Chevron Aims at an Activist Shareholder

Public corporations routinely tell shareholders that their views matter. The Chevron Corporation, for example, said in its 2012 proxy statement: "Your board welcomes dialogue on the topics presented in the stockholder proposals on the following pages." So it might seem odd that last month Chevron subpoenaed one of its investors, Trillium Asset Management, which has sponsored numerous shareholder proposals at Chevron over the years. The oil company demanded documents related to those proposals. The subpoena also asked for records of discussions Trillium had about these proposals with the media.

It is unusual to make such a demand from a shareholder, corporate governance experts say. While companies often try to keep shareholder resolutions off the ballot by contending that they do not follow the rules, going beyond that is rare.

Trillium oversees $1 billion in assets and specializes in what is known as sustainable investing. It focuses on environmental, social and governance factors in its investments and pursues shareholder advocacy programs on these issues.

In an interview last week, Jonas Kron, Trillium's director of shareholder advocacy and corporate engagement, declined to discuss the subpoena. But it is part of a Racketeer Influenced and Corrupt Organizations lawsuit Chevron has filed against an army of parties involved in bringing an environmental case against the company in Ecuador almost two decades ago. In February 2011, the court in Ecuador ruled against Chevron, awarding the plaintiffs more than $18 billion.

The Ecuadorean matter centered on claims that Texaco Petroleum, which Chevron acquired in 2001, had polluted sections of a remote region in the Amazon. Chevron maintained that Texaco successfully remediated the site years before, in a $40 million cleanup.

Chevron has not paid the judgment. The company has said it does not believe that the Ecuador judgment is enforceable "in any court that observes the rule of law." It maintains that the Ecuadorean case was riddled with fraud and says it will "continue to pursue relief against Ecuador in our pending arbitration and against the plaintiffs' representatives in our RICO action pending in New York."

Last July, a federal judge in the United States declined to declare the judgment unenforceable; he did note that aspects of the trial in Ecuador were tainted. And a judge in Argentina froze the assets of a local Chevron unit last month as the court determines whether it should enforce the Ecuadorean judgment.

Trillium is not a defendant in Chevron's RICO suit. But it, along with other shareholders, has questioned how Chevron has handled all this. Earlier this year, for example, 40 Chevron shareholders overseeing $580 billion in total assets signed a letter asking to meet with company management to discuss the matter. Chevron declined.

When asked about the company's subpoena to Trillium, Justin Higgs, a Chevron spokesman, acknowledged that it was not standard operating procedure. But, Mr. Higgs said, it reflects the company's belief that Trillium was working closely with plaintiffs in the Ecuador case to pressure Chevron into a settlement. That belief, he said, is supported by documents produced in the suit.

In an interview on Friday, Randy Mastro, a lawyer at Gibson, Dunn & Crutcher who represents Chevron in the case, said: "Our case is about a massive fraud and extortion scheme for billions of dollars. The conspirators enlisted a network of not-for-profits, so-called shareholders who were acting independently but really acting in collusion to get out their false story. We have a right to take discovery of those shareholders and those groups they enlisted to try to find out the methods of the scheme."

Among the concerns Trillium has raised are Chevron's disclosures to investors about the potential liabilities associated with the judgment. In 2011, the fund manager asked the Securities and Exchange Commission's corporate finance unit to review whether Chevron had adequately explained "the scope and magnitude of financial and operational risk arising from the Ecuador judgment."

In the letter, Trillium noted Chevron's public contention that the uncertain legal environment in Ecuador meant the company could not estimate "a reasonably possible loss" in the case. But Trillium contrasted this stance with deposition testimony in the RICO case from Rex Mitchell, Chevron's deputy controller. Mr. Mitchell said the company faced "irreparable damages" if the Ecuador plaintiffs succeeded in enforcing their judgment by seizing Chevron's assets. It is unclear how the S.E.C. responded to this request. Mr. Higgs, the Chevron spokesman, said all of the company's disclosures had been appropriate.

As this legal battle has raged, Trillium has sponsored several shareholder proposals. In 2011, Trillium co-sponsored a proposal asking that Chevron nominate an independent board member with expertise in environmental matters relative to energy.

Chevron urged shareholders to reject that proposal, saying its board's "qualification standards adequately recognize the importance of environmental expertise." About one-quarter of the shares supported the 2011 proposal advocating a director with environmental expertise.

"We have been outspoken on environmental and social issues we think are important, material and relevant to the financial performance of the companies in our portfolio," Mr. Kron said. "Looking at some of the corporate missteps in recent years, all of those companies would have benefited greatly by having a more active and engaged shareholder base."

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. Last month, Chevron filed an ethics complaint against Thomas P. DiNapoli, the New York State comptroller. As overseer of the state's Common Retirement Fund, Mr. DiNapoli has also sponsored shareholder proposals at Chevron.

In its ethics complaint, Chevron contends that Mr. DiNapoli and the plaintiffs' lawyers in the Ecuador case had "an illicit and unethical quid pro quo arrangement" in which the comptroller put pressure on Chevron in exchange for campaign donations. Eric Sumberg, a spokesman for Mr. DiNapoli, said the accusations were baseless and an attempt to intimidate. "Shareholders have the right to protect their investment, and that is exactly what the Common Retirement Fund is doing," he said.

Chevron is entitled to be as aggressive as it likes in this court case and it may well prevail. But its actions against a shareholder are nonetheless remarkable. Timothy Smith, a vice president at Walden Asset Management, another socially oriented investment firm, said: "A shareholder making a legitimate appeal to the company doesn't deserve this kind of counterattack."

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