Federal Courthouse, San Francisco.
Witness: Professor Louis Wells
One question that has been waiting in the wings in this case is the relationship between Chevron Nigeria Ltd.–the company operating the Parabe platform–and the other entities of Chevron Corporation. This morning, Professor Wells of the Harvard Business School gave in-depth testimony on the structure of Chevron Corporation. Prof. Wells diagrammed the rather complicated hierarchy of Chevron and its divisions, branching down from Chevron Corp. and Chevron USA (CUSA) through Chevron Overseas Production (COP) and then via a series of holding companies (Chevron Bermuda) to Chevron Nigeria Ltd.
Altogether, the Chevron corporate ‘family’ comprises some 2,000 independently incorporated entities. Just how independent those entities really are is very much at issue in this case, as the plaintiffs are suing the parent company-San Ramon-based Chevron Corporation-for the misdeeds of Chevron Nigeria Ltd.
So how independent is CNL?
Professor Wells’ answer: not very.
Based on a review of “a wall of boxes full of documents and depositions and over 50,000 pages of material”, Wells concludes that Chevron Corp. exercised “tight control” over most aspects of CNL. According to Prof. Wells, the CNL management was essentially rotated in by Chevron and all major procurement, personnel and marketing decisions were made by the parent company.
Procedures for exploration and production were dictated by the parent company through the Upstream Asset Development Process and the Chevron Development and Execution Process. Furthermore, CNL’s business plan for the late 1990s reflected the preeminence of the corporation’s interest over that of the local entity:
- grow production
- increase assets
- maintain competition among the 3 lowest cost producers in Nigeria
Professor Wells pointed out that CNL’s goals were entirely focused on cost reduction and production optimization and nowhere focused on maximizing profits. Similarly, the evaluation process for CNL management measured individual success in achieving these goals (cost & production) and had no mechanism for providing incentives for profits. In Prof. Wells’ opinion, this situation strongly indicates that Chevron Nigeria Ltd. was a production entity highly integrated into the corporate hierarchy and that the sales and marketing side (the profit side) was entirely in the purview of higher echelons in the structure.
Even more apposite, in the 1990s, Chevron had a common security policy developed through Chevron affiliate Corporate Security Department in London. This common policy dictated the creation of crisis management teams like the ones used to respond to the Parabe incident.
In sum, Prof. Wells concluded that Chevron’s management structure did not correspond to the incorporation structure and that CNL’s independence-having its own Board of Directors and Officers-was an adapation to U.S. tax law and to Nigeria’s petroleum laws.
Bob Mittelstaedt cross-examined the witness and in Prof. Wells he seemed to finally meet his match. Mr. Mittelstaedt spent the better part of two hours mischaracterizing Prof. Wells’ analysis as a criticism of Chevron. Professor Wells was having none of it. His analysis of Chevron’s corporate structure was entirely descriptive; there was nothing normative about it. Mittelstaedt repeatedly asked, ‘You don’t think there’s anything improper about Chevron’s structure, do you?’ ‘You don’t think this violates good business practice do you?’ ‘You’re not suggesting that there’s anything illegal?’
But Professor Wells stayed on message throughout: ‘I’m not saying the structure is improper-in fact most multinationals have similar structures-my point is simply that it is tightly controlled by the parent company.’ [paraphrasing]
One of Mittelstaedt’s strawmen took a beating: Wells had pointed out that all of CNL’s crude oil is sold to Chevron International Trading Company who remits credit to CNL through bookentries and who then sells to 3rd party buyers. Mittelstaedt kept asking if Wells had evidence that CNL wasn’t getting the best available price for the crude–to which Wells confidently replied, ‘I never said that CNL was getting a bad deal from CIT, that’s besides the point. I only stated that CNL doesn’t have a choice.’
Mittelstaedt did his best to cast doubt on Prof. Wells’ ‘tight-control’ hypothesis, although for the first time, Chevron’s attorneys did not attempt to undermine an expert witness’s credibility–didn’t want to tousle with a Harvard Business School prof I imagine.
In the end, I’m not sure he was terribly successful. In the light of Mr. Wells’ testimony, it was clear that the management of CNL and Chevron Corporation were inextricably linked.