This is an example of why Environmental, Social and Governance, ESG,
screens can help reduce risk.
Chevron’s environmental practices left a huge liability, off the
balance sheet. Weak governance let it grow to 18 billion dollars.
Screening an investment with more than a financial lens can help reduce risk.
Everyone knows to not put all their eggs into one basket. How many
know to check the craftsmanship and wear of each basket?
By using more than one lens to view an investment you will help reduce risk.
SAN RAMON, Calif., May 30, 2012 /PRNewswire via COMTEX/ — Chevron CEO John Watson today suffered a stunning reprimand during a tense annual meeting when shareholders voted in massive numbers to support resolutions citing his failure to properly manage the company’s $18 billion adverse judgment in Ecuador.
Over 38% of shareholders, representing a whopping $73 billion worth of Chevron stock, supported a resolution to separate Watson’s dual role of Board Chairman and CEO due in part to his mismanagement of the historic lawsuit in Ecuador for despoiling the Amazon rainforest. In January of this year, an Ecuador appeals court affirmed an $18 billion trial court judgment against the oil giant for dumping billions of gallons of toxins into Amazon waterways, decimating indigenous groups. See here for a summary of the evidence.
The 38% figure is a substantial increase from the 14% the same resolution got in 2008 when last was raised, signaling increasing dissatisfaction with Chevron’s handling of the Ecuador case. Normally, a 10% vote in favor of a shareholder resolution when opposed by management is considered a huge win.
In addition, last week 40 of Chevron’s institutional shareholders with more than $580 billion in assets under management sent Watson a letter urging him to settle the Ecuador case while today leading analysts at Oppenheimer concluded that the stock price would get a boost if the long-running case were to be resolved.
“In failing to negotiate a reasonable settlement prior to the Ecuadorian court’s ruling against the company, we believe that Chevron’s Board of Directors and management displayed poor judgment that has exposed the Corporation to a substantial financial liability and risk to its operations,” said the investor letter.
The shareholder vote was a strong reprimand against Watson’s leadership.
“For Watson to lose a vote to this degree shows a shocking degree of anger by shareholders over the Ecuador liability and his role in failing to fully disclose material risks to investors,” said Simon Billenness, who introduced the resolution on behalf of the Unitarian Universalist Association.
In moving the resolution, Billenness also questioned the independence of Chevron’s Board of Directors for awarding Chevron General Counsel R. Hewitt Pate a 75% raise for his “outstanding management” of the Ecuador case – even though under Pate’s leadership the company was hit with the largest judgment in the history of environmental law.
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