At The Motley Fool, we're not just about buying stocks -- we're about buying businesses. And we believe the best businesses serve all of their stakeholders in the process of turning a profit. This includes investors, customers, employees, and, more generally, the world. Not too long ago, we revealed our favorite stakeholder-friendly companies, but we've also written about those that came up a bit short.
Last summer, we discussed an instance of irresponsible corporate behavior at Dow Chemical (NYSE:DOW). For years, Dow has fought tooth and nail to separate itself from the Bhopal, India, chemical spill, a tragedy that took place at the hands of its subsidiary in 1984. As a financial media outlet, it is our responsibility to bring attention to these types of company issues. For this reason, we decided to dig into a similar case recently -- a decades-old Ecuadorian oil spill linked to energy giant Chevron (NYSE:CVX). We mentioned this case briefly in our Dow article:
In Ecuador, beginning in the 1960s, Texaco discharged billions of gallons of oil waste directly into the Amazon rainforest, creating an oil spill that ruined the lives of countless indigenous people. Chevron, after acquiring Texaco (and its liabilities!) in 2001, has refused to pay the $18 billion* fine ordered by Ecuadorian courts, claiming fraud. In a company statement, Chevron argues that PetroEcuador, the state-owned oil company that took over Texaco's facilities after 2001, should be held responsible.
Similar to Dow, Chevron was not directly involved in the accident in the Amazon. However, the acquisition of Texaco should have transferred any liabilities onto its books, much like buying a car with an "as-is" label. This legal concept is referred to as "successor liability," but it failed to occur because of complex legal maneuvers and an assortment of jurisdiction issues.
Chevron argues that Texaco actually settled this case once before in the 1990s, admitting its missteps and complying with a remediation clean-up program. However, the settlement failed to address all of the parties that were victims of the spill.
So, a new trial commenced -- this time in Ecuador -- where mounting evidence shows the playing field might have been tilted against Chevron. The company points to instances of fraud in the Ecuadorian trials that have been noted by the International Arbitration Panel at the Hague and several U.S. judges. Just last Friday, in fact, a key environmental expert in the trial against Chevron completely disavowed its original testimony, noting the process was "fatally tainted." This comes on top of the admission earlier this year by an Ecuadorian judge who claims he was bribed by the plaintiffs. Both sides continue to exchange blows, with each exchange leaving investors more perplexed about the potential outcome.
And the stakes couldn't be much higher. As mentioned above, Chevron could be on the hook for an $19 billion fine, which amounts to more than 85% of the $22 billion in cash on its balance sheet. To try to get to the bottom of the matter, the Fool decided to talk to Chevron and its adversaries recently. We realize we can’t possibly uncover and present all of the details of this convoluted legal case in a single article, but perhaps the best thing we can do is provide a platform to allow investors to hear from both sides. Furthermore, Chevron is currently a recommendation in one of The Motley Fool's premium newsletters, so understanding the ins and outs of this case is of the utmost importance to us.
My colleague James Early, who runs our Income Investor service, sat down with one of the plaintiffs' attorneys and Chevron's own representatives. Their discussion, which took place prior to the most recent revelations of foul play, reveals the complex nature of international litigation. At the same time, as James said in a recent newsletter, "the "legal" requirements do not always equate with what is ethically "right," so companies -- and investors -- need to make their own decisions. And sometimes the hardest part is not the ethics but knowing whose story to believe in the first place."
*The $18 billion fine has since increased to $19 billion.
Isaac Pino, CPA, has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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