, not only of the Ecuador case, but also of the risks to shareholders stemming from climate change. Given that a resolution addressing climate change achieved over 60% of the votes of ExxonMobil’s shareholders last year, there is a real possibility that Zevin Asset Management’s resolution might win majority support at Chevron this year.

Chevron’s new CEO, Michael Wirth, has an opportunity to heed this ever-growing call from Chevron shareholders and to finally seek a reasonable settlement with the Ecuadoran communities to pay for their health care costs and the cleanup of the pollution that likely caused the cancers. For moral reasons if none else, Wirth should take a hard look at this option given the considerable evidence that the company dumped billions of gallons of oil waste and that cancer rates in the affected communities have increased significantly. Wirth also faces pressure from the fact that the $12 billion judgment against the company, rising at the rate of $300 million annually with statutory interest, poses the serious legal threat that the Ecuadoran plaintiffs will seize the company’s assets in Canada.

The Ecuadorans have made significant progress in the Canadian courts, where they are seeking to seize substantial Chevron assets to force it to satisfy the $12 billion judgment. Every appellate court in Canada to hear the case has ruled unanimously against Chevron since the enforcement action began. Moreover, the Ontario Court of Appeal has stated that the case against Chevron is “public interest litigation” and that “there can be no doubt that the environmental devastation to the appellants’ lands has severely hampered their ability to earn a livelihood. If we accept the findings that underlie the Ecuadorian judgment – findings that have not been undermined in our courts – Texaco has contributed to the appellants’ misfortune.”

This April, another court hearing will be held in Toronto where the Ecuadorians will argue that they should seize Chevron Canada’s assets to satisfy their $12 billion judgment against the company. In the courtroom will also be witnesses from the Assembly of First Nations of Canada, one of the leading indigenous federations in the world, which recently signed an unprecedented agreement to support their Ecuadorian indigenous brothers and sisters in their pursuit for justice. The impact of that hearing will be keenly felt at Chevron’s annual shareholder meeting in late May. It could well tip the balance in securing an historic majority vote of Chevron’s shareholders repudiating Chevron management’s handling of the Ecuador case.

Shareholders Push New Chevron CEO For Answers on Ecuador

Chevron’s shareholders have never been reluctant to question the company’s management of its liability for its oil pollution in Ecuador. And they do so in significant numbers.

Chevron management often tries to deny this. But the evidence of shareholder dissent is clear. At the May 2017 annual shareholder meeting, then CEO John Watson stated that shareholders had “almost universally supported Chevron management in the Ecuador case.”

Wason’s statement could not have been more untrue. In fact, Watson stated that even as he knew that 39% of Chevron shareholders had voted in favor of a resolution effectively calling on him to be fired as board chair.

Shareholders were crystal clear that Watson had mismanaged Chevron’s liability for its oil pollution in Ecuador. The resolution, supported by 39% of Chevron shareholders, stated:

We believe that inadequate board oversight has led management to mishandle a number of issues in ways that significantly increase both risk and costs to shareholders.  The most pressing of these issues is the ongoing legal effort by communities in Ecuador to enforce a $9.5 billion judgment against Chevron for oil pollution.

Instead of negotiating an expedient, fair, and comprehensive settlement with the affected communities in Ecuador, management has pursued a costly legal strategy that has led to significant missteps, including moving the case from New York to Ecuador.  In a move without precedent, management has harassed and subpoenaed shareholders who have questioned the Company’s legal strategy.

It is now 2018 and Chevron’s dissident shareholders are back and in even stronger force.

Led by Zevin Asset Management, shareholders have re-filed the resolution asking Chevron to separate the positions of CEO and Board Chair. This is simply good corporate governance. The CEO reports to the board. When a CEO is also board chair, he is in effect his own boss.

In another resolution designed to increase shareholder oversight of wayward managment, Newground Social Investment has re-filed its resolution calling for lowering the percentage of shareholders required to call a special meeting.

This resolution won the support of nearly one-third of Chevron shareholders in 2017. The resolution’s language is also highly critical of Chevron management stating:

Chevron has acknowledged the serious risk from enforcement of the $9.5 billion judgment.  Deputy Controller, Rex Mitchell, testified that such seizures of Company assets “would cause significant, irreparable damage to Chevron’s business reputation and business relationships.”

However, Chevron has yet to fully report these risks in either public filings or statements to shareholders.  As a result, investors have requested that the U.S. Securities and Exchange Commission investigate whether Chevron violated securities laws by misrepresenting or materially omitting information in regard to the multi-billion Ecuadoran judgment.

Finally, New York State Common Retirement Fund and Amnesty International USA have re-filed their resolution calling on Chevron’s board to add a member with environmental expertise.

Mindful of Chevron’s enormous liability for its oil pollution in Ecuador, the resolution states:

… appointing an environmental specialist to the board, [an] authoritative figure with acknowledged expertise and standing could perform a valuable role by enabling Chevron to more effectively address the environmental issues inherent in its business. It would also help ensure that the highest levels of attention focus on the development of environmental standards for new projects.

Answering these shareholders will lie with Chevron’s new CEO Michael Wirth who assumes the position in February. It is hoped that, unlike his predecessor John Watson, Wirth will actually ackowledge not only these shareholders concerns but also the existence of this large bloc of shareholders itself.

Chevron Shareholders Still Wary of Risks From $11 Billion Ecuador Judgment

Chevron shareholders remain wary of the risks from an $11 billion judgment against the company in Ecuador. They also continue to be critical of Chevron management’s mishandling of the case.

At Chevron’s annual shareholder meeting in May, a significant number of Chevron shareholders expressed criticism of management. Shareholders voted 378,540,311 shares in support of a resolution that cited management’s mishandling of the case in Ecuador and called for tighter shareholder oversight.

Put simply, Chevron management lost the confidence of shareholders holding nearly one third of its shares, valued at almost $38 billion.

In a solicitation to shareholders filed at the U.S. Securities and Exchange Commission, the resolution proponent, Newground Social Investment was severely critical of Chevron management.

Proponents believe that Chevron’s management has materially mishandled legal matters brought against the company by communities in Ecuador – in ways that increased liabilities for the matter, currently amounting to $9.5 billion. Moreover, proponents are concerned about the adequacy of the company’s disclosure of those risks to shareholders. Finally, proponents are deeply troubled that the company has harassed longstanding shareholders who questioned the company’s approach to these issues….

…It is our belief that instead of negotiating an expedient, fair, and comprehensive settlement with the affected communities in Ecuador, Chevron management pursued a costly, risky, and ultimately unsuccessful legal strategy that involved material missteps. Although the Company has engaged in various legal efforts to try to negate the Ecuador judgment, the proliferation of circumstances and locations where the Ecuador judgment may be enforced increases the likelihood of a large eventual loss as a result of the case.

In the past year, Chevron’s management has suffered additional court setbacks and made strategic blunders in the case that heighten the risks to shareholders.

Chevron continues to lose legal ground to the Ecuadoran villagers as they seek to collect on their $11 billion judgement against the company.  To collect the $11 billion judgment, the Ecuadorian villagers have filed judgment enforcement actions targeting Chevron assets in Canada, Brazil, and Argentina. In September 2015, the Supreme Court of Canada unanimously ruled that the Ecuadorian plaintiffs may proceed to enforce the $11 billion judgment against Chevron’s Canadian assets. This figure represents more than 73% of the value of Chevron’s total assets in Canada. In addition, time is not on Chevron’s side.  Interest on the underlying judgment is increasing Chevron’s liability by an estimated $275 million per year.

Meanwhile Chevron’s efforts to put pressure on the Ecuadoran government may spectacularly backfire. Chevron has been awarded $96 million plus compound interest by the Permanent Court of Arbitration in the Hague due to Ecuador’s breach of its contractual obligations to Texaco. On June 6, 2016, the United States Supreme Court refused to hear Ecuador’s appeal of that ruling. What turns this good news into bad for the company is that the $96 million judgment against Ecuador is now an asset of Chevron’s in Ecuador.

The Ecuadoran courts have already awarded what remained of Chevron’s assets in the country to the plaintiffs as part of their collection on their $11 billion judgment. If the plaintiffs were to collect even a few million dollars of the $96 million judgment, they would have the money necessary to launch further collections against Chevron’s assets around the world. As Marco Simons, Legal Director of EarthRights International, noted in a prescient blog five years ago:

[T]he plaintiffs only need to win once or a few times, while Chevron needs to win everywhere.  Even if Chevron wins twenty cases, just one loss could cost the company hundreds of millions or billions of dollars.

Chevron also faces a possible overturning or rollback of its judgment against the plaintiffs and their lawyers in its RICO suit. A recent U.S. Supreme Court decision sharply curtailed the use of the RICO statute in a case against RJR Nabisco over cigarette smuggling in Europe, according to a new legal filing by Gupta/Wessler.

Deepak Gupta, who represents U.S. attorney Steven Donziger, made the submission to the United States Court of Appeals for the Second Circuit asserting that the RJR decision “further limits private RICO actions by requiring proof of a quantifiable, redressable and domestic injury – something Chevron has steadfastly refused to identify,” Gupta said. The RJR decision also made clear that the RICO statute could not be used to attack a final judgment from a foreign court, as Chevron has tried to do in the Ecuador case, Gupta added in the letter.

Chevron’s playbook in the Ecuador case of downplaying the risks to shareholders and savagely attacking its critics may well be unravelling.  As Katie Redford, Director of EarthRights International, noted in her recent blog “The New Corporate Playbook, Or What To Do When Environmentalists Stand In Your Way:”

Companies are no longer satisfied with evading their liability for human and environmental harms. Of course, they continue their tried and true tactics of denial, cover ups and fraud, but with the additional goal of silencing their critics, they are counter-attacking, mounting a sophisticated and well-funded campaign to target, sue, surveil, and harass the activists, lawyers, and NGOs that expose their harms. They have powerful allies in Congress and in the media that aid them in their efforts to intimidate, distract and sap the resources of organizations that are already out-resourced in what can only be described as David and Goliath struggles.

There is probably no other case where a company has pursued this playbook so vigorously as Chevron has done in the Ecuador oil pollution case. Chevron even subpoenaed its own shareholders who voiced their concerns.

However, shareholders have continued to voice their concerns over Chevron management’s mishandling of the Ecuador case.  The continued high vote for resolutions critical of management demonstrate that a large number of Chevron’s own shareholders lack confidence in the company’s ability to withstand the fall-out from losing the Ecuador lawsuit without significant damage to shareholder value.

Debating Divestment and Shareholder Activism on Campus

Earlier this month, I was invited by the University of Washington (UW) to speak to their Board of Regents on divestment and shareholder activism.

I have a history with UW.  In the mid-1990s, I helped the UW Free Burma Campaign student group successfully lobby the Board of Regents to join the shareholder campaign on Burma. To this day, UW remains the only university endowment to co-file shareholder resolutions on Burma, which they did for a decade at PepsiCo and Unocal.

More recently, I have advised the students at Divest UW in their ”call upon the University of Washington to divest from the top publicly-traded companies that own the majority of carbon reserves and reinvest in socially responsible funds.”  My main advice was that they should also explore with UW the opportunities to engage in broader shareholder activism on climate change, particularly with the electricity utilities, in conjunction with the Investor Network on Climate Risk.

After rallies at the UW Board of Regents and dialogue with UW’s Treasurer’s office, UW Divest posted on Facebook in November 2013: “Our decision to stand with the Treasury in support of ESG, 25 million dollars in new green energy investment and shareholder advocacy (for as long as we continue to hold fossil fuel-related assets) was an unorthodox step for a divestment campaign, but we believe that, given the circumstances, it was the right move to make.”

UW Board of Regents has continued to receive additional calls to divest its endowment from all fossil fuel companies, private prisons, and corporations operating in the Occupied Territories of Israel/Palestine.  To help develop an overall policy on calls for divestment, the UW Treasurer’s office invited me to join them in making a presentation on June 9th to the Board of Regents.

The discussion by the regents was informed and wide-ranging. Many of the regents saw the value of pursuing more shareholder engagement. Joel Benoliel attested to the power of shareholder resolutions in changing corporate behavior that he witnessed as Corporate Secretary of Costco. I’m optimistic that UW will move further in this direction.

A copy of my written presentation is below.

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Presentation to: University of Washington Board of Regents

June 9, 2016

Shareholder Activism and Divestment: Key Considerations and Decision Points

Simon Billenness, President, CSR Strategy Group  

Executive Summary

  • What is the Right Moral Choice? Ethical Investment vs. Socially Responsible Investment
  • What is the Impact? Divestment vs. Shareholder Activism
  • What Are the Steps of Shareholder Activism?

What is the Right Moral Choice?  Ethical Investment vs. Socially Responsible Investment

Many investors decide to incorporate moral criteria in their investments to express their values.  In such cases, it is important to distinguish between the two ways in which investors can express their values: ethical investment and socially responsible investment.

Ethical investment is the approach whereby investors first define their moral values or mission.  Then the investor evaluates the industry sectors and companies in its portfolio against those values.  An example would be a healthcare foundation with a mission that is counter to investing in tobacco companies.

Ethical investment is an approach that is inward-focused.  It is implemented primarily through divestment of companies that fail to meet certain moral criteria.

Socially responsible investment is the approach in which investors evaluate the impact that its portfolio companies have on society and the environment. Socially responsible investors seek to use their power as shareholders to bring them in line with their values.

Socially responsible investment is an approach that is more outward-focused. It is implemented primarily through shareholder activism that may include direct dialogue with portfolio companies and the filing of resolutions at annual shareholder meetings.

Mission-based investors, such as religious institutions, need to consider how they wish to express their values through a combination of ethical investment (exclusion and divestment) and socially responsible investment (shareholder activism).

That decision should be informed by an understanding of the relative impact of stock divestment versus shareholder activism.

What is the Impact? Divestment vs. Shareholder Activism

Divestment (or exclusion) of stock by an investor is primarily a symbolic action. It involves an investor divesting itself of stocks by selling them to another investor.  It has no direct impact on the company or its bottom line.  In most cases, the company will not be aware of the divestment unless it is sufficiently large or made public.

The symbolism of divestment can be significant politically. In politics symbolism is powerful and can be used to effect political change. Divestment of stock – particularly by universities, cities, and state governments, of companies doing business in apartheid South Africa was an effective organizing tool in putting grassroots pressure on Congress to enact sanctions on South Africa in the 1980s. Today, divestment of stock in fossil fuel companies is similarly helping to organize a similar grassroots movement to force governments to counter climate change.

Divestment may have impact on an investor’s financial returns.  Divestment can be ill-timed in terms of stock market prices and/or expensive in terms of transaction costs.  By limiting the scope of investable stocks, divestment may reduce future portfolio returns. This is important to any investor, such as a university endowment, with a fiduciary duty to maximize its investment returns.

Shareholder activism involves investors using their power as shareholders to press companies to change their behavior. Shareholder activism can range from private conversations with company officials to publicly filing shareholder resolutions and using the publicity around a company’s annual shareholder meeting to press for specific changes in a company’s policy and practices.

Shareholder activism also demonstrates symbolic power that is politically significant. When the Free Burma movement emerged in the 1990s, Free Burma activists called on investors not to divest their stock but to vote their shares in favor of shareholder resolutions that put pressure on companies to withdraw from Burma.  I worked with the UW Seattle Free Burma group in the mid-1990s in their successful campaign to persuade the Board of Regents to join other shareholders in co-filing resolutions at PepsiCo and Unocal.  PepsiCo subsequently withdrew from Burma amid pressure on university campuses.  The Free Burma campaign was also successful in using grassroots pressure to lobby Congress to enact its first sanctions on Burma in 1996.

Shareholder activism puts continual pressure on companies.  Unlike stock divestment, which is a one-time action, shareholder activism can be used by investors again and again.  Moreover, shareholders can escalate their pressure on companies by starting with a simple dialogue and later adding more weight by supporting and filing shareholder resolutions and other, more public forms of power.

Shareholder activism has demonstrated track record of changing company behavior.  This can be seen across a broad range of environmental, social, and governance issues. Through organizations – such as the Interfaith Center on Corporate Responsibility, Ceres/Investor Network on Climate Risk, and Council of Institutional Investors – religious institutions, public pension funds, socially responsible investment firms, trade unions, and university endowments have worked together to produce a significant record of achievement in changing the behavior of companies and entire industries.

Shareholder activism works in changing company behavior.  But it is not effective in forcing companies to abandon their core business.  In the case of companies with a harmful core business, such as the tobacco companies, investors have generally preferred to divest their stocks rather than engage in shareholder activism.

Some stock divestment campaigns have later shifted to advocating for shareholder activism.  The Genocide Intervention Network transformed its project, the Sudan Divestment Task Force, into the Conflict Risk Network as it shifted tactics from advocating stock divestment to calling for shareholder activism. This was due to a realization by the organization that shareholder activism was more effective than stock divestment in putting pressure on companies to stop doing business with the Sudanese government.

Shareholder activism has no impact on overall portfolio returns.  This approach does not alter an investor’s portfolio.  It simply ensures that the investor uses its power as a shareholder with the stocks that it owns.  This is important to any investor, such as a university endowment, with a fiduciary duty to maximize its investment returns.

What Are the Steps of Shareholder Activism?

Shareholder activism works in changing company behavior.  But it is not effective in forcing companies to abandon their core business.

Typically, investors will experiment with increasingly stronger forms of shareholder pressure to discover which, if any, result in the desired changes in corporate behavior.  Steps in shareholder activism include:

  • Private dialogue with company executives or board members
  • Public letter to company followed by further dialogue
  • Private and/or public dialogue with company in collaboration with other shareholders, likely through ICCR, CERES, CII, or other shareholder organization
  • Filing a shareholder resolution
  • Soliciting the support of other shareholders for a resolution either directly or through proxy advisory services
  • Supporting alternative, independent director(s) for election to the board of directors

Investors can make many asks of companies short of exiting their core business.

In the case of fossil fuel companies, shareholders can address climate change by pressing companies to:

  • End fugitive emissions of methane gas in a company’s extraction and transportation of natural gas
  • Fully respecting communities right to free, prior, and informed consent to any corporate operations in their community
  • Disclose or end lobbying of elected officials in opposition to government regulations and curbs on emissions of carbon dioxide and other global warming gases
  • Shift investment away from exploration and development of new carbon-based fuels and instead direct the funds to investments in renewable energy or returning the cash to investors as dividends

In the case of private prison companies, shareholders can press companies to:

  • End abusive practices on prisoners, such as use of stun belts
  • Improve overall prison conditions
  • Shift from punitive to rehabilitative treatment of prisoners
  • End lobbying for laws that increase demand for incarceration, such as new restrictions and crackdowns on undocumented immigrants and mandatory sentencing of non-violent drug offenders

 

Did Chevron Just Fund its Legal Opponents in Ecuador?

Did Chevron just hand its legal opponents in Ecuador $106 million?

That appears to be the case according to a press release put out this week by the communities that have sued Chevron for oil pollution in the Ecuadoran rainforest.

In what could be a huge boost to their campaign to force Chevron to comply with a $9.5 billion environmental judgment in Ecuador, rainforest villagers plan to enforce a court order directing them to take possession of a $106 million arbitral award won recently by the oil giant from Ecuador’s government in a case that recently became final in Dutch courts….

The $106 million figure comes from the amount of an arbitral award that Chevron won from Ecuador under the U.S.-Ecuador Bilateral Investment Treaty in an unrelated series of commercial disputes dating to the early 1990s between the American company and Ecuador’s state-owned oil company, Petroecuador. A Dutch court last week denied Ecuador’s last appeal of the award, rendering the arbitral decision final.

One of Chevron’s principal tactics in this litigation has been to starve the Ecuadoran communities of the money that they need to pursue their case. Chevron has flipped two of the financiers of the case: Burford Capital and Patton Boggs.  The oil company has also sued two others: Russell DeLeon and Woodsford Litigation Financing. But, if the Ecuadoran government hands over the $106 million arbitral award to the Ecuadoran communities, it would completely replenish the plaintiffs’ legal war chest.

The likelihood appears high that the Ecuadoran government will indeed give the money to the plaintiffs.  Firstly, the Ecuadoran courts have already ruled that the rainforest communities can seize all of Chevron’s assets in Ecuador.  Secondly, after Chevron’s relentless attacks against Ecuador, it is hard to imagine that the Ecuadoran government would give Chevron any money that it could more appropriately channel to the plaintiffs.

The rainforest communities would likely make very good use of the $106 million. It could be used in part to pay for remediation of the oil pollution, as the Clean Water is already doing. Another portion could be used to fund new legal enforcement actions to seize Chevron’s assets outside Ecuador to collect fully on the $9.5 judgment.

If the government of Ecuador gives the $105 million to the plaintiffs, Chevron management only has itself to blame for this possibly game-changing defeat. After all, it was Chevron that successfully petitioned to have the case moved from New York to Ecuador only to lose badly. If there’s one thing that Chevron CEO John Watson does well in this case, it is making mistakes that cost millions to Chevron’s shareholders.

Is it any wonder that Chevron’s own shareholders have questioned management’s competence in this case?

 

Defending Our First Amendment Rights From Chevron

In an unprecedented legal move, 17 U.S.-based civil society organizations – among them Amnesty International, Amazon Watch, Rainforest Action Network, and Friends of the Earth – have just filed an amicus brief in federal appeals court defending their First Amendment rights from attack by Chevron.

Let me back this story up by about 18 months.

In November 2012, Chevron subpoenaed me.

The subpoena server knocked on the front door of my home. He handed me the 40-page subpoena from Chevron’s law firm, Gibson Dunn. I learned subsequently that my subpoena was one of several that Gibson Dunn served on not just non-profit advocacy organizations but also Chevron’s own shareholders, including Trillium Asset Management.

This subpoena was in connection with the anti-racketeering – or RICO – lawsuit brought by Chevron against the Ecuadoran villagers and their lawyers who successfully won a $9.5 billion judgment against Chevron for its oil pollution in the Ecuadoran Amazon. Chevron contends that the judgment was fraudulently obtained. Chevron has also implied – falsely – that my advocacy work and that of Amazon Watch, Rainforest Action Network, and Trillium Asset Management – on this issue is part of this supposed fraud.

In my subpoena, Gibson Dunn demanded all of my documents and all of my emails concerning my shareholder advocacy work at Chevron.  What was demanded of me was every detail of my communication with not only Chevron shareholders but also the press and government agencies, including the Securities and Exchange Commission (SEC).

In essence, Chevron demanded extensive and intimate information on my First Amendment-protected rights to speak out regarding oil pollution in Ecuadoran communities. In its subpoena, Chevron also demanded extensive information regarding my efforts to organize Chevron shareholders and petition US government agencies.

Clearly Chevron did this to me, Amazon Watch, and Rainforest Action Network to harass and intimidate us for advocating for the people of Ecuadoran Amazon affected by the company’s oil pollution.

Once I secured the services of EarthRights International as my pro-bono lawyer, I spoke out against Chevron’s retaliatory legal tactics to the press and my fellow shareholders.  I went public deliberately to demonstrate to Chevron that I refused to be intimidated by them.  That quickly led to articles in the New York Times and also Grist, which even published my entire subpoena.

I was determined to make Chevron’s attempt to intimidate me backfire on the company.  I reckon that I succeeded.  The press articles exposed Chevron’s bullying tactics. Moreover, one month after serving the subpoenas, shareholders of Chevron filed resolutions at the company on its liability in Ecuador in greater numbers than ever before.

Chevron gained little to no information of value from its subpoenas. Amazon Watch and Rainforest Action Network had their subpoenas quashed. Thanks to the dogged work of my fine lawyers at EarthRights International, I have not to date been compelled to hand over any information to Chevron.

Nevertheless, the U.S. federal court judge Lewis Kaplan ruled in Chevron’s favor. Both the Ecuadoran villagers and their lawyers have filed in U.S. federal appeals court to have Judge Kaplan’s ruling overturned.

With their amicus brief, the 17 NGOs outline the case in stark terms.  In the amicus brief, the NGO’s state:

Amici Curiae (“Amici”) are organizations dedicated to advancing environmental protection, human rights, corporate accountability, and economic justice. Amici regularly engage in First Amendment-protected activities similar to those that the district court found to be predicate acts under RICO. Amici bring, participate in, and support strategic litigation intended to help achieve important societal goals In conjunction with such litigation they seek to educate the public and to influence public opinion and government and corporate behavior through public relations campaigns, websites and blogs, press releases about ongoing litigation, corporate shareholder resolutions, public demonstrations, and letter-writing campaigns to government or corporate officials. If the district court’s finding of a RICO violation based on just such activities is upheld, Amici’s exercise of their First Amendment rights of free speech, association, and petitioning government will be severely chilled by the very real possibility that they will have to mount costly defenses to retaliatory litigation brought by deep-pocketed corporate defendants.

Under the regime augured by this case, other Amici may expect similar consequences as they pursue their organizational missions through constitutionally protected activities. Amici are also threatened by overreaching issuance of subpoenas that seek to compel those organizations to turn over internal planning and strategy documents and the identities of their supporters, thus exposing their supporters to further risks.

This is a critical case for advocates of all kinds. If corporations, such as Chevron, succeed in branding First Amendment activities of advocacy organizations as a conspiracy, then corporations will have secured another powerful cudgel with which to threaten and intimidate those who organize to seek redress for corporate abuses of human rights.

Why Unitarian Universalists Voted to Divest From Fossil Fuels

Last Saturday, I was proud to speak in favor the fossil fuel divestment resolution at the General Assembly of the Unitarian Universalist Association (UUA).

An overwhelming majority of the General Assembly voted in favor of the resolution.  Following the vote, UUA issued a press release in which UUA President Peter Morales said:

The UUA has a long-standing history of fighting for our environment. I am proud that we are going to put our money where our values are on this issue.

This victory was the result of the hard work of many Unitarian Universalists.  As a member of the UUA Committee on Socially Responsible Investment (CSRI), I have spent almost a year working with UU Divest, the group originally promoting the divestment resolution, my fellow committee members, and UUA staff including the Treasurer and CFO, Tim Brennan.  What we accomplished is unique and worthy of consideration by other religious investors.

The resolution concerns the Unitarian Universalist Common Endowment Fund, a $173 million fund that includes the investments of the Unitarian Universalist Association, affiliated UU organizations, and approximately 300 member congregations.

When the issue of fossil fuel divestment was promoted at last year’s General Assembly, I was largely opposed to it.  The UUA is a leader in shareholder activism to halt climate change.  I felt strongly it made no sense to simply sell our fossil fuel company to another investor that likely did not care about this critical problem.

Over the course of a year of careful negotiation with the divestment proponents, I began to change my position. Key to the success of negotiation was each side’s recognition that we were all part of the movement to halt climate change. Everyone began to realize that this was a discussion between friends and allies and the only real differences were over tactics to reach the common goal of halting climate change.

There was a key shift in the framing of the discussion. When we started the debate, the question was framed as: should the UUA EITHER divest OR continue its shareholder activism against the fossil fuel companies? The turning point came when we changed the frame of the discussion to: how should the UUA BOTH divest AND do shareholder activism?

That brought us to the consensus resolution language in which the UUA both joins the movement to divest from the fossil fuel companies while also retaining a limited, specific, and decreasing number of holdings for the purpose of shareholder activism.  Even more crucial was that the resolution passed UUA legal review through the inclusion of language ensuring that the UU Common Endowment Fund divest stock according the UUA’s fiduciary duty and using sound investment practices.

The UUA resolution should be viewed as model language for other religious institutions that also use shareholder activism on help halt climate change.  This resolution safeguards the UUA’s critical shareholder activism while adding another powerful voice to the fossil fuel divestment movement.

When I spoke in support of the resolution, I remarked how our process in crafting an effective resolution represented the best in the values and democratic practices of Unitarian Universalism.  I have never been more proud of my denomination and fellow UU members.

Back to Basics in Ecuador (Part 1): What’s the Damage?

When a legal case becomes complicated, it’s important to stick to the basic issues.  In the case of the Ecuadoran Amazon communities versus Chevron, the questions boil down to the following.

  1. What is the extent of the oil pollution?
  2. What damage has the oil pollution had on the health and livelihoods of the people?
  3. To what extent is Chevron responsible and liable for that oil pollution?

These are the key questions that shareholders have continually posed to the management of Chevron.  For part one of this piece, let’s focus on the first two basic questions.

Despite two decades of litigation, there are still no clear answers.  In his ruling in the RICO against the Ecuadoran plaintiffs and their lawyers, U.S. District Court Judge Lewis Kaplan did not dispute the existence of the oil pollution.  According to Kaplan’s judgment:

The Court assumes that there is pollution in the Orienté. On that assumption, Texaco and perhaps even Chevron – though it never drilled for oil in Ecuador – might bear some responsibility.  In any case, improvement of conditions for the residents of the Orienté appears to be both desirable and overdue.

A recent research report backs up the contention that the oil pollution in Ecuador remains extensive and damaging to the health and livelihood of the Amazon rainforest communities.  According to a recent press release by Hinton Communications, a PR firm for the Ecuadoran communities:

A new report prepared by a team of prominent American scientists after the end of the Lago Agrio trial found that Chevron caused “widespread” toxic contamination to indigenous ancestral lands in Ecuador’s rainforest that persists to this day, directly contradicting the company’s defense in the Ecuador environmental litigation and providing a new boost to efforts by villagers to seize Chevron’s assets abroad.

The report – published by the Louis Berger Group (LBG), a consultancy that has worked for several U.S. government agencies – also found that Chevron engaged in an elaborate cover-up to hide the information from the Ecuador court during the Lago Agrio trial, which lasted from 2003 to 2011. The report has the potential to shake up the long-running case in favor of the rainforest villagers as they pursue Chevron’s assets in Canada, Brazil and Argentina to pay for a clean-up.

The LBG scientists who wrote the report spent several weeks in Ecuador in 2013 to inspect 18 of Chevron’s former well sites, which are spread out over a 1,500 sq. mile area of rainforest just south of the Columbia border. The report was prepared at the request of the American law firm Winston & Strawn for a private international arbitration where Chevron is seeking – thus far without success – to shift the clean-up liability to Ecuador’s government.

It is reports of this kind that reinforce the fact that Chevron’s lingering liability in Ecuador is still far from being resolved.  As such, it underscores risks to shareholders that Chevron’s management has downplayed but has still not effectively disclosed or managed.

Harry Potter and Me

I serve on a number of boards and advisory groups.  But the one that gives me the most joy is my role as advisor to the Harry Potter Alliance.

Over ten years ago, I first received an unsolicited phone call from Andrew Slack.  He explained that he had set up the Harry Potter Alliance as a vehicle for the book fans to do progressive social activism based on themes from the books.  I was intrigued.  The next thing that happened, I was invited in 2005 by Andrew to a benefit for Amnesty International performed by Andrew’s stand-up comedy group and the “wizard rock” band Harry and the Potters.  I was quite impressed with the punk rock (nerd core?) style of the band as well as the enthusiasm of the young crowd.  The event even raised $300.

I quickly became a huge fan of Andrew Slack’s ability to connect young people to social actions through making analogies to the themes of the books and films they love. Andrew is now building the “Imagine Better Network,” that, in his words, seeks to create “an unprecedented movement that goes beyond Harry Potter to all fandoms so that fantasy is no longer an escape from our world, but an invitation to change it for the better.”

Although I’ve read all the Harry Potter books, my main love is Buffy the Vampire Slayer.  As I continued to advise Andrew, he dubbed me as his “Rupert Giles.”  I’m particularly proud of that and specifically my advice for the campaign to press Warner Brothers to use fair trade chocolate in its Harry Potter bars.

After almost ten years, I’m pleased that I’ve finally made the masthead of the Harry Potter Alliance website as a Senior Advisor.  Here’s to another ten years as an advisor to my favorite activist group.