An Analysis of the Financial and Operational Risks to Chevron Corporation from Aguinda V. ChevronTexaco (May 2012)

From the Executive Summary of this report:

  • Chevron is facing significant financial and operational risks stemming from enforcement of an $18 billion adverse judgment in Ecuador.   On March 12, 2012, an Ecuadorian appellate court declared the $18 billion judgment for the company’s contamination of soil and water final and enforceable, giving the plaintiffs the right for the first time to collect on the judgment.  Chevron itself has admitted in a sworn legal statement that the company is at risk of “irreparable injury to [its] business reputation and business relationships” that “would not be remediable by money damages” from potential enforcement of the Ecuadorian court judgment.
  • The enormous breadth of Chevron’s global business operations makes the company particularly vulnerable to enforcement.  There are many jurisdictions around the world in which the plaintiffs could seek court recognition and enforcement of the judgment, including many where Chevron has substantial reserves and that are strategic importance.
  • Chevron’s defenses to enforcement actions have greatly narrowed. The U.S. Second Circuit vacated in its entirety a preliminary injunction from a U.S. District Court that purported to bar the Ecuadorian plaintiffs from enforcing the judgment against Chevron’s assets anywhere in the world.  The Ecuadorian courts have rejected awards by an arbitral panel seeking a halt to enforcement of the $18 billion judgment against Chevron.
  • Shareholders of Chevron are increasingly demanding more transparency of the risks and an alternative to the company’s litigation strategy.  In May, 2011, shareholders of Chevron – representing $156 billion of assets under management – called upon Chevron “to fully disclose to shareholders the risks to its operations and business from the potential enforcement of the Aguinda verdict” and “reevaluate whether endless litigation in the Aguinda case is the best strategy for the Company and its shareholders…”  Separately, Trillium Asset Management formally requested the Securities and Exchange Commission “to review whether Chevron has appropriately disclosed to shareholders the scope and magnitude of the financial and operational risk” from the judgment.
  • Chevron shareholders are demanding better corporate governance. Citing management’s handling of the case in Ecuador, shareholders are questioning Chevron’s generous executive compensation packages and have proposed overhauls of the company’s corporate governance.  Despite losing the landmark $18 billion judgment in Ecuador, Chevron awarded its General Counsel R. Hewitt Pate a 75% raise in 2012 to a staggering $7.8 million salary and even went so far as to praise “his outstanding management of Ecuador” ahead of the company’s annual “say on pay” vote.    In 2010 and 2011, a significantly large percentage of Chevron’s shareholders supported a resolution calling for the appointment of a director with expertise in environmental liabilities.  In addition to re-filing this resolution, shareholders have filed two additional new resolutions for Chevron’s 2012 annual meeting calling for corporate governance reforms, one asking that Chevron separate the positions of Chief Executive Officer and Chair of the Board and the other asking that Chevron lower the thresholds for calling a special meeting of shareholders.

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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?

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