If I were the new CEO of Chevron
If I were the new CEO of Chevron, I would stop listening to the lawyers and bring the engineers into the boardroom to develop a strategy to invest a good portion of last year’s record $24 billion profit into inventing solutions to the adverse environmental and social impacts of the company’s operations around the globe.
New Chevron CEO John Watson has inherited a mess from outgoing CEO David O’ Reilly – but with challenge comes opportunity. It is clear that Chevron’s historical reliance upon litigation to get what it wants is being eclipsed by new activist strategies that have effectively boxed Chevron into a corner.
San Francisco Bay Area activists won a major victory this past summer when the Contra Costa Superior Court ruled an environmental assessment of proposed changes in operations at Chevron’s refinery in Richmond, California approved by the City of Richmond was inadequate. In addition, Chevron appears to be on the verge of being handed down a judgment in Ecuador that could total $27 billion for polluting practices of Texaco operations dating back to 1984 – but which Chevron’s assumed liability for in 2001 when it swallowed up Texaco.
An unprecedented campaign to make Chevron the poster child of corporate irresponsibility has already persuaded pension funds in California, New York, Maryland and Pennsylvania to consider votes to withdrawing a total of $12 billion in Chevron shares on the grounds that the firm is mismanaging its operations around the globe.
If I was CEO, I might not think the charges against Chevron are all legitimate, but that really doesn’t matter at this point. The public relations battle has been lost, and the longer the company delays in changing its business practices, the longer it will take to reinvent itself to become a clear and legitimate global leader on energy, environmental and social innovation.
To start, why not begin to clean up operations in one’s own backyard in Richmond, California?
The key objective of groups such as Communities for a Better Environment (CBE) is to stop Chevron from processing “dirtier” crude from Alberta Tar Sands at the Richmond Refinery. Tar sands are one of the dirtiest forms of crude oil. Development contributes to clear-cutting of the Boreal Forest in Canada – the largest terrestrial carbon sink in the world -- and emits three to five times as many greenhouse gas emissions as other more traditional forms of crude oil. The ruling by the Contra Costa Superior Court has halted construction, stranding 1,100 union workers, pitting their jobs against the activists and local citizens worried about public health.
Let’s put those 1,200 workers back on the job and, better yet, train and then hire from the local community to help clean up the Richmond refinery.
But there is a way to make this a win-win. Instead of still seeking to invest $2 billion to allow the existing Richmond refinery to process this new type of crude, perhaps Chevron should instead invest equivalent sums in upgrading this primitive refinery into a state-of-the-art facility first, and then see if there is a way to process dirtier forms of crude oil without increasing risks to the citizens of Richmond and without making major contributions to global climate change. Engineers, sharpen your pencils, and let’s see what you can come up with.
Another one of my top priorities as Chevron’s CEO would be to stop flaring waste gases. While some refineries recycle these waste gases, and can reduce flaring by 80 percent, Chevron has historically maintained that such practices were “not economically feasible” at the Richmond site. Not a good message to be sending to a community living next to a refinery operation ranked as the worst polluter in the entire San Francisco Bay Area, and one of the nation’s dirtiest refinery operations. One estimate suggested that revenue generated by just 17 minutes of Richmond refinery operations could fund the $100 million upgrades necessary to make the facility state-of-the-art.
Another top priority of mine if I were CEO would be to follow-through on my commitment to lobby in DC with the Sierra Club for climate change policy and against coal. Taking such a position, would require Chevron to divest of its remaining coal assets but such a step would boldly signal the company’s commitment to fight global warming and begin the long process of winning back the public’s trust.
Once Chevron makes some commitments to clean up this vintage facility and advance climate policy in its own backyard, it is time to turn its attention to other hot spots around the globe. Here are just three examples of proactive initiatives that may moot criticisms, starting with Ecuador.
- Amazon Watch maintains that pollution from oil operations in Ecuador “is one the largest environmental and social disasters on the planet,” claiming that 18 billion gallons of toxic wastes have been dumped in an area the size of Rhode Island, threatening the livelihood of 30,000 indigenous peoples belonging to five different tribes. Critics claim Chevron employed technology used in the 1900’s – dumping untreated wastes directly into local waterways and covering up waste pits with soil that we then inhabited by villagers -- in order to save $3.50 per barrel of oil sold to global markets. There is no easy way out of this legacy liability, but just fighting the proposed settlement does not send the right signal to activists – or shareholders. Why not come forward with a plan to address these issues in lieu of the proposed judgment.
- Burma is perhaps Chevron’s biggest black eye, as the brutal military junta ruling the country is siphoning off revenues from oil operations and, according to Earth Rights International, stashing it in banks in Singapore. Here, the issue is not so much environmental impacts, but rather, the ruthless killing and looting of nearby villages. The key objectives of ERI’s current campaign against Chevron is the following: (1) to take responsibility for army battalions that abuse Burmese citizens in regions neighboring pipeline corridors; (2) disclose where proceeds of operations go; (3) allow bona fide third parties to document the success of company funded social programs; and (4) cease relying upon Burmese military as the police force for pipeline operations.
- Kazakhstan is the largest private oil development area in the former Soviet Union. Over six years ago, the village of Berezovka , comprised of 1,300 people, was promised to be moved to a “village of the 21st century,” since it was located within 5 kilometers of these expanding oil drilling operations. National and international laws requiring the relocation of any village that close to such facilities. While Chevron only owns a 20 percent share in the oil production consortium operating here, it is time for someone to show leadership. Why not follow through on implementing a relocation that recognizes that rural villagers cannot live in urban environments without training and other accommodations? The cost is small, but the gesture would surely signal the company respects the law as well as communities it does business in. With an expansion of the oil fields there representing a $5 billion additional investment, not addressing the needs of the village will only make Chevron and its partners look like greedy capitalists still operating as if we were still the 19th or 20th century.
There are other hot spots, with Nigeria being another major headache for the firm, but making real progress in meeting the environmental and social demands in Richmond, Ecuador, Burma and Kazakhstan would be a great start. Let’s not forget Angola, Chad, the Philippines and Iraq. Closer to home, there are plenty of opportunities to show Chevron is a model corporate citizen in Alaska, Colorado, New York, New Jersey, Mississippi, Utah and Wyoming.
In the process of bringing all of these sites up to snuff, Chevron could be doing the entire global oil industry a favor, while granting itself a competitive advantage. None of the 7 oil companies that now rank among the largest corporations in the world want Chevron to make any of these changes – fearing that then they’ll each have to follow suit. The truth of the matter is that whichever oil company comes clean first will be able to differentiate from the other brands – and have a prime opportunity to make an impression with consumers factoring “green” and social responsibility into purchasing decisions. Just think where Wal-Mart was five years ago when it had its own PR problems.
Perhaps Chevron could develop a new global standard for oil operations that is state-of-the-art and which would apply to all of its facilities located throughout the world. The company could pre-empt non-governmental organization (NGO campaigns by volunteering to lead in developing this standard with the help of its fellow oil companies – and then ask the NGO’s if they are willing to stop their campaigns and work on solutions with them. Now, that would be a bold move certainly winning points with shareholders. It would probably shock more than a few NGO activists as well.
Beyond cleaning up its act at existing oil operations, Chevron could follow in the footsteps of some of its competitors, such as BP and Shell, and diversify its portfolio of products. Few know it, but Chevron produces more geothermal energy – a renewable resource derived from volcanic activity beneath the earth’s crust – than any other company in the world. Yet today, the firm only devotes about 3 percent of its total investment in developing carbon free power sources. As CEO, I would bump that up to 10 percent immediately, and then double that commitment to 20 percent within the next five years.
And here’s a quick bit of advice. If you are going to install solar panels on highly visible public institutions in the communities where you operate – including Richmond, California – hire locally and work with local neighborhood groups looking to revive local economies with President Obama’s promised green jobs.
To put this all into perspective, remember only 36 countries have a larger Gross Domestic Product (GDP) than Chevron. Based on annual revenues, Chevron is the largest corporation operating in California and the fifth largest corporation in the world. Chevron was the second most profitable U.S. corporation last year, edging out General Electric, which has made its green “Ecomagination” campaign a cornerstone of its future business strategy.
If anyone has the financial muscle and capability to show the world that business can truly deliver environmental and social value in the oil business, that company is California’s Chevron.