Chevron Corporation DEFA14A 2012
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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May 21, 2012
Dear Chevron Stockholder:
We urge you to vote against all of the stockholder proposals set forth in Chevrons 2012 Proxy Statement for the reasons described in the Proxy Statement and discussed below. We are providing this additional communication because we think it is important to respond to the factual errors and poor quality of analysis contained in the report recently released by ISS Proxy Advisory Services.
ISS has recommended that its clients vote for seven of eight stockholder proposals. ISSs recommendations are entirely inconsistent with the reports positive profile of Chevrons financial condition and performance against ISSs selected peers (page 3), Governance Risk Indicators (page 4), compensation profile (pages 5-6), and support for all director-nominees (pages 8-10). ISS itself notes that the company has no governance issues at this time. Despite this, ISS has disregarded your Boards rationale for recommending that Chevron stockholders vote AGAINST these stockholder proposals.
This letter is focused on the stockholder proposals regarding exclusive forum provisions, independent chairman, special stockholder meetings and director with environmental expertiseItems 4, 5, 10 and 11 on the proxybecause those are the items with the most errors or misleading statements in the ISS report.
Item 4 on the Proxy: Stockholder Proposal Regarding Exclusive Forum Provisions
Your Board adopted the exclusive forum by-law provision to protect stockholders economic interests and to mitigate the risks of excessive litigation costs. ISSs recommendation is premised on a deeply flawed requirement that companies incur substantial harm as a result of multi-state shareholder litigation BEFORE adopting an exclusive forum provision. In its analysis, ISS states, [i]n this case, directors are elected annually under a majority vote standard, and the company does not have a poison pill in place. However, the company discloses no substantial specific harm that the company has suffered as a result of multi-state shareholder litigation. Contrary to ISSs policy position, your Board believes that a board should not wait until a company incurs substantial specific harm BEFORE implementing measures to prevent or mitigate the harm.
ISSs analysis ignores the fact that multi-forum litigation is a growing phenomenon. In fact, Chevron is currently facing identical litigation challenging the same Board action in both California and Delaware. It is not in our stockholders interests to force the company to pay the significant extra costs associated with duplicative litigation.
In addition, ISSs report suggests that multi-jurisdictional litigation is a problem only in the mergers and acquisitions context. This is also inaccurate and misleading. While your Boards response to the stockholder proposal cites materials focusing specifically on multi-forum litigation in the merger context, there are ample public lawsuit records available to show that there are a variety of contexts in which this phenomenon is occurring regularly for public companies. Your Board narrowly tailored the by-law to focus on only those categories of lawsuits that have a clear and highly developed track record of multi-forum litigation issues. There is no way for the company to protect stockholders strong economic interest in preventing multi-forum litigation without a by-law that addresses each of the areas where that sort of litigation is prevalent. Your Board was careful, however, to limit Chevrons By-Law to ONLY those areas.
May 21, 2012
Finally, ISSs analysis contains factual inaccuracies. ISS claims that the exclusive forum provision in Chevrons By-Law is overbroad, reaching most potential shareholder suits. This statement is inaccurate and misleading. Chevrons exclusive forum by-law only applies to suits raising issues involving questions of Delaware law, not other stockholder suits. For example, stockholders can bring lawsuits under federal law that are not derivative in nature, such as tort claims or certain federal securities law claims, in any appropriate forum. All the by-law does is provide that derivative actions, or fiduciary duty claims, or internal affairs issues governed by Delaware law should be brought in Delaware rather than in multiple states. Yet even this common sense notion has two specific safeguards for stockholders: first, the Board may choose to waive the provision, and second the Boards decision to enforce the provision is constrained by its own fiduciary duties to the Companys stockholders. ISSs report fails to acknowledge either of these safeguards.
Item 5 on the Proxy: Stockholder Proposal Regarding Independent Board Chairman
Chevrons current board leadership structure was strongly supported by a substantial majority of stockholders in 2008. ISSs recommendation in favor of the proposal regarding an independent Board Chairman represents an unexplained reversal of its 2008 recommendation on a similar proposal and rests on one criterion that is completely indefensible.
In 2008, ISSs voting policy and Chevrons governance structure, policies and disclosure were the same as they are now. Reiterating the same analytical criteria that appear in the current report, in 2008 ISS noted that [Chevrons] Corporate Governance Guidelines provide for the role of lead director whose duties mirror those required by our policy. In addition, ISS noted that the [C]ompany has taken several steps to provide a robust counter-balancing governance structure to the combined position of CEO/chair, including expanding the duties of the lead director, providing for the annual election of the chairman of the board, as well as providing a comparison of the duties and responsibilities of the chairman and lead director. Despite this, and despite no change in ISSs voting policy and Chevrons governance structure, policies and disclosure, ISS has reversed itself without any explanation to its clients.
ISS recommends that its clients vote in favor of this stockholder proposal solely because Chevrons lead independent director does not have explicit authority to approve information that is sent to the [B]oard. ISS offers no justification for this purported best practice or, more particularly, how, in Chevrons case, this differs materially from your lead independent directors approval of meeting agendas and schedules and consulting with your Board chairman on other matters pertinent to the Board. We believe that ISSs analysis and recommendation fails to take into consideration the particular circumstances of Chevron.
Item 10 on the Proxy: Stockholder Proposal Regarding Special Meetings
At the Companys 2010 annual meeting, approximately 80 percent of your fellow stockholders voted to approve the 15 percent threshold Chevron currently has for stockholders to call a special meeting. Despite this overwhelming support, ISS is recommending a vote in favor of the proposal to reduce the percentage of shares of Chevron common stock required to call a special meeting, from 15 percent to 10 percent.
ISSs analysis and recommendation are based upon an arbitrarily chosen special meeting threshold. ISS asserts that the lower 10 percent threshold is reasonable and in the best interests of shareholders. Yet, ISS offers no justification for or empirical basis to support this assertion. In contrast, your Boards positionand its earlier decision to set Chevrons special meetings threshold at 15 percentreflects the Boards extensive review of this issue and its consideration of the views of Chevrons stockholders.
May 21, 2012
ISSs analysis is also misleading. ISS asserts that [c]ommonly, companies will set a threshold to call special meetings at 10 percent of outstanding common stock. Yet, this purportedly common threshold of 10 percent is not even supported by the statistics ISS cites in its own analysis. Of the 48 percent of Russell 3000 companies permitting its stockholders to call special meetings, hardly even a quarter of those have a 10 percent threshold. ISS also asserts that merely because no single [Chevron stockholder] would have the ability to unilaterally call a special meeting of shareholders a ten percent threshold is preferable. Yet, ISS offers no justification for this assertion. Indeed, with a ten percent threshold as few as two of Chevrons stockholders could call for a special meeting. In view of Chevrons large and diverse stockholder base, your Board believes that a 15 percent threshold is much more reasonable and prevents a small group of stockholders from calling special meetings on topics that are not of interest to a majority of stockholders and helps to avoid waste of corporate resources.
Item 11 on the Proxy: Stockholder Proposal Regarding Appointment of Independent Director With Environmental Expertise
Your Board believes that members of a board should not be selected exclusively on the basis of a single criterion or area of expertise. Special interest or narrowly focused directors do not contribute to the totality of the deliberative processes and functions of a board. ISS is recommending a vote in favor of the proposal regarding the appointment of an independent director with environmental expertise despite a critical aspect of the proposal, which calls for that director having designated responsibility on the Board for environmental matters.
The proposal seeks to reserve a Board seat for an environmental expert with the designated responsibility for environmental matters. It is inappropriate to designate one director as having sole responsibility for a particular subject matter. This is contrary to the fiduciary duties of the entire board and contradicts acknowledged best practices concerning the role of the board in corporate governance. Moreover, Chevrons Board already includes directors with experience on environmental matters and has access to employees, contractors and inside and outside advisors with significant environmental expertise. In its analysis, ISS plainly recognizes that a director should not necessarily have a designated responsibility, as per the proponents request. It is troubling, then, that ISS has chosen to support this proposal despite their recognition of its deep flaw.
We urge you to carefully consider these and other flaws in ISSs report and recommendations. ISSs recommendations are entirely inconsistent with ISSs own findings with respect to Chevrons corporate governance profile and practices.
We urge you to vote AGAINST Items 4 through 11 on the proxy.
/S/ JOHN S. WATSON
John S. Watson
Chairman and CEO
NATIONAL ASSOCIATION OF PUBLIC PENSION ATTORNEYS 7248 South Land Park Drive, Suite 102, Sacramento, CA 95831
2012 Proxy Season, A Shareholder Proposal on
Forum Selection and a Fortune Ten Company:
A Personal Reflection
Richard H. Koppes
NAPPA Administrative Officer
I want to encourage you to review our proxy statement and vote your shares of Chevron common stock before our Annual Meeting of Stockholders on May 30. The Proxy Statement contains important information about the items of business to be considered at the meeting.
Stockholders are voting on several important items at our Annual Meeting, including eight stockholder proposals. Your Board has considered each of these in detail and recommends that stockholders vote AGAINST them. I encourage you to read these proposals and your Boards response to each proposal on pages 72 through 89 of the Proxy Statement.
How You Can Vote
You should have received an email from id@ProxyVote.com at your company-issued email account around Friday, April 20, with information about voting your shares of Chevron common stock in your employee retirement or other benefit plans and a link to our Proxy Statement.
The email also included a link to ProxyVote.com. At Proxyvote.com you can vote your shares. It only takes a few minutes. Once you have accessed the site, you will need your four-digit personal identification number (PIN) to proceed. Your PIN is the last four digits of your Social Security number, unless you previously changed it. If you have forgotten your PIN, please follow the instructions on Proxyvote.com.
You may vote until 11:59 p.m. (ET) on Thursday, May 24.
Your Vote Is Important
You are a valued colleague and stockholder. Your vote is important, and I encourage you to vote at your earliest convenience.