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ISS Proxy Advisory Services Publication Date: 10 May 2012 Chevron Corporation © 2012 Institutional Shareholder Services

ISS Proxy Advisory Services USA

Chevron Corporation Ticker: CVX | Exchange: New York Stock Exchange | Index: S&P 500 Sector: Integrated Oil & Gas | GICS: 10102010 | Meeting Type: Annual Meeting Date: 30 May 2012 | Record Date: 4 April 2012 State of Incorporation: Delaware | Meeting ID: 714220

Primary Contact Kim Castellino Peter Kimball Alex Gallimore-ESG Research [email protected] Publication Date 10 May 2012

Executive Summary

There is no compelling company-specific reason to retain the overbroad exclusive venue bylaw provision.

A policy to appoint an independent board chairman would be in the best interests of shareholders.

Shareholders would benefit from additional information regarding the company's lobbying policies and related oversight mechanisms.

Additional information regarding the company's current assessment policies and procedures for establishing operations in politically or socially high-risk markets would benefit shareholders.

The company could provide additional information on how it is managing its hydraulic fracturing operations.

The lowering of the special meeting threshold and removal of the current restrictions would enhance the company's governance and shareholders' rights.

The company would benefit from independent environmental issue experience or expertise relevant to the oil & gas industry represented at the board level.

Financial Performance 1-year 3-year 5-year

Company TSR (%) 20.16 16.96 11.24

GICS 1010 TSR (%) -11.87 21.14 -0.86

S&P500 TSR (%) 2.11 14.11 -0.25 TSRs are as of closest month end to company's FYE. More information

Profiles and Data Financial Profile .................................................................. 3 Compensation Profile ......................................................... 5 Vote Results for Annual Meeting 25 May 2011 ................. 7 Board Profile ...................................................................... 8 Company Updates ............................................................ 10 Meeting Agenda and Proposals ....................................... 11 Equity Ownership Profile ................................................. 51 Additional Information ..................................................... 51

Agenda and Recommendations United States Policy

Item Code Proposal Mgt. Rec. ISS Rec. Focus

Management Proposals

1 M0201 Elect Director Linnet F. Deily FOR FOR

2 M0201 Elect Director Robert E. Denham FOR FOR

3 M0201 Elect Director Chuck Hagel FOR FOR

4 M0201 Elect Director Enrique Hernandez, Jr. FOR FOR

5 M0201 Elect Director George L. Kirkland FOR FOR

6 M0201 Elect Director Charles W. Moorman, IV FOR FOR

7 M0201 Elect Director Kevin W. Sharer FOR FOR

mailto:[email protected]

http://www.issgovernance.com/policy/CompanyFinancialsFAQ


Item Code Proposal Mgt. Rec. ISS Rec. Focus

8 M0201 Elect Director John G. Stumpf FOR FOR

9 M0201 Elect Director Ronald D. Sugar FOR FOR

10 M0201 Elect Director Carl Ware FOR FOR

11 M0201 Elect Director John S. Watson FOR FOR

12 M0101 Ratify Auditors FOR FOR

13 M0550 Advisory Vote to Ratify Named Executive Officers' Compensation FOR FOR

Shareholder Proposals

14 S0146 Repeal Exclusive Forum Bylaw AGAINST FOR

15 S0107 Require Independent Board Chairman AGAINST FOR

16 S0807 Report on Lobbying Payments and Policy AGAINST FOR

17 S0423 Adopt Guidelines for Country Selection AGAINST FOR

18 S0744 Report on Hydraulic Fracturing Risks to Company AGAINST FOR

19 S0710 Report on Accident Risk Reduction Efforts AGAINST AGAINST

20 S0235 Amend Articles/Bylaws/Charter -- Call Special Meetings AGAINST FOR

21 S0220 Request Director Nominee with Environmental Qualifications AGAINST FOR Recommendations against management | Items deserving attention due to contentious issues or controversy

Key Engagement Activities Dates Topic(s) Notes Initiated By Outcome

16 April 2012 Shareholder Proposal – Governance

Company discussed its rationale for the Exclusive Venue Bylaw

Issuer/Solicitor Explanation of Company Practice/ Rationale


Financial Profile

Business Description Engages in fully integrated petroleum operations, chemicals operations, coal mining, power and energy services

Company Snapshot Industry: Oil, Gas & Consumable Fuels (GICS 10102010)

Market Cap $210,796.2M

Shares Outstanding 1,981.2M

YTD Performance 0.0%

Closing Price $106.40

EPS $13.54

Book Value/share $61.27

Sales/share $123.35

Annual Dividend $3.09

Dividend Yield 2.9%

Price to Earnings 7.9

Price to book value 1.7

Price to cash flow 5.3

Price to sales 0.9 Data as of fiscal year-end. YTD Performance from last FY end to meeting record date.

Stock Performance

Historical Financial Performance ($ millions) Profit & Loss 2011 2010 2009

Revenue 236,286 189,607 159,293

Operating Income after Dep. 38,299 25,619 14,322

Net Income 26,895 19,024 10,483

Working Capital 19,634 19,829 11,005

EBITDA 51,210 38,682 26,432

Cash Flow 2011 2010 2009

Operating Activities ($ Flow) 41,098 31,359 19,373

Total cash from investing -27,489 -20,915 -16,572

Total cash from financing -11,772 -5,170 -3,546

Net change in cash 1,804 5,344 -631

Comparative Performance

CVX AAPL BA CAT DOW XOM

Gross Margin 23.4% 42.2% 20.8% 32.2% 18.9% 18.6%

Profit Margin 19.5% 31.6% 7.8% 11.1% 6.0% 15.7%

Operating Margin 15.7% 31.2% 8.2% 15.7% 6.9% 11.6%

EBITDA Margin 21.0% 32.9% 10.2% 19.9% 11.5% 14.9%

Return on Equity 22.2% 33.8% 114.1% 38.3% 13.1% 26.6%

Return on Investment 20.4% 33.8% 29.4% 12.9% 5.8% 24.1%

Return on Assets 12.8% 22.3% 5.0% 6.1% 3.5% 12.4%

P/E 7.9 13.6 13.6 11.9 14.0 10.1

Debt/Assets 4.8 0.0 15.5 42.5 31.2 5.1

Debt/Equity 8.4 0.0 351.9 268.5 96.9 11.0

Total Return CVX AAPL BA CAT DOW XOM

1 Yr TSR 20.16% 34.39% 15.07% -1.53% -13.14% 18.60%

3 Yr TSR 16.96% 49.70% 23.40% 30.27% 27.75% 4.56%

5 Yr TSR 11.24% 37.72% -1.24% 10.98% -2.68% 4.29%

Peer Companies: AAPL: Apple | BA: The Boeing Company | CAT: Caterpillar | DOW: The Dow Chemical Company | XOM: Exxon Mobil Source: Standard & Poor's Compustat Xpressfeed. Compustat data reflects companies' latest report FYend data, as "standardized" by Compustat, so there may be a difference from what is reported in the 10-K or 10-Q. Compustat standardizes the original filings to allow for accurate comparison across companies and industries. For a list of frequently asked questions, go to http://www.issgovernance.com/policy/CompanyFinancialsFAQ

http://www.issgovernance.com/policy/CompanyFinancialsFAQ


Governance Risk Indicators

As of 2 May 2012

Board Structure LOW CONCERN Score: 62.1

Factor Impact

The chairman of the board is an executive/insider

81.82% of the directors are independent and were elected by shareholders

The roles of chairman and CEO have not been separated

The company has identified a lead independent director

18.18% of the directors are former or current employees of the company

The company discloses board/governance guidelines

No director received the support of less than 50% of votes cast at the last annual meeting

No directors were involved in material RPTs

Compensation LOW CONCERN Score: 100.0

Factor Impact

The company discloses that it has established a clawback policy

There are no change-in-control agreements

The company does not have an employment agreement with the CEO

The company discloses complete information on the short-term cash incentive plan

At least one new or substantively amended plan submitted in the last 3 years prohibits share recycling for options/SARs

All of the company's equity plans expressly forbid option repricing without shareholder approval

Directors are subject to robust stock ownership guidelines

The company's active equity plans are silent on cash buyouts of underwater options

Shareholder Rights LOW CONCERN Score: 100.0

Factor Impact

The company's charter and bylaws may be amended by a simple majority vote

All directors are elected annually

15% of share capital is needed to convene a special meeting

Shareholders may act by written consent

The company has a majority vote standard with a director resignation policy

The board is authorized to issue blank check preferred stock

The board has not ignored any majority-supported proposals

The company does not have a poison pill in effect

Audit LOW CONCERN Score: 75.0

Factor Impact

Non-audit fees represent 5.82% of total fees

The auditor issued an unqualified opinion in the past year

The company has not restated financials for any period within the past 2 years

The company has not made late financial disclosure filings in the past 2 years

A securities regulator has not taken action against the company in the past 2 years

The company disclosed no material weaknesses in its internal controls in the past 2 years

A securities regulator has not taken action against a director or officer of the company in the past 2 years

No director or officer of the company is currently under investigation by a regulatory body

indicates practices that increase concern, indicates practices that reduce concern, indicates practices with no impact on concern.

GRId scores and concerns are derived from publicly disclosed data on the company’s governance practices. While company practices that raise concerns in GRId are in many cases factors that weigh against the company in analyzing certain proposals, ISS recommendations are based on situational proposals and the related qualitative aspects of our review. GRId category scores range from 0 to 100 (maximum of 75 for Audit). In the US, scores from 0 to 25 points indicate High Concern, >25 to 50 points indicate Medium concern, and scores >50 indicate Low concern. Thresholds for other markets, together with more information, are available in the GRId technical document. For more information on GRId, visit www.issgovernance.com/grid-info

http://www.issgovernance.com/grid-info


Compensation Profile Executive Pay Overview Compensation of Named Executive Officers for FY 2011

($ in thousands) J. Watson G. Kirkland M. Wirth P. Yarrington R. Pate

Chairman and CEO Vice Chairman and

Executive Vice President

Executive Vice President

Vice President and Chief Financial Officer

Vice President and General Counsel

Base Salary 1,571 1,271 939 843 726

Deferred comp & pension & all other comp

6,870 5,740 2,564 2,645 212

Bonus & non-equity incentives 4,000 2,600 1,500 1,425 1,075

Restricted stock 5,065 2,867 3,572 3,572 3,782

Option grant 10,486 5,860 4,071 4,071 2,930

Total 27,991 18,309 12,646 12,556 8,725

CEO as multiple of the 2nd

highest exec: 1.53 CEO as multiple of the average NEOs: 2.14 Source: ISS ExecComp Analytics Total pay is sum of all reported pay elements, using ISS' Black-Scholes estimate for option grant values.

CEO Pay

Pay for Performance

Relative Alignment – Weighted Average of 1- & 3-yr rankings Absolute Alignment – 5-year Pay vs. TSR

The chart plots pay for the company () and its peers (). The gray bar represents the area where pay and performance demonstrate alignment.

2007 2008 2009 2010 2011

Pay($000) 15,994 15,445 18,901 19,276 27,991

Indexed TSR 130.51 106.47 115.19 141.75 170.33

CEO O Reilly O'Reilly O'Reilly Watson Watson

Indexed TSR represents the cumulative total return of the company's stock for a five-year fiscal period based on a $100 investment at the start of the first year, and reinvestment of all dividends. The table shows the value of the investment at the end of each year.

0%

50%

100%

0% 50% 100%

Pe

rfo

rman

ce

Pay

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

2007 2008 2009 2010 2011

CEO

Pay

, $0

00

Pay TSR


Magnitude of Pay

Pay in $000

The gray band represents 25th to 75th percentile of CEO pay of ISS' selected peer group with the black line representing the 50thpercentile.

Option Valuation Assumptions for CEO's last FY grant

Company ISS

Volatility (%) 31.00 37.50

Dividend Yield (%) 3.60 3.27

Term (yrs) 6.20 10.00

Grant date fair value per option 21.24 30.84

CEO's Grant Date Fair Value ($ in 000)

7,222 10,486

Source: ISS ExecComp Analytics, Standard & Poor's Xpressfeed

ISS Selected Peers Apple Inc., AT&T Inc., Caterpillar Inc., ConocoPhillips, Exxon Mobil Corporation, General Electric Company, Hewlett-Packard Company, Intel Corporation, International Business Machines Corporation, Microsoft Corporation, The Boeing Company, The Dow Chemical Company, United Parcel Service, Inc., United Technologies Corporation, Verizon Communications Inc.

CEO Wealth Accumulation CEO: J. Watson Potential Termination Payments:

CEO tenure at FYE: 1.9 years Involuntary termination without cause: $8,916,351

Present value of all accumulated pension: $15,605,452 Termination after a change in control: $8,916,351

Value of accumulated NQDC: $6,090,971

CEO stock owned: $14,175,140 Represents the number of common shares beneficially owned as shown in the company's beneficial ownership table, excluding options exercisable within 60 days, in the most recent proxy statement multiplied by the company's fiscal year end closing price.

Company Selected Peer Group

$ Revenue (or assets for financial companies) in millions

The chart displays the size of the company () relative to its proxy disclosed peers (). The gray band represents a range of 0.5x to 2x the company's size by revenue (or assets, for financial firms). Only publicly-traded peers are shown in the chart.

Dilution

Dilution (%)

Chevron Corporation 7.11

Peer group median 6.91

Peer group weighted average 4.11

Peer group 75th percentile 10.69

Burn Rate

Non-Adjusted (%) Adjusted (%)

1-year 0.72 0.72

3-year average 0.74 0.74

Dilution is the sum of the total amount of shares available for grant and outstanding under options and other equity awards (vested and unvested) expressed as a percentage of total basic common shares outstanding as of the record date. The dilution figure typically excludes employee stock purchase plans (ESPPs) and 401(k) shares. The underlying information for the company is based on the company's equity compensation table in the most recent proxy statement or 10-K. Burn rate is calculated as the number of shares granted in each fiscal year, including stock options, restricted stock (units), actual performance shares delivered under the long-term incentive plan or earned deferred shares, to employees and directors divided by weighted average common shares outstanding. The adjusted burn rate places a premium on grants of full-value awards using a multiplier based on the company's annual volatility.

- 10,000 20,000 30,000 40,000

The company's total CEO pay is 1.26 times the median of its peers.

0 100,000 200,000 300,000 400,000 500,000


Vote Results for Annual Meeting 25 May 2011

Proposal Mgmt Rec Disclosed

Result % For

Impact of excluding abstains*

Focus**

1 Elect Director L.F. Deily For Majority 98.8

2 Elect Director R.E. Denham For Majority 97.9

3 Elect Director R.J. Eaton For Majority 98.3

4 Elect Director C. Hagel For Majority 98.8

5 Elect Director E. Hernandez For Majority 97.1

6 Elect Director G.L. Kirkland For Majority 99.0

7 Elect Director D.B. Rice For Majority 98.7

8 Elect Director K.W. Sharer For Majority 97.0

9 Elect Director C.R. Shoemate For Majority 98.4

10 Elect Director J.G. Stumpf For Majority 97.1

11 Elect Director R.D. Sugar For Majority 95.0

12 Elect Director C. Ware For Majority 89.2

13 Elect Director J.S. Watson For Majority 96.9

14 Ratify Auditors For Pass 99.0

15 Advisory Vote to Ratify Named Executive Officers' Compensation

For Pass 97.8

16 Advisory Vote on Say on Pay Frequency One Year Annual 83.7*** +0.5

17 Request Director Nominee with Environmental Qualifications

Against Fail 24.8

18 Amend Bylaws to Establish a Board Committee on Human Rights

Against Fail 3.0 +2.3

19 Include Sustainability as a Performance Measure for Senior Executive Compensation

Against Fail 5.6

20 Adopt Guidelines for Country Selection Against Fail 23.9

21 Report on Financial Risks of Climate Change Against Fail 7.3

22 Report on Environmental Impacts of Natural Gas Fracturing

Against Fail 40.5

23 Report on Offshore Oil Wells and Spill Mitigation Measures

Against Fail 8.6

*Change in "% For" if only votes cast FOR or AGAINST are counted. **Items with a majority of votes cast FOR shareholder proposal or AGAINST management proposal or director election ***Reflects the voting option that received the highest number of votes cast. Voting options included Annual, Biennial, Triennial, or Abstain


Board Profile Vote standard: The company has adopted a majority vote standard (of shares cast) for the election of directors with a plurality carve-out for contested elections, and has a director resignation policy in its bylaws/charter.

Director Independence & Affiliations Executive Directors

On Ballot

Name Affiliation ISS

Classification Atten-dance

Age Tenure Term Ends

Outside Key Committees

Boards CEO Audit Comp Nom

John S. Watson CEO/Chair Insider 55 3 2013 0

George L. Kirkland Insider 61 2 2013 0

Non-Executive Directors

On Ballot

Name Affiliation ISS

Classification Atten-dance

Age Tenure Term Ends

Outside Key Committees

Boards CEO Audit Comp Nom

Robert E. Denham Lead Director Independent

Outsider 66 8 2013 4 M C

Linnet F. Deily Independent

Outsider 66 6 2013 1 M

Charles T. Hagel Independent

Outsider 65 2 2013 0 M

Enrique Hernandez Jr. Independent

Outsider 56 4 2013 3 F

Charles W. Moorman IV

Independent

Outsider 60 0* 2013 1 x

Kevin W. Sharer Independent

Outsider 64 5 2013 2 M M

John G. Stumpf Independent

Outsider 58 2 2013 2 x F

Ronald D. Sugar Independent

Outsider 63 7 2013 3 C F

Carl Ware Independent

Outsider 68 11 2013 1 C M

Average: 62 5 100% indep

100% indep

100% indep

M = Member | C = Chair F = Financial Expert

Director Notes John S. Watson The stepmother of John S. Watson and his late father's estate are receiving payments from a law firm in

connection with the firm's buyout in January 2008 of his father's partnership and real property interests. The company retained the firm in late 2008. In 2011, the company paid $179,000 to the firm and expects to pay it approximately $120,000 in 2012. (Source: DEF14A, 4/12/12, pp. 22, 23.)

Robert E. Denham 1) During 2011, Robert E. Denham was a director of for-profit entities with which the company conducts business. 2) Denham was also a director or trustee of, or similar advisor to, not-for-profit entities to which the company contributed funds in 2011. (Source: DEF14A, 4/12/12, p. 17.)

Linnet F. Deily 1) During 2011, Linnet F. Deily was a director of for-profit entities with which the company conducts business. 2) Deily was also a director or trustee of, or similar advisor to, not-for-profit entities to which the company contributed funds in 2011. (Source: DEF14A, 4/12/12, p. 17.)

Charles T. Hagel 1) During 2011, Charles T. Hagel was a director of for-profit entities with which the company conducts business. 2) Hagel was also a director or trustee of, or similar advisor to, not-for-profit entities to which the company contributed funds in 2011. (Source: DEF14A, 4/12/12, p. 17.)


Enrique Hernandez Jr.

1) The company purchased services from Inter-Con Security Systems of Liberia Limited, a subsidiary of Inter-Con Security Systems, Inc. (Inter-Con), amounting to less than 1 percent of Inter-Con's most recent annual consolidated gross revenues. Enrique Hernandez, Jr. is chairman, CEO, president and a significant shareholder of Inter-Con. 2) During 2011, Hernandez was a director of for-profit entities with which the company conducts business. 3) Hernandez was also a director or trustee of, or similar advisor to, not-for-profit entities to which the company contributed funds in 2011. (Source: DEF14A, 4/12/12, p. 17.)


1) The company purchased and sold products and services from Norfolk Southern Corporation amounting to less than .019 percent of the company's or that firm's most recently reported annual consolidated gross revenues. Charles W. Moorman, IV is the chairman, CEO, and president of that firm. 2) During 2011, Moorman was a director of for-profit entities with which the company conducts business. 3) Moorman was also a director or trustee of, or similar advisor to, not-for-profit entities to which the company contributed funds in 2011. (Source: DEF14A, 4/12/12, p. 17.)

Kevin W. Sharer 1) Amgen Inc. purchased products and services from the company amounting to less than .001 percent of the company's most recently reported annual consolidated gross revenues. Kevin W. Sharer is an executive officer of that firm. 2) During 2011, Sharer was a director of for-profit entities with which the company conducts business. 3) Sharer was also a director or trustee of, or similar advisor to, not-for-profit entities to which the company contributed funds in 2011. (Source: DEF14A, 4/12/12, p. 17.)

John G. Stumpf 1) The company utilized Wells Fargo & Company (Wells Fargo) for commercial banking, brokerage and other services amounting to less than .087 percent of that firm's most recently reported annual consolidated gross revenues. Wells Fargo paid interest to the company in connection with timed deposits and similar transactions amounting to less than .001 percent of the company's most recently reported annual consolidated gross revenues. John G. Stumpf is the chairman, CEO and president of Wells Fargo. 2) During 2011, Stumpf was a director of for-profit entities with which the company conducts business. 3) Stumpf was also a director or trustee of, or similar advisor to, not-for-profit entities to which the company contributed funds in 2011. (Source: DEF14A, 4/12/12, p. 17.)

Ronald D. Sugar 1) During 2011, Ronald D. Sugar was a director of for-profit entities with which the company conducts business. 2) Sugar was also a director or trustee of, or similar advisor to, not-for-profit entities to which the company contributed funds in 2011. (Source: DEF14A, 4/12/12, p. 17.)

Carl Ware 1) During 2011, Carl Ware was a director of for-profit entities with which the company conducts business. 2) Ware was also a director or trustee of, or similar advisor to, not-for-profit entities to which the company contributed funds in 2011. (Source: DEF14A, 4/12/12, p. 17.)

* = has not been previously presented to shareholders for election

Board and Committee Summary

Members Independence Meetings

Full Board 11 82% 6

Audit 3 100% 10

Compensation 4 100% 4

Nomination 4 100% 6

Director Employment & Compensation

Name Primary Employment

Outside Boards Inter-lock

Total Compensation

($)

Shares Held (000)

Options (000)

Total (000)

Voting power

(%)

John S. Watson CEO, Chairman - Chevron Corporation

* 133 747 880 <1

Robert E. Denham

Attorney/Counsel

The New York Times Company, Fomento Economico Mexicano S.A.B. de C.V., UGL Limited, Oaktree Capital Group

308,991 41 0 41 <1

Linnet F. Deily Retired Honeywell International Inc.

313,991 15 1.46 17 <1


Name Primary Employment

Outside Boards Inter-lock

Total Compensation

($)

Shares Held (000)

Options (000)

Total (000)

Voting power

(%)

Charles T. Hagel Academic 301,199 3.05 0 3.05 <1

Enrique Hernandez Jr.

Other

McDonald's Corporation, Wells Fargo & Company, Nordstrom, Inc.

306,196 11 16 26 <1

George L. Kirkland

Vice Chairman, EVP of Upstream and Gas - Chevron Corporation

* 68 722 790 <1


CEO, Chairman, President - Norfolk Southern Corporation

Norfolk Southern Corporation

0 0.20 0 0.20 <1

Kevin W. Sharer Chairman - Amgen Inc.

Northrop Grumman Corporation, Amgen Inc.

301,199 19 0 19 <1

John G. Stumpf CEO, Chairman, President - Wells Fargo & Company

Target Corporation, Wells Fargo & Company

301,199 14 0 14 <1

Ronald D. Sugar Retired Air Lease Corporation, Apple Inc., Amgen Inc.

313,991 30 0 30 <1

Carl Ware Retired Cummins Inc. 308,991 35 0 35 <1

SUMMARY

Average # of Outside

Boards: 1.4

Directors

Holding Stock: 100%

Total

Ownership: 1,856

Interlock = this director is an executive at a company where a board member serves as an executive of the current company. Options = shares that can be acquired upon exercise of options within 60 days *For executive director data, please refer to Executive Compensation Profile.

Company Updates Update on Ecuador Litigation As noted in our 2011 analysis, on Feb. 14, 2011, the company announced that there was an adverse judgment from the Provincial Court of Justice of Sucumb os in Lago Agrio, Ecuador in an environmental lawsuit involving Texaco Petroleum Company.

On Feb. 9, 2011, the arbitral tribunal issued an Order for Interim Measures requiring the Republic of Ecuador to take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment against Chevron in the Lago Agrio case pending further order of the tribunal. On Jan. 25, 2012, the tribunal converted the Order for Interim Measures into an Interim Award. Chevron filed a renewed application for further interim measures on Jan. 4, 2012, and the Republic of Ecuador opposed Chevron’s application and requested that the existing Order for Interim Measures be vacated on Jan. 9, 2012. On Feb. 16, 2012, the tribunal issued a Second Interim Award mandating that the Republic of Ecuador take all measures necessary (whether by its judicial, legislative or executive branches) to suspend or cause to be suspended the enforcement and recognition within and without Ecuador of the judgment against Chevron and, in particular, to preclude any certification by the Republic of Ecuador that would cause the judgment to be enforceable against Chevron. On Feb. 27, 2012, the tribunal issued a Third Interim Award confirming its jurisdiction to hear Chevron’s arbitration claims. On April 9, 2012, the tribunal issued a scheduling order to hear issues relating to the scope of the settlement and release agreements between the Republic of Ecuador and Texpet by late November 2012, with remaining issues to be considered thereafter. (see Item 21 for a timeline of the Ecuador litigation)


Meeting Agenda and Proposals Items 1-11. Elect Directors FOR

Vote Recommendation A vote FOR the director nominees is warranted.

Background Information Policies: Board Accountability | Board Responsiveness | Director Independence | Director Competence

Vote Requirement: The company has adopted a majority vote standard (of shares cast) for the election of directors with a plurality carve-out for contested elections, and has a director resignation policy in its bylaws/charter.

Discussion For more information, please see the Board Profile section above. Based on our current review and analysis, no adverse recommendations are warranted at this time.

Item 12. Ratify Auditors FOR

Vote Recommendation A vote FOR this proposal to ratify the company's auditor is warranted.

Background Information Policies: Auditor Ratification

Vote Requirement: Majority of votes cast (abstention not counted)

Discussion The board recommends that PricewaterhouseCoopers LLP be approved as the company's independent accounting firm for the coming year.

Accountants PricewaterhouseCoopers LLP

Auditor Tenure 19 years

Audit Fees $25,200,000

Audit-Related Fees $2,300,000

Tax Compliance/Preparation* $0

Other Fees $1,700,000

Percentage of total fees attributable to non-audit ("other") fees 5.82 %

*Only includes tax compliance/tax return preparation fees. If the proxy disclosure does not indicate the nature of the tax services and provide the fees associated with tax compliance/preparation, those fees will be categorized as "Other Fees."

Note that the auditor's report contained in the annual report is unqualified, meaning that in the opinion of the auditor, the company's financial statements are fairly presented in accordance with generally accepted accounting principles.

Analysis This request to ratify the auditor does not raise any exceptional issues, as the auditor is independent, non-audit fees are reasonable relative to audit and audit-related fees, and there is no reason to believe the auditor has rendered an inaccurate opinion or engaged in poor accounting practices.

https://www.governanceexchange.com/index2.php?x=mtx&i=398






Item 13. Advisory Vote to Ratify Named Executive Officers' Compensation FOR

Vote Recommendation The magnitude of CEO pay is a concern for shareholders especially given the lack of sufficient disclosure with regard to the process that determines incentive payouts. However, at this time, given the company's strong operational, financial, and stock price performance, on an absolute and relative basis, a vote FOR this proposal is warranted.

Background Information Policies: Executive Compensation Evaluation

Vote Requirement: Majority of votes cast (abstentions and broker non-votes not counted)

Executive Summary

Evaluation Component Level of Concern

Pay for Performance Evaluation Low

Non-Performance-Based Pay Elements Low

Peer Group Benchmarking Low

Severance/CIC Arrangements Low

Compensation Committee Communication & Responsiveness Low

Is the company under TARP? No

Discussion

As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (or under the Troubled Asset Relief Program if the company is a participant), the company has provided shareholders with a non-binding advisory vote on the compensation of named executive officers, as described in the Compensation Discussion and Analysis (“CD&A”) section of the proxy statement (including tabular and narrative presentations).

The proxy statement further notes that:

"This vote is nonbinding. The Board and the Management Compensation Committee, which is comprised solely of independent directors, expect to take into account the outcome of the vote when considering future executive compensation decisions to the extent they can determine the cause or causes of any significant negative voting results"

Pay-for-Performance Evaluation Concern: Low The chart below summarizes year-over-year CEO pay changes and comparison to the median of a peer group based on industry and size criteria. Aggregate pay for all other named executive officers (NEOs) is also shown, along with the ratio of most recent CEO and NEO pay to the company's net income and revenue. Please also refer to the Compensation Overview section earlier in the report.



Components of Pay

($ in thousands)

CEO CEO Peer Median

Other NEOS

J. Watson J. Watson D. O'Reilly

2011 Change 2010 2009 2011 2011

Base salary 1,571 6.2% 1,479 1,794 1,500 3,778

Deferred comp & pension 6,592 2,273 1,332 3,330 10,756

All other comp 277 25.8% 220 517 447 405

Bonus 0 0 0 0 0

Non-equity incentives 4,000 33.3% 3,000 3,000 1,498 6,600

Restricted stock 5,065 35.0% 3,752 5,069 7,659 13,765

Option grant 10,486 22.6% 8,551 7,188 639 16,931

Total 27,991 45.2% 19,276 18,901 22,135 52,236

% of Net Income 0.1% 0.2%

% of Revenue 0.1% 0.1%

Peer Companies: Apple Inc., AT&T Inc., Caterpillar Inc., ConocoPhillips, Exxon Mobil Corporation, General Electric Company, Hewlett-Packard Company, Intel Corporation, International Business Machines Corporation, Microsoft Corporation, The Boeing Company, The Dow Chemical Company, United Parcel Service, Inc., United Technologies Corporation, Verizon Communications Inc.. More information

Incentive Programs – Short-Term

Performance metrics/goals Safety and Operational Excellence; Financial Performance, Results of Operations; and Stockholder Return (see Comment)

Results adjusted? None disclosed

Discretionary component? The final Chevron Incentive Plan (CIP) award to take into account individual performance, including business performance in the areas of responsibility reporting to the NEO and his or her units’ operational excellence performance (safety, environmental stewardship, etc.) and capital stewardship

Discretionary bonus paid? No

CEO's last FY award ($) 4,000,000 (includes $3.74 million corporate performance award + $0.26 million individual performance award)

CEO's last FY award target 130% of base salary

Future performance metrics None disclosed

Incentive Programs – Long-Term

Award type(s) Performance-based stock, Time-based cash award, Time-based options

Option/restricted stock vesting Options vest in 3 annual installments; Performance Shares vest based on 3-year Relative TSR

CEO's last FY options granted (#) 340,000

CEO's last FY stock granted*(#) 53,000 performance shares (at target)

Current performance cycle 3 years (FY11 - FY13)

Current performance metrics/goals

3-year TSR relative to peer group: Threshold – Rank 4 of 5 (50% payout); Target – Rank 3 of 5 (100% payout); Maximum – Rank 1 of 5 (200% payout)

Results adjusted? No

Discretionary component? No

CEO equity pay mix* Performance-based: 32.57%; Time-based: 67.43%

CEO's last FY long-term cash earned award($)

0

http://www.riskmetrics.com/policy/ExecutiveCompensationFAQ


Did the company reprice / exchange underwater options last FY

No

*If performance shares are granted, target shares are shown.

Comment: To determine annual bonuses under the Chevron Incentive Plan (CIP), after the end of the performance year, the Compensation Committee sets the Corporate Performance Rating to reflect its overall assessment of company performance based on a broad cross section of key performance indicators (Safety and Operational Excellence; Financial Performance, Results of Operations; and Stockholder Return). There are no relative weights assigned to individual metrics and no set formula for determining the Corporate Performance Rating. Instead, the Committee exercises its discretion by taking into account the company’s performance compared with board-approved business plan objectives and industry competitors.

For 2011, the proxy statement notes that Chevron realized record earnings of $26.9 billion (above 2011 plan of $14.5 billion); delivered a 21.6 percent return on average capital employed (second among principal energy industry peers BP, ConocoPhillips, ExxonMobil and Royal Dutch Shell); generated a total stockholder return of 20.3 percent (first among principal energy industry peers); delivered world-class safety performance (first among principal energy industry peers in Days Away From Work Rate and Total Recordable Incident Rate); and raised its dividend twice, marking the 24th consecutive year of increases. Based on the Committee's assessment, the company achieved a Corporate Performance Rating of 180 percent. While recognizing that the company has reported strong operational and financial results, along with outperforming its peers on a TSR basis, shareholders may be concerned about the magnitude of the payout coupled with the limited disclosure of how the Committee determines the payout level.

Pay for Performance Analysis

The table below shows the results of ISS’ quantitative pay-for-performance analysis.

Relative Alignment Measures include the combined results for the company’s 1- and 3-year pay and TSR percentile rankings against its peer group and the multiple of the CEO’s pay relative to the median pay level of the peer group. Each year’s rankings for TSR and pay are shown at the top of the chart -- a rank of 0 indicates the company was below all peers; a rank of 100 means the company ranked above all the peers.

The Absolute Alignment Measure reflects comparison of the 5-year trend in TSR versus the 5-year trend in CEO pay (the trends are also shown at the top of the table).

The indicated Concern Level is a function of the company’s results relative to results for Russell 3000 companies generally, with High concern reflecting outlier results on one or more measures – click here for a brief description of the numeric measures. Please also see the graphs in the Compensation Profile section of this report, which illustrate the measures.

TSR Performance CEO Pay

1. Relative Analysis:

1 year rankings (percentile) 87 68

3 year rankings (percentile) 58 56

2. Absolute Analysis:

5-year pay vs. TSR trends 9 15

Relative Alignment Measures: Company Combined Relative degree of alignment 8*

Multiple of peer group median 1.26

Absolute Alignment Measure: -5*

Concern Level: Low *Difference between TSR and Pay; negative signs mean that pay outranks performance

Comment: ISS's quantitative analysis indicates reasonable alignment of CEO pay and company performance at this time.

http://www.issgovernance.com/policy/PayForPerformanceApproach

http://www.issgovernance.com/policy/PayForPerformanceApproach


Non-Performance-based Pay Elements - CEO Concern: Low

Key perquisites ($) Personal aircraft use: 57,362; Personal/home security: 66,286; Auto: 2,953; Financial Planning: 24,240

Key tax gross-ups on perks ($) None

Value of accumulated Non-qualified Deferred Compensation ($) 6,090,971

Present value of all pensions ($): 15,605,452

Actual years of service: 30.00

Additional years of service credited: 0.00

Blank

Company Peer Group Concern: Low

Number of peer group constituents Oil Industry Peer Group – 12; Non-Oil Industry Peer Group – 22

*Includes U.S. public company peers

Disclosed Benchmarking Targets

Base salary Not Disclosed

Target short-term incentive Not Disclosed

Target long-term incentive (equity) Not Disclosed

Target total compensation Not Disclosed

Comment: The company considers the Oil Industry Peer Group as primary competitors for executive-level talent. For incentive payout determination, the company uses a principal peer group which includes BP, ConocoPhillips, ExxonMobil, and Royal Dutch Shell.

Severance/Change-in-Control Arrangements Concern: Low

CEO contractual severance arrangement None

CEO Change-in-Control Severance Arrangement:

Trigger No Agreement

Multiple N/A

Basis N/A

Treatment of equity Vest only upon employment termination

Excise Tax Gross-up No

Estimated CIC severance ($) 8,916,351

Blank

Compensation Committee Communication & Responsiveness Concern: Low

Disclosure of Metrics Performance metrics/goals disclosed – annual incentives Yes

Performance metrics/goals disclosed – long-term incentives Yes

Pay Riskiness Discussion Process discussed? Yes

Material risks found? No

Pledging of Shares Pledging of at least 1,000 shares of company stock by NEOs or directors

No


Anti-hedging policy Silent

Risk Mitigators

Clawback policy Yes

CEO stock ownership guideline 5X

Stock holding requirements No long-term holding requirements disclosed

Compensation Committee Responsiveness Prior year’s MSOP vote result (F/F+A) 97.8%

Frequency adopted by company Annual

Frequency approved by shareholders Annual with 84.2% support

Conclusion The magnitude of CEO pay is a concern for shareholders especially given the lack of sufficient disclosure with regard to the process that determines incentive payouts. However, at this time, given the company's strong operational, financial, and stock price performance, on an absolute and relative basis, a vote FOR this proposal is warranted.

Item 14. Repeal Exclusive Forum Bylaw FOR

Vote Recommendation The company discloses no specific substantial harm that the company has suffered as a result of multi-state shareholder litigation. Further, the company's bylaw provision is overbroad, reaching most shareholder suits, not merely actions related to transactions. Hence, a vote FOR this proposal is warranted


Discussion

Proposal The Amalgamated Bank Longview Largecap 500 Index Fund has submitted the following resolution for shareholder approval:

"RESOLVED: The shareholders of Chevron Corporation (the “Company”) hereby ask the board of directors to repeal the Company’s “exclusive forum” bylaw, which was unilaterally adopted by the board of directors and which generally requires shareholders to bring certain types of legal actions only in Delaware, the state where the Company is incorporated."

Proponent's Supporting Statement The proponent notes that the board unilaterally adopted an exclusive forum provision in 2010 that directs essentially all shareholder litigation to the Delaware Court of Chancery, and claims that this provision reduces' shareholders' flexibility to choose the forum in which the case will be heard. There are already mechanisms available for ensuring that Delaware law is applied correctly regardless of the venue, according to the proponent. The proponent views this provision as "a solution in search of a problem."

Board's Statement in Opposition The board states that it adopted this provision to resolve certain issues of Delaware law in an orderly, efficient, and cost-effective manner. The board states that its premise is simple: Delaware courts are best able to decide Delaware law—the law of the company's state of incorporation. Accordingly, the board believes that it is not in shareholders' interests to "waste the resources" of the company in deciding where such disputes should be litigated. The company contends that the provision includes a “fiduciary out,” a clause that enables the board to waive this provision

The board disputes the notion that this is "a solution in search of a problem," pointing to studies and reports highlighting the increasing trend of multi-state litigation. The company states that it should not have to wait to exercise its risk mitigation responsibilities until after it has suffered harm from similar suits brought in multiple courts


In March 2012, the company further amended the bylaw as a result of discussions with the proponents of this resolution. The board describes the March amendments as follows: "The Board amended the by-law to revise the treatment of federal claims and indispensable parties. The amendment allows claims to be brought in state or federal court in Delaware, rather than solely in the Delaware Court of Chancery. This allows federal claims with related Delaware state law claims to be brought in Delaware. The amendment also clarifies that the by-law provision is not applicable if the Delaware court does not have personal jurisdiction over a necessary defendant."

On May 3, 2012, the company filed a supplement to its proxy statement, addressing questions it had received from shareholders on this proposal. The company disclosed in that filing that it is currently litigating two "substantively identical" cases in different courts. It also noted that it has adopted best practices in many areas of corporate governance.

Analysis There is merit to the notion that Delaware judges should be the ones to apply Delaware law to Delaware companies, given their expertise and intimate familiarity with the state's body of corporate law. However, we note that there is often more than one proper forum available to shareholder plaintiffs, and the company's current bylaws curtail the right of shareholders to select any proper forum of their choosing. (We emphasize that the bylaw provision does not necessarily eliminate this right; out-of-state courts may decline to find this provision enforceable.)

Another consideration is that a company generally has two types of shareholders (although not without overlap): those that bring the types of claims targeted by this proposal, and those that do not. The latter group may benefit from an exclusive venue proposal because it is designed in part to reduce the company's litigation costs.

In order to balance these considerations, ISS take a case-by-case approach, evaluating the company's governance features in order to gauge in general terms the board's stewardship of the company on behalf of unaffiliated shareholders, and the company's disclosure relating to specific harm that it has suffered as a result of shareholder litigation brought in courts other than those in the jurisdiction of incorporation.

In 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 specific substantial harm that the company has suffered as a result of multi-state shareholder litigation. The March 2012 bylaw amendments do not alter the central component of the exclusive forum bylaw provision—that shareholders cannot select among various proper venues when bringing suit against or on behalf of the company. Most proposed exclusive venue provisions contain a clause enabling the board to waive the provision; the company’s inclusion of this provision is not extraordinary and does not mitigate ISS’ concerns about this provision. The company states that it is currently litigating two similar suits that this provision might address. However, we are unable to conclude that this situation is causing material harm to the company. Moreover, the company cites an academic study for the proposition that nearly half of all transactions in 2011 were the subject of litigation in more than one jurisdiction; however, the company's bylaw provision is overbroad, reaching most shareholder suits, not merely actions related to transactions. For these reasons, we recommend that shareholders support this proposal to eliminate the provision.


Item 15. Require Independent Board Chairman FOR

Vote Recommendation A vote FOR this proposal is warranted given that lead director does not serve as an effective counterbalance to the combined roles of CEO and chairman. Specifically, the lead director does not have explicit authority to approve information that is sent to the board.

Background Information Policies: Independent Chair


Discussion

Proposal A shareholder has submitted a proposal to request that the company adopt a policy that the chair of the board be an independent director. The resolution reads:

RESOLVED: That shareholders of Chevron (“Chevron” or the “Company”) ask the Board of Directors to adopt a policy that the Board’s Chair be an independent director according to the definition set forth in the New York Stock Exchange standards, unless Chevron common stock ceases being listed there and is listed on another exchange, at which point, that exchange’s standards should apply. If the Board determines that a Chair who was independent when he/she was selected is no longer independent, the Board shall promptly select a new Chair who satisfies this independence requirement. Compliance with this requirement may be excused if no director who qualifies as independent is elected or if no independent director is willing to serve as Chair. This independence requirement shall apply prospectively so as not to violate any Company contractual obligation at the time this resolution is adopted.

Proponent's Statement The proponent believes that an independent board chair provides a better balance of power between the CEO and the board and supports strong, independent board leadership and functioning. The primary duty of a board of directors is to oversee the management of a company on behalf of its shareholders. When a CEO also serves as chair, the proponent believes this presents a conflict of interest that can result in excessive management influence on the board and weaken the board’s management oversight.

The proponent cites a 2009 forum that endorsed the voluntary adoption of independent, non-executive chairs of boards, and notes that in 2009 less than 12 percent of incoming CEOs were also made chairs, compared with 48 percent in 2002.

In conclusion, the proponent believes that independent board leadership is key at Chevron, given the questions raised about the oversight by the board of the CEO’s management and disclosure to shareholders of the financial and operational risks to the company from the $18 billion judgment in the Ecuadorian courts in 2011.

Board's Statement The board believes that shareholder interests are best served when the board has the flexibility to determine the best person to serve as chairman, whether that person is an independent director or the CEO. Hence, implementing this proposal would deprive the board of its ability to organize its functions and conduct its business in the most efficient and effective manner. The board states that Chevron’s shareholders have consistently supported combining the chairman and CEO positions, noting that at the company’s 2007 and 2008 annual meetings, similar stockholder proposals were rejected by 64 percent and 85 percent of shares voted, respectively.

At this time, the board believes that the company and its shareholders benefit from the unity of leadership and companywide strategic alignment associated with combining the positions of chairman and CEO, pointing to Chevron’s strong financial performance and competitive returns to investors over the past five years, with TSR exceeding 11 percent for the period—more than 5 percent ahead of its nearest peer competitor and more than 11 percent ahead of the S&P 500.



The company notes that the board currently includes 11 independent directors, and the board’s key committees are composed solely of independent directors. The independent directors also annually elect a Lead Director from among the independent directors. The Lead Directors responsibilities are to: (i) chair all meetings of the independent directors and executive sessions; (ii) serve as liaison between the chairman and the independent directors; (iii) consult with the chairman on and approve agendas and schedules for board meetings; (iv) consult with the chairman on other matters pertinent to Chevron and the board; (v) call meetings of the independent directors; and (vi) communicate with major shareholders.

Lead Director Duties An independent Lead Director with clearly delineated duties is a necessary counterbalance to a combined CEO/Chairman role. At this company:

The lead director presides at all meetings of the board at which the Chairman is not present, including executive sessions of the independent directors?

Yes

The lead director serves as liaison between the chairman and the independent directors? Yes

The lead director approves information sent to the board? No

The lead director approves meeting agendas for the board? Yes

The lead director approves meeting schedules to assure there is sufficient time for discussion of all agenda items?

Yes

The lead director has the authority to call meetings of the independent directors? Yes

The lead director, if requested by major shareholders, ensures that he is available for consultation and direct communication?

Yes

Analysis Although ISS recognizes that many large companies maintain the combined posts of chairman and CEO and perform well with this arrangement, it is often in shareholders' best interest to separate these positions. One of the board's primary responsibilities is to represent the interests of shareholders. In addition, the board is responsible for overseeing management and instilling accountability. Conflicts of interest may arise when one person holds both the chairman and CEO positions. The financial crisis underscored the need for effective board oversight, which may be enhanced by independent leadership.

Support for this shareholder proposal averaged 33 percent of votes cast for and against in 2011, up from 28 percent in 2010. As of the end of June 2011, 19 percent of S&P 500 companies have an independent board chair, compared with 16 percent in 2008.

ISS will generally recommend FOR shareholder proposals requiring that the chairman's position be filled by an independent director, unless there are compelling reasons to recommend against the proposal, such as a counterbalancing governance structure.

Company-Specific Analysis Lead Director Duties

ISS first examines whether or not the company has a lead director performing the duties listed above and whether the lead director is elected by and from the independent board members. In this case, when the board selects the CEO to serve as chairman, the independent directors will annually select an independent director as Lead Director. As disclosed, the Lead Director's responsibilities are to: (i) chair all meetings of the independent directors and executive sessions; (ii) serve as liaison between the chairman and the independent directors; (iii) consult with the chairman on and approve agendas and schedules for board meetings; (iv) consult with the chairman on other matters pertinent to Chevron and the board; (v) call meetings of the independent directors; and (vi) communicate with major shareholders.

Based on this disclosure, the lead director does not have the authority to approve information that is sent to the board in advance of the board meetings, which ISS believes is important for the lead director to serve as an effective counterbalance to the combined roles of chairman and CEO. (While in prior years, investors were less concerned about the authority to


approve information sent to the board, ISS policy now focuses on all the functions of the lead director as disclosed in our policy. Hence, we no longer consider the responsibility to "consult" or "review" as equivalent to the authority to approve.)

Governance Features

Next, ISS reviews whether or not the company has a two-thirds independent board, all independent key committees, and established governance guidelines. In this case, the board is 82 percent independent, all key committees are entirely independent, and the company has publicly disclosed governance guidelines.

TSR Performance

ISS also examines the company's TSR performance. ISS also considers whether there has been a change in the chairman/CEO position within the past three years. In this case, the company's one- and three-year TSR are 20.16 percent, and 16.96 percent, respectively, compared to the four-digit GICS industry TSR of -11.87 percent and 21.14 percent, respectively. Hence, the company has outperformed it GICS industry group on a one-year TSR basis, but underperformed its GICS industry group on a three-year basis. Note that John Watson has served as chairman and CEO of the company since Jan. 1, 2010.

Problematic Governance Issues

Finally, ISS considers if the company has any existing problematic governance issues. In this case, ISS notes that the company has no governance issues at this time.

Conclusion After a review of each of the points above, ISS has determined that the board is more than two-thirds independent, all key committees are entirely independent, and the company has publicly disclosed governance guidelines. In addition, the company has outperformed its GICS industry group on a one-year TSR basis. Further, the governance guidelines provide for the election of an independent lead director in the event that the CEO also serves as the chairman. However, the lead director does not have explicit authority to approve information that is sent to the board. Hence, ISS does not believe that the role of lead director serves as an effective counterbalance to the combined roles of chairman and CEO. Thus, a vote FOR this proposal is warranted.

Item 16. Report on Lobbying Payments and Policy FOR

Vote Recommendation A vote FOR this resolution is warranted as the company could provide additional information regarding its lobbying policies and related oversight mechanisms.

Background Information Policies: Political Contributions Proposals


Discussion In Brief: This is the revised resolution for the second year of a now vastly expanded campaign to get companies to report on their direct and indirect grassroots lobbying payments, proposed this year to 40 companies. A press release announcing the 2012 campaign called it a "natural extension" of the continuing effort to get companies to report their political contributions. As in the political contributions campaign, the organizers have said they are particularly concerned about corporate payments to trade associations, and unlike last year's proposal, the 2012 lobbying resolution asks specifically for "membership in and payments to any tax-exempt organization that writes and endorses model legislation." Unlike last year's proposal, it does not ask for the name of the employee who makes the decision on lobbying payments, but rather for a description of the decision-making process and its oversight. This is the first year that Chevron has received a proposal requesting disclosure of the company's lobbying-related policies and activities.

Proposal The American Federation of State, County & Municipal Employees (AFSCME) and the Needmor Fund have submitted a precatory proposal requesting the company report on its lobbying policies and expenditures.

Specifically, the resolution requests:



"Resolved, the shareholders of Chevron Corp. ("Chevron") request the Board authorize the preparation of a report, updated annually, disclosing:

1. Company policy and procedures governing the lobbying of legislators and regulators, including that done on our company's behalf by trade associations. The disclosure should include both direct and indirect lobbying and grassroots lobbying communications.

2. A listing of payments (both direct and indirect, including payments to trade associations) used for direct lobbying as well as grassroots lobbying communications, including the amount of the payment and the recipient.

3. Membership in and payments to any tax-exempt organization that writes and endorses model legislation. 4. Description of the decision making process and oversight by the management and Board for

a. direct and indirect lobbying contribution or expenditure; b. payment for grassroots lobbying expenditure.

For purposes of this proposal, a "grassroots lobbying communication" is a communication directed to the general public that (a) refers to specific legislation, (b) reflects a view on the legislation and (c) encourages the recipient of the communication to take action with respect to the legislation.

Both "direct and indirect lobbying" and "grassroots lobbying communications" include efforts at the local, state and federal levels.

The report shall be presented to the Audit Committee of the Board or other relevant oversight committees of the Board and posted on the company's website."

Shareholders' Supporting Statement In their statement supporting the proposal, the proponents state that they encourage transparency and accountability in the use of staff time and corporate funds to influence legislation and regulation, saying that without a system of accountability, company resources could be used for policy objectives that are not in the company's long-term interests. The filers report that public disclosure shows that Chevron spent approximately $33.7 million in 2009 and 2010 on direct federal lobbying activities, and that in 2010, the company spent $2.4 million on lobbying in three states. The proponents contend these figures are insufficient to give a full picture of its relevant expenditures because they may not include grassroots lobbying and do not include the company's lobbying expenditures in states that do not require disclosure. Finally, the filers state that Chevron does not disclose its contributions to tax-exempt organizations that write or endorse model legislation, noting the company's $50,000 contribution to the American Legislative Exchange Council (ALEC) annual meeting.

Board's Statement In its response opposing the proposal, the board asserts that Chevron is committed to adhering to the highest ethical standards and complying with all laws and regulations regarding the company's political activities. The company states that, in pursuit of the interests of the company and stockholders, it advocates positions on policies that will affect the company's financial and operational performance. The board asserts that its political contributions, lobbying and grassroots programs are governed by policies and internal approval processes, and that all contributions are planned, budgeted, legally reviewed, and approved in advance by senior management. In addition, the company says it discloses an itemized list of the company's annual corporate political contributions, its philosophy for making corporate contributions, and its contributions oversight mechanism. Furthermore, the company notes that it files quarterly reports on its federal lobbying activities. Finally, the board states that Chevron has received recognition by the Center for Political Accountability for its corporate political disclosure practices and as of October 2011, was one of 43 companies in the S&P100 that disclosed any information on its indirect spending through trade associations or other tax exempt organizations.

Background on Political Contributions and Lobbying Since enactment of the 2002 Bipartisan Campaign Act (BCRA) brought renewed attention to campaign funding reform, corporate political spending, including dues used by trade associations, has become a major topic for shareholder consideration. The issue took on new relevance with the January 2010 Supreme Court ruling in Citizens United v. Federal Election Commission that restrictions on independent expenditures by corporations in federal elections violate the First Amendment. One important ramification of the Citizens United decision was its effect on lobbying. The New York Times Jan.

http://www.sec.gov/Archives/edgar/data/93410/000119312512160701/d304761ddef14a.htm#toc304761_46



21, 2010, analysis of the ruling began: "The Supreme Court has handed lobbyists a new weapon. A lobbyist can now tell any elected official: if you vote wrong, my company, labor union or interest group will spend unlimited sums explicitly advertising against your re-election." But even before the decision, new attention had been focused on corporate lobbying because of publicity over efforts to fight health care reform, climate change legislation and financial services reform, which were often handled by corporate trade associations.

According to the Center for Responsive Politics, $3.30 billion was spent on lobbying in 2011, and there were 12,633 registered lobbyists. Persons who spend more than 50 hours lobbying or earn more than $6,000 for lobbying services from a single client within a six-month period are required to register with both the U.S. House of Representatives and the U.S. Senate. Under the Federal Lobbying Disclosure Act of 1995, lobbyists are required to file quarterly annual reports on their lobbying expenses with the U.S. Congress.

Activists that have been seeking more transparency in political and lobbying expenditures have criticized the required lobbying registration reports as cryptic, and also have been increasingly concerned about the difficulty of gleaning information on the lobbying link between trade associations and companies. The House of Representatives guide to lobbying disclosure provides the following guidance on trade association lobbying:

"Employee 'A' of a trade association is a 'lobbyist' who spends 25 percent of his time on lobbying activities on behalf of the association. There are $6,000 of expenses related to Employee 'A's' lobbying activities. Employee 'B' is not a 'lobbyist' but engages in lobbying activities in support of lobbying contacts made by Employee 'A.' There are $6,000 of additional expenses related to the lobbying activities of Employee 'B.' The trade association is required to register because it employs a 'lobbyist' and its total expenses in connection with lobbying activities on its own behalf exceed $11,500."

However, trade associations do not have to disclose who their members are or the names of corporations or other entities they get the funds from to lobby on a specific issue. Activists argue that trade association dues may end up supporting trade association lobbying efforts that do not align with a company's stated positions. This has become an important element of the nine-year-old shareholder campaign for political contributions disclosure coordinated by the Center for Political Accountability, and appears central to this companion campaign for lobbying expenditure disclosure.

A November 2011 report that was issued by the IRRC Institute, "Corporate Governance of Political Expenditures: 2011 Benchmark Report on S&P 500 Companies," found that 80 percent of the S&P 500 spend money on lobbying. But it found that only 13 firms provided easily accessible information on lobbying expenditures. The study also found: "Two-thirds of companies in the S&P 500 do not mention lobbying when they talk about political spending, confining their statements to campaign spending issues. Sixty percent of the 100 biggest companies do discuss lobbying (and they are the biggest spenders of lobbying dollars), but there is a striking drop-off among those outside the top revenue tier. Just half of the 25 companies that spent the most on lobbying in 2010 (each more than $8 million) have disclosed policies about this activity. Less than a dozen companies explicitly acknowledge the "grassroots" lobbying efforts they make to mobilize their various stakeholders, including employees and the public, in attempts to influence public policy."

Lobbying Agreements and Corporate Disclosure

While lobbying disclosure, at the level requested by the proponent, is not as established a practice as similar political contributions disclosure, some companies have begun or agreed to begin to increase their lobbying disclosure. Of the 40 proposals filed in the 2012 campaign, 12 proposals, thus far, have been withdrawn after agreements for increased disclosure. These withdrawal agreements were reached at CIGNA, Coca-Cola, Eli Lilly, General Electric, Johnson & Johnson, Northrop Grumman, Occidental Petroleum, PG&E, St. Jude Medical, Target, YUM! Brands, and Zimmer Holdings. Additionally, Prudential Financial serves as an example of a company that has already adopted a practice and included lobbying expenditures in its Political Activity & Contributions Report. In this report Prudential provides a listing of trade associations where it has paid dues and contributions of more than $50,000 and divides out the portion of its dues that have been used for lobbying.

Controversy over Lobbying as an Appropriate Subject for Shareholder Resolutions

Debate about whether shareholder resolutions on lobbying are appropriate has been resolved in favor of the lobbying disclosure campaign — though not other types of lobbying resolutions — and has illuminated some of the issues behind the campaign for both the corporate targets and the activists. In 2011, IBM received a lobbying disclosure proposal from the American Federation of State, County and Municipal Employees, the filer of new lobbying proposals that year. The company was unsuccessful in a challenge that would have allowed it to omit the lobbying proposal under the section of the SEC's

http://lobbyingdisclosure.house.gov/amended_lda_guide.html

http://lobbyingdisclosure.house.gov/amended_lda_guide.html

http://www.irrcinstitute.org/

http://www.prudential.com/view/page/public/18550

http://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2011/afscmeemployees012411-14a8.pdf


shareholder proposal rule that allows companies to exclude shareholder resolutions that deal with "ordinary business" issues that are for management, not shareholders, to decide. The company contended that it should be able to omit the proposal because the kind of reporting requested "necessarily includes a variety of activities and expenditures incurred by IBM in the ordinary course of business which are made in connection with the sales, support and servicing of IBM's mainline product and service offerings. Given the quantum of data and desired disclosures on ordinary business matters, and the Proponent's desire to impose its own specific detailed methodology for the disclosures, implementation of the Proposal would clearly probe too deeply into matters of a complex nature upon which stockholders, as a group, are not in a position to make an informed."

IBM pointed out that the SEC staff has many precedents for omitting resolutions on lobbying. Historically, most shareholder resolutions that have raised questions about lobbying have dealt with specific issues, such as tobacco, and the SEC staff has allowed companies to exclude such proposals; back in 1989, even while the SEC staff switched its position on smoking and agreed that it was a suitable subject for a shareholder resolution, it nevertheless sanctioned omission of a resolution on tobacco-related lobbying on ordinary business grounds. As recently as 2009, Abbott Labs and Bristol-Myers Squibb were allowed to omit resolutions from the AFL-CIO on lobbying for the Medicare drug benefit on grounds that the resolution involved "lobbying activities concerning its products." But in one of the rare instances of more general shareholder resolutions on the issue, the staff in 2010 required PepsiCo and Wal-Mart to have votes on a resolution from a conservative group, the National Legal and Policy Center, asking for reports on their policy advocacy activities, rejecting ordinary business arguments from both companies. It echoed those decisions in a Jan. 24, 2011, no-action letter requiring IBM to include the AFSCME proposal. In rejecting IBM's argument, it said, "the proposal focuses primarily on IBM's general political activities and does not seek to micromanage the company to such a degree that exclusion of the proposal would be appropriate," but gave no further details on its reasoning.

In successfully arguing that its proposal did not constitute ordinary business, AFSCME contended, among other things, that "Lobbying by trade associations, financed by corporate members whose identities are not disclosed, received a great deal of attention because of concern that it subverts disclosure regulations and allows corporations to avoid accountability for their lobbying activities." The union concluded that "it is indisputable that there is a robust public debate over the role that corporate lobbying, including lobbying done though conduit organizations, plays in the U.S. political process."

The correspondence indicated that the proponents had a particular concern about recent allegations that corporations had been funding simulated grassroots citizen communications, using third-party front groups. It cited allegations that corporate-funded fake grassroots activism was behind the protests over "death panels" that supposedly would have resulted from health care reform legislation, as well as tea party protests against the Obama administration's stimulus proposals. The proponents also cited an Aug. 20, 2009, Newsweek article, "The Browning of Grassroots," which it said "reported on a leaked email from the American Petroleum Institute seeking to orchestrate, through funding and logistical coordination, seemingly independent protests against climate change legislation."

The American Legislative Exchange Council

In addition to expressing concerns with corporate direct, indirect and grassroots lobbying activities, the proponents also reference support for tax-exempt organizations that write and endorse model legislation and specifically cite support for ALEC. ALEC is a non-profit policy organization and according to the organization's Web site, its mission is "…to advance the Jeffersonian principles of free markets, limited government, federalism, and individual liberty, through a nonpartisan public-private partnership of America’s state legislators, members of the private sector, the federal government, and general public…" The private sector is represented at ALEC by the organization's Private Enterprise Board. Since the organizers of the shareholder campaign on lobbying submitted their resolutions, ALEC’s profile has been raised through its association with “stand your ground” model legislation based on the Florida law that has been noted in the February killing of teenager Trayvon Martin by a neighborhood watch volunteer and voter identification legislation. In the past, ALEC has been associated with legislation regarding contentious issues, including model legislation that would repeal state climate-change initiatives and voter identification laws.

Since controversy has broken out over ALEC this spring, a number of corporate members, including Coca-Cola, PepsiCo, Kraft, Wendy's, and McDonald's, have announced decisions not to renew membership in the group. On April 17, 2012, ALEC announced a reorganization plan that will close down its public safety and elections unit, which encouraged passage of stand your ground and same-day voter ID measures. A press release issued by a spokesman for the group said it is

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"eliminating the ALEC Public Safety and Elections task force that dealt with non-economic issues and reinvesting these resources in the task forces that focus on the economy."

Related Shareholder Activism

In 2011, AFSCME launched its campaign to get companies to report on their direct and indirect grassroots lobbying payments, submitting a resolution to nine companies. The proposal used the basic format of the resolution in the long-running campaign coordinated by the Center for Political Accountability (CPA) to get companies to report their political contributions, substituting lobbying for political spending. The SEC staff allowed two companies, Citigroup and Occidental Petroleum, to omit the proposal, agreeing that it was "substantially the same" as the CPA political contributions proposal, which they had also received and which had arrived first, and which they were planning to include in their proxies. After further attrition because of two negotiated withdrawals, the resolutions came to votes at five companies. They received an average of 24.2 percent support, with the average drawn down by a vote result of 8 percent at Prudential Financial. The other votes were Bank of America (32.7 percent), ConocoPhillips (24.6), IBM (28.5), and Raytheon (25.6).

In 2012, AFSCME has been joined by a coalition of shareholder activists from many corners of the proponent community, including SRI and church groups, in submitting a revised version of the 2011 lobbying resolution to 40 companies. Timothy Smith, executive vice president of the SRI group Walden Asset Management, joined with John Keenan of AFSCME in organizing the effort. As of April 3, 12 proposals had been withdrawn following agreements.

In a Jan. 19 press release announcing the 2012 campaign, the proponent groups said, "The investors believe that shareholders have the right to understand how company resources are used to impact both elections and public policy; hence, this lobbying disclosure initiative is a natural extension of an ongoing shareholder campaign encouraging greater political spending transparency and accountability. Specifically, enhanced lobbying disclosure will enable shareholders to better evaluate business risk associated with efforts to influence regulatory and legislative processes."

Chevron and Lobbying Chevron discusses the company's lobbying activities in the Business Ethics section of the company's Web site. The company asserts that it has a right and responsibility to advocate positions on policies that will affect its ability to operate. It reports that the company itself communicates with public officials and encourages employees, former employees, and others to communicate with officials as well. Chevron states it is actively engaging the members of the U.S. executive and legislative branches of government, making recommendations on economic, energy, climate change, international issues, education, and research and development policy issues. The company reports that it recommends promoting energy efficiency and expanding and diversifying the energy portfolio of the United States.

Regarding general lobbying expenditures, Chevron notes that in 2010, the company spent approximately $10.8 million to support candidates and political organizations and that this total includes the company's expenditures to support its positions on local and state ballot measures. Chevron's 2011 Corporate Political Contributions report is also available on its Web site. The report includes the company's political contributions to trade associations and political action committees, as well as candidates for political office and political committees.

Analysis AFSCME and the Needmor Fund have requested Chevron report on its lobbying policies and expenditures. The proponents are concerned that without transparency and accountability regarding the company's lobbying practices, company assets could be used for purposes that are contrary to its long-term interests. The proponents also specifically note Chevron's $50,000 contribution to the ALEC annual meeting.

Chevron discusses the company's rationale for participating in the political process through lobbying and lobbying-related activities. The company notes the public policy issues on which it engages lawmakers and government regulators, including energy efficiency and expanding and diversifying the United States' sources of energy. Chevron also includes the political contributions it provides to trade associations in the company's annual, itemized political contributions report. However, Chevron does not discuss the types of trade associations the company belongs to and does not provide examples of the company's trade association memberships. In addition, while Chevron provides information on the company's political contribution policies, activities, and oversight mechanisms, it does not appear to provide similar information regarding the company's lobbying activities.

http://www.chevron.com/globalissues/businessethics/


Shareholders would appear to benefit from additional information regarding Chevron's lobbying policies and oversight mechanisms as such information would allow them to evaluate the risks and benefits of the company's lobbying activities and to assess how they are being managed by the company. Hence, a vote FOR this proposal is warranted.

Item 17. Adopt Guidelines for Country Selection FOR

Vote Recommendation A vote FOR this resolution is warranted as:

Chevron does not disclose policies governing its decision-making process to invest or operate in politically or socially unstable markets; and

The company has business ties to countries with histories of political instability and human rights issues.

Background Information Policies: Operations in High Risk Markets Proposals


In May 2012, Chevron published its 2011 Corporate Responsibility Report .The 2011 report was published subsequent to the preparation of the ISS analysis of this agenda item and the timing of this update did not allow sufficient time for comprehensive review by ISS or incorporation into the multiple agenda items where the company's environmental and/or social reporting was relevant and Chevron's 2010 Corporate Responsibility Report was discussed. However, based on our initial review of the 2011 report, it does not appear that the report's content would have affected the voting recommendation regarding this agenda item.

Discussion In Brief: This proposal is unique to Chevron; proponents concerned with its business ties to Burma as a result of the company's 2005 acquisition of Unocal have submitted similar proposals each year since 2008. The proponents also note Angola, Kazakhstan, and Nigeria as countries where Chevron has operations and that have controversial human rights records. These proposals received 8.9, 26.7, 24.0, and 23.9 percent shareholder support in 2008, 2009, 2010, and 2011, respectively.

Proposal The International Brotherhood of Teamsters and co-filers have submitted a precatory proposal requesting the company prepare a report on the company's criteria for investment in high-risk countries, such as Burma.

The resolution specifically requests:

"BE IT RESOLVED: The shareholders request the Board to make available by the 2013 annual meeting a report, omitting proprietary information and at reasonable cost, on Chevron's criteria for (i) investment in; (ii) continued operations in; and, (iii) withdrawal from specific high-risk countries, including Burma."

Shareholders’ Supporting Statement In their statement supporting the proposal, the proponents state that the company's operations in Burma, as a result of its acquisition of Unocal and a number of publicized human rights abuses, have brought Chevron criticism, negative publicity, and a consumer boycott. The filers assert that the company's natural gas pipeline activities in Burma generate billions of dollars for the Burmese regime, whose use of those dollars is "under scrutiny." Highlighting human rights concerns associated with Burma, the filers state that in 2005, Unocal settled a case, reportedly for a multi-million dollar figure, which alleged that it was complicit in human rights abuses by Burmese troops that were providing security for the pipeline. The proponents also note that the company does business in other countries with controversial human rights records, citing Angola, Kazakhstan, and Nigeria. Finally, the filers assert that Chevron's country selection process is "opaque" and as a result it is unclear how it decides to: invest or withdraw from countries that have human rights issues, are under economic sanctions, or could otherwise subject the company to negative consequences.


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Board's Statement In its response opposing the proposal, the board asserts that the company must do business where energy resources exist, and that may require conducting business in countries that are very different from the United States in terms of cultural, social, economic, and political characteristics. The company asserts that Chevron operates legally, and under the values outlined in The Chevron Way, everywhere it does business. The board refers to a number of internal policies that help Chevron analyze and manage security, social, environmental, health, and safety issues that pertain to its operations, as well as to reinforce the company's commitment to human rights. Furthermore, the company asserts that Chevron exerts significant positive influence in countries where it does business. Specifically, the board notes that Chevron works to improve health care and schools, and contributes millions to health programs, and also provides education and economic support, all of which totaled $206 million over the past three years in the four countries cited in the resolution. In addition, the company asserts that as its operations involve long term, sustained, and capital intensive commitments, the company cannot start and stop operations each time the political situation in a country changes. Finally, the board notes that the U.S. government announced on Jan. 13, 2012, that it would begin the process of restoring diplomatic relations with Burma as a result of recent reforms made by the government.

Background on Burma In recent years, shareholder proponents have filed proposals at companies operating in countries where a heightened level of political risk has created the potential for operational, reputational, and regulatory risks to the company and its shareholders. The highest profile example of this is the case of Unocal Corp., which Chevron acquired in 2005. As one of the largest foreign investors in Burma, Unocal had been the target of significant activist ire over its operations in Burma, especially since it was one of the lead developers (with a 28.3 percent share) in the building of the Yadana pipeline, which links natural gas deposits off the Burmese coast with a power plant in Ratchaburi, Thailand. Unocal's partners in the project were the French oil company Total SA, the Petroleum Authority of Thailand, and Myanmar Oil and Gas Enterprise, also known as MOGE, which part of the government of Burma.

The military government of Burma has a history of political repression and human rights abuses that present reputational risks for companies with operations there. Burma's ruling junta has been sanctioned by the U.S. government, the International Labour Organization and other nations and multinational groups for its continued imprisonment of dissidents, widespread use of forced labor, displacement of indigenous groups and other human rights violations. The Burmese army in particular has been singled out by international human rights groups for its use of civilians as forced porters and for human rights abuses, including rape, against Burmese civilians.

The Yadana pipeline traverses a strip of Burmese jungle that has been the site of conflict between the central government in Rangoon and ethnic minority rebels for decades. The ongoing conflict made essential, in Unocal’s and its partners’ eyes, the presence of the Burmese military to ensure the protection of pipeline equipment and workers. The Burmese army was accused of gross human rights violations, including forcing civilians to work as porters, and allegations of human rights abuses and forced labor soon arose regarding the Yadana pipeline project. Activists produced evidence of abuses along the pipeline route, and argued that Unocal and its partners should have been aware that the abuses were taking place. Unocal was sued in federal court under the Alien Tort Claims Act (ATCA) for complicity with the Yadana human rights abuses. In 2002, the U.S. Ninth Circuit Court of Appeals denied Unocal's request for a summary dismissal of the case without a trial, holding that material questions of fact existed as to whether forced labor had been used on the pipeline and that companies investing in the pipeline gave practical assistance to the Burmese military in subjecting civilians to forced labor. The lawsuit was settled for an undisclosed amount in 2005. Chevron, which acquired Unocal later that year, has maintained that its presence in Burma was and continues to be beneficial for the Burmese people.

The U.S. Government has placed restrictions on Burma beginning in 1997 with a restriction on new investments, adding a ban on imports in 2003, and a further ban on imports in 2008, when President George W. Bush signed H.J. Resolution 93, the Renewal of Import Restrictions on Burma, and H.R. 3890, the Tom Lantos Block Burmese JADE (Junta's Anti-Democratic Efforts) Act of 2008. The laws banned imports from the military-controlled Burma and blocked the importation of gems from Burma through third-party countries.

In May 2008, Cyclone Nargis destroyed large parts of Burma's coastal areas. Between 80,000-200,000 people are estimated to have died and as many as 800,000 were displaced as a result of the storm. The international community was quick to respond; however, Burma's military rulers initially denied foreign aid workers visas, and turned back local volunteers attempting to reach the affected areas. The military government continued its campaign for a referendum on a new

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constitution, designed to institutionalize military power. After the passing of the referendum and encouraged by the diplomatic efforts by UN Secretary-General Ban Ki-Moon, the generals eventually decided to open the door to foreign aid.

In late 2010, Burma's military government appears to have begun a process of opening up the government to political reform and broader participation. In November 2010, the BBC reported that the military-backed Union Solidarity and Development Party (USDP) claimed to have won an overwhelming victory in the country's first elections in 20 years. The elections are described as neither free nor fair and are widely criticized. Nonetheless, a week after the elections Burmese democracy activist Aung San Suu Kyi was released from house arrest. Throughout 2011 additional political developments took place, including a meeting between Aung San Suu Kyi and President Thein Sein; a release of political prisoners during a general amnesty; and a visit to Burma by U.S. Secretary of State Hillary Clinton, who met with Aung San Suu Kyi and President Sein, offering to improve relations if the political reforms in Burma continue. In addition, Aung San Suu Kyi's National League for Democracy (NLD) registered as a political party in order to participate for parliamentary by-elections in 2012, and the government agreed to a truce with rebels from the Shan ethnic group and ordered a stop to operations against rebels from the Kachin ethic group. Additional political developments have continued into 2012 when the government reached a ceasefire agreement with rebels from the Karen ethnic group, the government released additional political prisoners, and the NLD participated in the April parliamentary by-elections, winning 43 of 45 the open seats. On May 2, 2012, as the BBC reported, Aung San Suu Kyi and the other members of the NLD who won seats in the April election were sworn in as members of Burma's parliament.

As a result of the April 2012 parliamentary by-elections, which were generally regarded as free and fair, the United States announced that it would ease sanctions against Burma by relaxing some travel and financial restrictions. Areas for "targeted easing" include agriculture, tourism, telecommunications, and banking. The United States is also to appoint an ambassador to Burma and establish an office for the Agency for International Development. The European Union is taking steps to suspend its sanctions against Burma as well.

Despite the NLD's success in the April parliamentary by-elections, the Burmese Army and the USDP control approximately 80 percent of the seats in the Burmese parliament. Moreover, ethnic conflict has re-surfaced; on March 20, 2012, Time Magazine (referencing "Untold Miseries," a Human Rights Watch report released the same day) reported that the Burmese military was currently engaged in operations in Kachin State, against civilians and rebels. According to Time, the Burmese army was "attacking civilians indiscriminately, razing homes and raping women while the government prevents international aid from reaching tens of thousands of displace survivors." The fighting broke out in June 2011 for the first time in almost 20 years. Human Rights Watch representatives traveled to Kachin State twice in the last six months of 2011, and visited nine displaced persons camps and interviewed more than 100 people.

Related Shareholder Activism

Chevron has received a similar proposal each year since2008. These proposals received 8.9, 26.7, 24.0, and 23.9 percent shareholder support in 2008, 2009, 2010, and 2011, respectively.

An unusually large coalition of shareholders affiliated with religious groups and led by the Wisconsin Society of Jesus also proposed a resolution from 2005-10 asking Chevron to adopt a comprehensive human rights policy, which got shareholder support in the 20-30 percent range. The filers withdrew the resolution in 2010 in recognition that the company had adopted an enhanced human rights policy in fall 2009. An April 14, 2010, press release from the Jesuit Conference said, "We very much appreciate the commitment Chevron has demonstrated in staying with the dialogue over the past six years of engagement." The Jesuits called the policy a good beginning, noting that much work still remains. Furthermore, the Jesuit-led coalition "encourages Chevron to have more explicit community engagements, management directives and a widening mandate to honor the human rights protections by suppliers and security contractors.

Chevron, Country Selection Standards, and Related Issues Chevron reports on its Web site's Human Rights page that it adopted a Human Rights Policy, which is also part of its Business Conduct and Ethics Code, in late 2009 to clarify its commitment to human rights. The policy is designed to increase awareness of human rights and enhance the company's ability to manage human rights issues. Furthermore, the policy addresses four human rights areas that Chevron states are relevant to its business – employees, security providers, the community, and suppliers.

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"Chevron’s values are the foundation of our business. The Human Rights Policy ensures that we will be especially aware of potential human rights issues in sensitive operating environments. We condemn human rights abuses.

Although governments have the primary duty to protect and ensure fulfillment of human rights, Chevron recognizes that companies have a responsibility to respect human rights, and can also play a positive role in the communities where we operate. We conduct our global operations consistent with the spirit and intent of the United Nations Universal Declaration of Human Rights, the International Labor Organization (ILO) Declaration on Fundamental Principles and Rights at Work that are applicable to business, and other applicable international principles, including the Voluntary Principles on Security and Human Rights.

All employees are required to comply with Chevron’s Human Rights Policy. The key elements of the policy are as follows:

• Employees: We treat all of our employees with respect and dignity and promote diversity in the workplace. Our company policies and procedures adhere to all applicable domestic laws and are consistent with the ILO’s core labor principles concerning freedom of association and collective bargaining, nondiscrimination, forced labor, and underage workers in the workplace.

• Security: We protect personnel and assets and provide a secure environment in which business operations may be successfully conducted. Our guidelines and management processes on security in our areas of operations are consistent with the Voluntary Principles on Security and Human Rights.

• Community: We respect human rights (i) through our contributions to socio-economic development in the communities where we operate; (ii) by fostering ongoing, proactive two-way communication with communities and with other knowledgeable stakeholders; (iii) through our corporate Environment, Social, and Health Impact Assessment (ESHIA) process in all major capital projects, as well as existing operations in sensitive operating environments; and (iv) through our corporate practices, which are consistent with external guidelines such as World Bank Standards on interactions with indigenous peoples and free prior informed consultation.

• Suppliers: We encourage our suppliers to treat their employees, and to interact with communities, in a manner that respects human rights consistent with the spirit and intent of this policy. We require that our key suppliers adhere to all applicable domestic laws and encourage them to be consistent with ILO core labor principles. We also engage with our key suppliers to reinforce awareness of potential human rights issues.

Line management has the primary responsibility for complying with this policy within their respective functions and authority limits. Line management will communicate this policy to their respective employees, and will establish processes and programs that are consistent with this policy."

The company states that it is integrating tools such as issues assessments, controls and systems to advance human rights issue capabilities. In addition, training and tools are being implemented in countries where human rights issues may be more likely to be found. Implementation of the Human Rights Policy began in 2010 with full implementation expected by 2013. The policy is overseen by an executive leadership group and managed by a global team.

Chevron notes the company has been a participant in the public consultation process of the United Nations Special Representative on business and human rights, John Ruggie. The company reports that it is also the vice chair of the Social Responsibility Working Group of the International Petroleum Industry Environmental Conservation Association and leads the task forces on Human Rights and Voluntary Principles on Security and Human Rights.

Chevron's 2010 Corporate Responsibility Report

Chevron briefly discusses Human Rights in its 2010 Corporate Responsibility Report. Much of what is reported is similar to the material provided on Chevron's Human Rights Web page and as noted above. However, the company does report that human rights considerations are embedded in its Operational Excellence Management System; its Environmental, Social and Health Impact Assessment; its leadership in industry collaboration; and its participation in the Voluntary Principles on Security and Human Rights.

http://www.chevron.com/globalissues/corporateresponsibility/2010/documents/Chevron_CR_Report_2010.pdf


Chevron's Board Oversight Responsibilities and Human Rights

The Public Policy Committee's charter states that the Committee is charged with identifying, evaluating and monitoring "the social, political and environmental trends, issues and concerns, domestic and foreign, which affect or could affect the Corporation's business activities and performance." In addition, "The Committee shall develop recommendations to the Board in order to assist in formulating and adopting basic policies, programs and practices concerning broad public policy issues which include corporate responsibility, ecology and environmental protection, human rights…"

Chevron's International Operations

As a large, international petroleum and natural gas exploration and production company, Chevron has operations worldwide. The company acknowledges that its operations are subject to potential political and social changes that could affect its ability to operate and/or its assets. In Chevron's discussion of Business Environment and Outlook in its 2011 10-K, the company states:

"The company’s operations, especially upstream, can also be affected by changing economic, regulatory and political environments in the various countries in which it operates, including the United States. From time to time, certain governments have sought to renegotiate contracts or impose additional costs on the company. Governments may attempt to do so in the future. Civil unrest, acts of violence or strained relations between a government and the company or other governments may impact the company’s operations or investments. Those developments have at times significantly affected the company’s operations and results and are carefully considered by management when evaluating the level of current and future activity in such countries."

Chevron has a number of pages on its Web site where the company discusses its operations in countries where it has a substantial operational presence. Each of the 28 included countries has its own section of content where the company discusses operational highlights, operational details, and community involvement.

Burma/Myanmar Chevron has a page on its Web site dedicated to Burma. The company explains that it has a non-operating, minority interest in the Yadana Project and that the project is operated by the French company, Total. Chevron notes that Burma has many challenges and that the company supports the UN and the Association of Southeast Asian Nations (ASEAN) in their efforts to engage with the Burmese government and to improve conditions and enhance humanitarian efforts.

The company states that the Yadana project has funded programs that benefit the people of Burma, specifically citing improved health care, improvement in education and training, investment in infrastructure, and economic and community development. Outside the pipeline area, Chevron participates on a regional level through its support of Pact, an international non-governmental organization, which has helped local communities develop for over 12 years, including a Strengthening Community Response to Disease program.

Angola, Kazakhstan and Nigeria In addition to Burma, the proponents specifically note Angola, Kazakhstan, and Nigeria as other countries where Chevron does business and that have a history of human rights concerns.

Chevron describes its Angolan operations in its publicly available Angola Fact Sheet. The company has interests in four concessions in Angola (two operating and two non-operating), as well as interests in a proposed pipeline and a liquefied natural gas plant. Chevron states that it is the country's largest foreign oil industry employer. In addition to its business operations in Angola, Chevron reports that, since 1989, it has invested more than $180 million in health, education, and economic programs there. These include health programs to address tuberculosis, HIV/AIDS, polio, and malaria; agricultural programs to increase food security and reduce poverty; and a micro-finance institution.

Chevron describes its operations in Kazakhstan in a publicly available Kazakhstan Fact Sheet. Chevron says that it is Kazakhstan's largest private oil producer, with interests in that country's two largest petroleum production projects, the Tengiz and Karachaganak (20 percent, which will soon be reduced to 18 percent) fields. Chevron holds a 50 percent interest in Tengizchevroil (TCO), which operates the Tengiz field. Chevron adds that it owns a 15 percent interest in the Caspian Pipeline Consortium pipeline, which provides an export route for crude oil from both TCO and Karachaganak, and that it also has a polyethylene pipe plant in Atyrau.

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Chevron says that in Kazakhstan, it is a strong supporter of programs that help the community and describes some of its community engagement activities in basic human needs, education and career training, and support for local small and medium-size businesses.

Chevron states in its Nigeria Fact Sheet that it takes seriously its role as a member of the community in Nigeria and is active in many projects promoting health, economic and educational programs. Chevron reports that it supplies communities near its operations with power and drinking water, sometimes directly from company facilities. In 2011, the company announced that it and the U.S. Agency for International Development would contribute $50 million to the Niger Delta Partnership Initiative (NDPI) Foundation, which Chevron states that it founded to address the region's socioeconomic issues. The company's $25 million contribution is to be taken from its 2010 $50 million endowment that established the NDPI Foundation.

In Chevron's 2011 10-K the company reports that, regarding its Nigerian operations;

"The company has a 40 percent-owned and operated interest in the Onshore Asset Gas Management project that is designed to restore approximately 125 million cubic feet per day of natural gas production from certain onshore fields that have been shut in since 2003 due to civil unrest. Construction activities continued through 2011, and start-up is scheduled for late 2012."

Analysis The International Brotherhood of Teamsters and co-filers are requesting the company to prepare a report on its criteria for investment in high-risk countries. The proponents’ underlying concern relates to investment in countries that have an oppressive regime such as Burma, which while it has seen recent positive developments, has a history as a country where serious human rights violations continue to be recorded.

Chevron discloses information regarding its international operations, including locations and the nature/scope of those operations. This reporting includes information on Chevron's Web site where 28 countries each have a dedicated section, as well as a section dedicated to discussion of the company's business ties to Burma. Chevron also discusses the company's Human Rights Policy, which was adopted in 2009 and incorporated into the company's Business Conduct and Ethics Code. The company's policy addresses employees, security, communities, and suppliers. Human rights issues are overseen at the board level at Chevron by its Public Policy Committee.

Chevron operates in certain international locations and countries whose governments have been associated with a history of a lack of respect for civil liberties and political rights and a history of human rights violations of their own citizens. Operations in such areas can expose the company to political risk, operational uncertainties, potential brand damage, and allegations of complicity and potential civil legal action. As a result, the Chevron's shareholders would appear to benefit from additional information regarding the risk and benefit assessment process the company engages in before deciding to establish operations in a country with a history of such issues. The additional disclosure would allow shareholders to assess how the company is evaluating and managing related operational risks – risks that have the potential to negatively affect shareholder value. Hence, a vote FOR this proposal is warranted.

Item 18. Report on Hydraulic Fracturing Risks to Company FOR

Vote Recommendation A vote FOR this resolution is warranted as the company does not provide substantive details relating to its management of the risks associated with its hydraulic fracturing operations.


In May 2012, Chevron published its 2011 Corporate Responsibility Report .The 2011 report was published subsequent to the preparation of the ISS analysis of this agenda item and the timing of this update did not allow sufficient time for comprehensive review by ISS or incorporation into the multiple agenda items where the company's environmental and/or social reporting was relevant. However, based on our initial review of the 2011 report, which does include a discussion of Chevron's hydraulic fracturing operations, it does not appear that the report's content would have affected the voting recommendation regarding this agenda item.

http://www.chevron.com/documents/pdf/nigeriafactsheet.pdf




Discussion In Brief: This is the third year for a campaign on an increasingly controversial environmental issue — hydraulic fracturing (fracking) — the process in which water, sand, and a mix of chemicals are blasted into tight layers of shale to extract natural gas. In the initial 2010 campaign investors approached 11 companies and achieved three substantive withdrawal agreements. The resolutions that came to votes averaged 30 percent support. In 2011, four withdrawals were negotiated and the average support for the other five proposals that came to votes increased to 40.7 percent. This year proponents have modified the resolved clause, shifting the focus from fracking's environmental risks to the operational and financial risks that fracking, and related community opposition, could pose to the company. For 2012, seven of the 10 submitted fracking proposals have been withdrawn after agreements; resolutions are still pending at ExxonMobil and Ultra Petroleum, as well as Chevron. This is the second time Chevron has received a fracking resolution; last year's proposal received 40.5 percent shareholder support.

Proposal Green Century Capital, the Sisters of St. Francis, Philadelphia, and many other co-filers have filed a precatory proposal requesting a report on the risks to the company related to public opposition to hydraulic fracturing and associated natural gas development.

Specifically, the proposal requests:

Resolved: Shareholders request that the board of Directors prepare a report by September 2012, at reasonable cost and omitting confidential information such as proprietary or legally prejudicial data, on the short-term and long-term risks to Chevron Corporation's operations, finances and gas exploration associated with community concerns, known regulatory impacts, moratoriums, and public opposition to hydraulic fracturing and related natural gas development."

Shareholders' Supporting Statement In their statement supporting the proposal, the proponents state they are concerned with the regulatory, legal, reputational and financial risks associated with the environmental, health, and social impacts of fracking operations. As evidence that fracking has become highly controversial, they assert that concerns about water resources, the use of toxic chemicals, and wastewater disposal have led to new regulations at the state level and proposed federal legislation and that medical professionals have found evidence in a number of states that “health metrics” have declined among neighbors of gas wells and gas infrastructure. The proponents contend that the negative local impacts of fracking have strained community resources and have generated opposition to fracking operations; as a result companies may face increased regulatory and legal risks or bans on fracking operations. The filers request the report include any substantial community opposition the company has faced; any government enforcement actions; total government fines; any facility shutdown orders, license suspensions, or operational moratoria; any anticipated community opposition to operations; any financial or operational risks from proposed federal or state legislation; and any operation limitations related to water supplies or waste disposal.

Board's Statement In its response opposing the proposal, the board asserts that it understands that communities have concerns related to shale gas development, but that the company has implemented risk management systems and a commitment to stakeholder engagement and public disclosure that address these concerns. The company reports that its shale gas practices address the protection of groundwater, managing water use, preserving air quality, access to information, and emergency preparedness; and these practices are noted on the shale gas section of its Web site. The board states that it discloses the chemicals it uses in its fracking operations at www.FracFocus.org, that it has an Operational Excellence Management System to ensure operational safety, and that its Environmental, Social and Health Impact Assessment process is designed to avoid and mitigate negative impacts of the company's operations. Furthermore, the company reports that it is establishing community advisory councils for its Marcellus Shale operations and formal grievance process to manage community issues, and it asserts that it works with industry groups and regulators to develop responsible shale gas guidelines and recommended practices. Finally, the board states that the company publishes information on how it mitigates regulatory, legal, reputational, and financial risks in company document and reports, such as its annual report, corporate responsibility report, and Form 10-K so that the requested report would duplicate current communications.



http://www.fracfocus.org/


Background on Hydraulic Fracturing Hydraulic fracturing, also known as fracking, is a natural gas extraction technique that involves the high-pressure injection of water, with added sand and chemicals, into a gas-bearing shale rock formation. The pressure creates or exposes fissures, which then are kept open by the sand that remains after the water and chemicals are removed. This allows the natural gas to flow to the well for extraction.

Fracking has been used on more than one million wells over the past 60 years, but use of the process began on a large scale in the early 1990s in Texas' Barnett Shale formation. The success that smaller producers had in producing from the Barnett formation attracted the interest of major oil and gas companies and turned attention to other potential sites, particularly the vast Marcellus Shale formation, which is located primarily under the states of Ohio, New York, Pennsylvania, and West Virginia.

Fracking, and more broadly the activities associated with the natural gas development and production that fracking is a part of and enables, has been the source of a notable amount of controversy and public attention. Some of the common concerns related to fracking are: the infiltration of drinking water wells by methane released by the fracking process or from poorly constructed wells; disposal of used fracking fluid; and water use impacts on the environment, agriculture, and communities due to the large volumes of water required by fracking. There have also been concerns that fracking fluids might contaminate underground aquifers and harm drinking water sources – although some scientific and industry experts are skeptical, given that gas-bearing and water-bearing geological layers are usually widely separated.

Legislative and Regulatory Environment

The issue of how to regulate hydraulic fracturing has been the source of growing debate. In 1997, a U.S. Court of Appeals gave the Environmental Protection Agency (EPA) the mandate to regulate the underground injection of fluids under the Safe Drinking Water Act (SDWA); however, this authority was overturned by the Energy Policy Act of 2005. In 2009, the Fracturing Responsibility and Awareness of Chemicals Act (FRAC Act) was introduced in Congress to restore the EPA's authority to regulate fracking and require companies to disclose their fracking chemicals. Although the FRAC Act remained in committee, Congress took a lesser step, adding a provision to an Interior Department appropriation bill asking the EPA to fund a new scientific study of the relationship between fracking and drinking water. In 2010, the EPA requested that nine oil-service companies disclose the chemicals they use in fracking fluid for a study on the potential threats that fracking may pose to drinking water and also held a number of public hearings to help the agency determine how to conduct its study. The EPA's study was scheduled to begin in January 2011 with initial results to be released in late 2012. The Wall Street Journal also reported in summer 2011 that the Securities and Exchange Commission had written to oil and gas companies to ask how they were handling water issues associated with fracking. The report has never been confirmed or denied.

On Feb. 2, 2012, Bloomberg News reported that the U.S. Interior Department was expected to release proposed rules for fracking operations on federal lands in a few weeks. The proposed rules are to be compatible with rules that have already been adopted by a number of states; the article specifically refers to rules implemented in Wyoming and Texas. Companies will reportedly be required to disclose the chemicals they use in the fracking process, and well construction requirements will also be addressed. The Houston, Texas-based law firm of Fulbright & Jaworski published a brief analysis of the proposed federal fracking rules. According to the firm, under the proposed rules lessees would now be required to file for approval 30 days prior to any fracking operations; would be required to disclose the trade names and purpose of fracking fluid additives, but exemptions for trade secrets would be permitted; mechanical well casing integrity tests would be required; monitoring of well stimulation operations would be required; and after well stimulation a notice including information on geological formation, fracturing fluid, stimulation design, and recovered fracking fluids would have to be submitted.

In April 2012 the Obama administration issue the first-ever national standards to control air pollution from hydraulic fracturing gas wells. Most of the air pollution comes from the 3 to 10 day period when the wells are moving from drilling to production. Companies are being given two years to install pollution controls, and meanwhile are required to burn excess gas coming out of wells.

Regional, State, and Local Developments

In addition to regulatory activity at the federal level, fracking regulatory developments have also gone forward at the regional, state and local levels.

http://www.govtrack.us/congress/bill.xpd?bill=h111-2766

http://www.bloomberg.com/news/2010-09-09/epa-asks-nine-companies-to-disclose-chemicals-for-gas-extraction.html

http://www.cnn.com/2010/US/09/13/epa.gas.extraction/index.html?hpt=T2

http://www.bloomberg.com/news/2012-02-02/fracking-rules-on-u-s-lands-seen-by-interior-as-state-model.html

http://www.fulbright.com/index.cfm?fuseaction=publications.detail&pub_id=5311&site_id=494&detail=yes

http://www.washingtonpost.com/politics/federal_government/ap-newsbreak-epa-issues-first-ever-rules-to-control-air-pollution-from-fractured-gas-wells/2012/04/18/gIQA7EpmQT_story.html


Regional developments Among important regional regulatory developments, the Delaware River Basin Commission (DRBC) enacted a moratorium on natural gas drilling in the basin in May 2010. The DRBC also proposed natural gas drilling rules for the watershed under its responsibility. Among the rules are requirements that fracking wastewater would have to be held in tanks and not in open ponds, water quality monitoring requirements, water and wastewater tracking to monitor volumes and disposal, and a proposed $125,000 per well fee to assure the plugging and restoration of exhausted wells. The proposed rules were subject to a 90-day comment period, hearings, and possible changes. On Nov. 18, 2011, the DRBC announced that it was postponing its previously scheduled Nov. 21, 2011, meeting so that commissioners would have more time to consider the draft natural gas development regulations. The date for the rescheduled meeting has not been announced.

State developments In New York, then-Gov. David Paterson vetoed a bill previously passed by the legislature that would have imposed a moratorium on all new natural gas drilling permits until May 15, 2011. Instead, Paterson issued an executive order that allows conventional oil and gas drilling but prohibited horizontal, high-volume hydraulic fracturing while the state performs a review and analysis. On Jan. 6, 2012, Reuters reported that New York state lawmakers would soon be considering a proposal to extend the moratorium on fracking until June 1, 2013. On Jan. 11, 2012, Reuters reported that the comment period for the fracking regulations proposed by the state Department of Environmental Conservation had closed and the department would be evaluating the more 20,000 comments it had received before finalizing the rules.

On Nov. 18, 2010, The Associated Press reported that Pennsylvania's Independent Regulatory Review Commission approved new safety standards for natural gas drilling operations. The regulations lower the maximum permitted well pressure, raise standards for well cement and pipes, and increase corporate requirements to investigate and report incidents of natural gas escaping well bores and moving into residential water wells. Drilling companies are also required to send reports to Pennsylvania's Department of Environmental Protection (DEP), including the types and volumes of every chemicals used in each well.

In regulatory developments beyond the Marcellus region, a number of states have passed fracking-related regulations. In Wyoming, companies must get approval from the state's Oil and Gas Conservation Commission of chemicals they intend to use in fracking in each well under new rules. Companies are also required to disclose the amount of each chemical used upon completion of fracking operations. In December 2011, both Colorado and Texas approved regulations requiring natural gas drillers to provide a list of chemicals they used during well fracking operations. Other states with fracking-related regulations include Arkansas, Michigan, and Montana. While overall the developments promote greater transparency into fracking operations, the regulations in Arkansas, Michigan, Pennsylvania, Texas, and Wyoming allow companies to assert trade secrets and prevent information on certain chemicals from being disclosed to the public.

Industry Developments

Beginning Jan. 1, 2012, members of the Marcellus Shale Coalition, a trade group of 40 companies associated with the natural gas drilling industry in Pennsylvania, were to begin listing some of their fracturing chemicals on the FracFocus.org Web site. FracFocus is a joint project of the Groundwater Protection Council and the Interstate Oil and Gas Compact Commission. The site was established to provide the public information on the chemicals used in local fracking operations.

Fracking-Related Controversies & Incidents

There have been a number of controversies and incidents related to natural gas drilling and fracking operations. In Pennsylvania, Cabot Oil & Gas had operations suspended and was fined $56,650 for related spills, Cabot was also cited and paid a civil penalty of $120,000 for improperly casing wells and failing to prevent gas from entering groundwater. In Bradford County, Chesapeake Energy's drilling operations were believed to be the source of methane in six residential water wells, according to a Nov. 18, 2010, Associated Press article. In late April 2011, Chesapeake Energy experienced a blow-out at one of its fracturing operations in Pennsylvania resulting in spillage of thousands of gallons of toxic fracking fluids into a local waterway. As a result, the company put its operations temporarily on hold and the incident was resolved within two days. However, the incident heightened concerns and contributed to the public debate over natural gas fracturing operations.

In 2009, the EPA initiated a study into the source of well contamination in the town of Pavillion, Wyo. after residents complained that their well water "turned sour and reeked of fuel vapors" after nearby drilling began. The EPA detected contaminants, including a fracking chemical and methane gas, in a number of the community's wells. The EPA ultimately found that the harmful chemicals found in Pavillion's water wells were from fracking operations. In an article that appeared

http://www.printthis.clickability.com/pt/cpt?action=cpt&title=Delaware+River+Basin+Commission+posts+proposed+Marcellus+Shale+rules&expire=&urlID=442390952&fb=Y&url=http%3A%2F%2Fwww.philly.com%2Finquirer%2Flocal%2F20101210_Delaware_River_Basin_Commission_posts_proposed_Marcellus_Shale_rules.html%3FviewAll%3Dy%26c%3Dy&partnerID=166771&cid=111652604

http://www.nj.gov/drbc/home/newsroom/news/approved/20111118_newsrel_naturalgas.html

http://www.reuters.com/article/idUSTRE6BB00Y20101212?loomia_ow=t0:s0:a49:g43:r2:c0.129032:b40252516:z0

http://www.reuters.com/article/2012/01/06/us-fracking-newyork-idUSTRE80521M20120106

http://www.reuters.com/article/2012/01/11/us-energy-fracking-ny-idUSTRE80A2EA20120111

http://www.propublica.org/article/two-companies-seek-trade-secret-status-for-fracking-fluids-in-wyoming

http://www.propublica.org/article/wyoming-fracking-rules-would-disclose-drilling-chemicals

http://stateimpact.npr.org/pennsylvania/2011/12/16/texas-advances-its-fracking-disclosure-rules/

http://stateimpact.npr.org/pennsylvania/tag/fracking-disclosure/

http://stateimpact.npr.org/pennsylvania/tag/fracking-disclosure/

http://fracfocus.org/

http://s3.amazonaws.com/propublica/assets/natural_gas/dep_cabot_order_090925.pdf

http://s3.amazonaws.com/propublica/assets/natural_gas/final_cabot_co-a.pdf

http://www.reuters.com/article/2011/04/22/chesapeake-blowout-idUSN2127616820110422

http://www.propublica.org/article/epa-chemicals-found-in-wyo.-drinking-water-might-be-from-fracking-825

http://www.bloomberg.com/news/2011-12-08/gas-fracking-chemicals-detected-in-wyoming-aquifer-epa-says.html

http://www.bloomberg.com/news/2011-12-08/gas-fracking-chemicals-detected-in-wyoming-aquifer-epa-says.html


in Bloomberg News on Dec. 8, 2011, a spokesman for Encana Corp., which conducted drilling operations in the area, noted the EPA report uses qualifying terms such as "likely" and said the chemicals the EPA found were just as likely to have resulted from the agency's sampling activities.

In addition to regulatory action, a number of civil lawsuits associated with natural gas drilling operations have been filed. In one, residents of Dimock Township, Pa., have filed a lawsuit alleging that Cabot's fracking operations resulted in drinking water well contamination. However, Bloomberg News reported on Jan. 31, 2012, that the lawsuit, which was filed by 23 families, was being held up because the plaintiffs' lawyers have not been able to prove that fracking chemicals had migrated upward from the region of fracking activity to drinking water aquifers. In the meantime, the EPA has begun providing freshwater to four Dimock families and the agency plans on testing water at 60 homes to assess if hazardous chemicals are present. Per an agreement with Pennsylvania state regulators, without accepting responsibility for contamination, Cabot has set up a $4.1 million fund that 19 families could draw from and approximately $1.9 million of the fund has been claimed.

In a document that addresses the natural gas drilling and fracking civil lawsuit landscape more generally, Fulbright & Jaworski LLP published a report, Securities Litigation and Enforcement Risk for Shale Operators, on Feb. 9, 2012. The report's authors noted that at least 40 lawsuits, "alleging water contamination, personal injury and other damages from hydraulic fracturing," had been filed against companies with operations in the Marcellus region, mostly in Pennsylvania. Previously, the firm's Sept., 27, 2011, publication, Analysis of Litigation Involving Shale & Hydraulic Fracturing, reported that since 2009, at least 23 lawsuits alleging contamination of groundwater had been filed against oil & gas companies and drilling companies by landowners in Arkansas, Colorado, Louisiana, New York, Pennsylvania, Texas, and West Virginia.

Chevron's Entry into the Marcellus

Chevron acquired Atlas Energy in February 2011, paying $3.2 billion in cash and stock and assuming $1.1 billion in Atlas Energy's debts. A company press release on the announcement said, "We are acquiring a company that has one of the premier acreage positions in the prolific Marcellus. The high quality resource, competitive cost structure in the Marcellus, strong growth potential of the asset base and its proximity to premier natural gas markets make this targeted acquisition a compelling investment for Chevron." The acquisition gave Chevron access to 486,000 acres of Marcellus Shale and a 49 percent interest in Laurel Mountain Midstream LLC, a joint venture company with more than 1,000 miles of natural gas pipelines that services the Marcellus Shale area. Chevron is assuming Atlas Energy's operations role and 60 percent interest in that company's joint venture with Reliance Industries Ltd. to develop its Marcellus Shale assets. According to an Oct. 1, 2010, Fortune article, Atlas Energy had been fined over $150,000 by the commonwealth of Pennsylvania for violations of its Oil and Gas Act, Clean Streams Law, and Waste Management Act. The company was found to have dumped waste, including diesel fuel and fracking fluid, on the ground, and to have failed to implement proper erosion and sedimentation controls, which allowed runoff to escape containment.

Recent Shareholder Activism This is the second time a fracking resolution is on the ballot at Chevron; last year's fracking proposal received 40.5 percent shareholder support. This year similar proposals were filed at 10 companies and after seven negotiated withdrawals, are still pending at Exxon Mobil and Ultra Petroleum, in addition to the proposal at Chevron.

The shareholder campaign on fracturing began in 2010 by targeting 11 companies. Measured by votes in favor and withdrawal agreements, this proposal has had considerable investor support and was an effective tool for corporate engagement for proponents. At five companies where the proposal came to a vote, shareholder support was 30.3 percent; proposals were withdrawn at four companies (it should be noted that the proposal at Energen was withdrawn because the proponent realized it had been misfiled, and not due to any agreement), and there was one technical omission. In 2011, the proposal was filed at nine companies and received an average of 40.7 percent support at the five companies where it was voted on; the remaining proposals were withdrawn after agreements were reached.

Chevron and Hydraulic Fracturing Chevron addresses the company's shale gas operations on its Web site, primarily in the Natural Gas from Shale section. The company discusses how it approaches shale gas development, including environmental and community impact considerations. Elsewhere on its Web site, Chevron describes its Operational Excellence Management System (OEMS), the operational initiative it has implemented to address operational performance, workplace safety, and environmental protection. Chevron also addresses issues raised in the proposal in its Environmental, Social and Health Impact Assessment

http://www.tradingmarkets.com/print/print/print/.site/news/Stock%20News/2671427/

http://www.bloomberg.com/news/2012-01-31/tainted-well-lawsuits-mount-against-gas-frackers-led-by-cabot.html

http://www.fulbright.com/images/publications/20120209SecuritiesLitigationandEnforcementRisksforShaleOperators.pdf

http://www.fulbright.com/images/publications/09272011FulbrightWhitePaper_AnalysisofLitigationInvolvingShaleHydraulicFracturing_secured.pdf

http://money.cnn.com/2010/09/29/news/companies/fracking_natural_gas_industry.fortune/index.htm

http://www.chevron.com/deliveringenergy/naturalgas/shalegas/


(ESHIA), in its Water Position Statement, and the company reports that is operations have been affected by concerns related to the safety of fracking – noting that its exploration permit in Bulgaria was withdrawn by the government after parliament passed a ban on hydraulic fracturing.

Responsible Gas Development

On its Responsible Gas Development Web Page, Chevron asserts that it is committed to responsible development, and that protecting land, water and communities is the company's "highest priority."

Chevron reports that it takes a number of steps to protect groundwater during the fracking process and then over the life of the well; these include well casings that can have up to eight layers of steel and cement, pressure tests to confirm well integrity, and an additional combination of tests over the life of the well to ensure long term well integrity. The company also discusses how it manages its use of water in the fracking process; it reports that the company temporarily stores used fracking water/fluid at the well site in lined pits or steel tanks until it is reused for other fracking applications or is injected into permitted/regulated disposal wells. In addition, Chevron reports it is working to capture and reuse all of the fracking fluid and water produced during natural gas operations to reduce the need to use freshwater supplies as well as the need to transfer and dispose of used fracking fluid and water. Water pipelines are also used to reduce the need for tanker trucks to transport water. Finally, Chevron states that its well sites are designed to protect the surface of the land and that the company restores the land to its original contours after drilling operations are completed.

Chevron states that, as part of its commitment to protect air quality, it designs, constructs, and operates its wells to reduce emissions. The company verifies the integrity of its wells and its production equipment, and participates in voluntary programs to minimize its emissions. In addition, Chevron states that it has worked with governments and stakeholders for years to develop programs that encourage the reduction of natural gas leaks.

Regarding transparency and community engagement, the company states that it supports disclosing information regarding the chemicals used in fracking. For additional information, Chevron directs readers to FracFocus.org. The company asserts that public confidence in its operations is critical to its success, and that transparency and engagement are essential to maintaining that confidence. Chevron states that it makes an effort to engage with the communities where it operates as by doing so it can learn about local concerns, exchange information, and "minimize the possible negative impacts of our activities." The company also notes that it works with local communities regarding emergency responsiveness, working with local and regional emergency agencies on communication, coordination, and preparedness.

Community Engagement

On Chevron's Community Engagement Web Page, the company reports that it builds long-term partnerships with the communities where it operates. It states that it understands that "communities have expectations and concerns surrounding the development of natural gas from shale, and we address these through frequent consultation with local stakeholders.” The company says that it has a long history of supporting communities with financial investment and volunteerism – and focuses its efforts on education, basic needs, and economic development. Chevron also reports that it supports hiring local workers and making purchases from local suppliers. When needed, the company says it will often work with local schools, colleges and trade organizations to develop worker training and supplier development programs.

Operational Excellence Management System

Chevron states that it developed the company's Operational Excellence Management Systems (OEMS) in order comprehensively address process safety, health and personal safety, the environment, reliability and safety. In its proxy statement response to the proposal, Chevron mentions that the company's statement of vision and values, The Chevron Way, is implemented through its OEMS, as well as through other policies.

Chevron reports that Lloyd’s Register Quality Assurance attested that the company's OEMS meets all the requirements of both the International Organization for Standardization’s environmental management systems standard (ISO 14001) and the Occupational Health and Safety Assessment Series requirements for occupational health and safety management systems (OHSAS 18001).

In the Assuring Compliance focus section of the Chevron's OEMS, the company discusses verification of its Operational Excellence requirements stating:

http://www.chevron.com/deliveringenergy/naturalgas/shalegas/responsibleshalegasdevelopment/

http://www.fracfocus.org/

http://www.chevron.com/deliveringenergy/naturalgas/shalegas/CommunityEngagement/

http://www.chevron.com/about/operationalexcellence/managementsystem/#b7

http://www.chevron.com/about/chevronway/



"Self-assessments by operating units and independent corporate OE audits are key drivers of compliance assurance. Self-assessments are conducted annually. Our production and manufacturing operations undergo corporate audits every three years. Corporate audit teams are comprised of employees and external parties with experience and subject matter expertise in each operating unit's risk areas. These teams assess the design of our processes and the effectiveness of our operations consistent with these processes."

The company states that its OEMS is based on five objectives:

Achieve an incident and injury free workplace

Promote a healthy workforce and mitigate significant workplace health risks

Identify and mitigate environmental and process safety risks

Operate with industry leading asset integrity and reliability

Efficiently use natural resources and assets

In addition to its five objectives, the OEMS has four focus areas.

Reducing the Risk of Incidents

Improving Performance

Assuring Compliance

Preparing for Potential Emergencies

The company specifically includes a section on Managing Risk in Development of Natural Gas from Shale in its discussion on Reducing the Risk of Incidents. The information provided is similar to that already in previously noted company materials.

Chevron's document, Operational Excellence Management System: An Overview of the OEMS, addresses Leadership Accountability, Management System Process, and Operational Excellence (OE) Expectations. The OE Expectations are organized around 13 elements, each of which has a number of aspects and are discussed the company's document Operational Excellence Management System: An Overview of the OEMS. The 13 elements are:

Security of Personnel and Assets

Facilities Design and Construction

Safe Operations

Management of Change

Reliability and Efficiency

Efficiency

Third-Party Services

Environmental Stewardship

Product Stewardship

Incident Investigation

Community and Stakeholder Engagement

Emergency Management

Compliance Assurance

Chevron's Environmental, Social and Health Impact Assessment Process

While Chevron does not appear to discuss the company's Environmental, Social and Health Impact Assessment (ESHIA) process in detail, it does provide the following:

"Our Environmental, Social and Health Impact Assessment (ESHIA) process, deployed in 2007, requires that all new capital projects be evaluated for potential environmental, social and health impacts. ESHIA is used to anticipate and plan for the avoidance, minimization and mitigation of potentially significant negative impacts, as well as for the enhancement of potential benefits during the planning, construction, operation and decommissioning of our projects. Stakeholder engagement throughout the life of a project is a central piece of the ESHIA process. Since its inception, ESHIA has been applied to nearly 900 capital projects worldwide."

http://www.chevron.com/about/operationalexcellence/managementsystem/reducingincidents/

http://www.chevron.com/about/operationalexcellence/managementsystem/improvingperformance/

http://www.chevron.com/about/operationalexcellence/managementsystem/assuringcompliance/

http://www.chevron.com/about/operationalexcellence/managementsystem/emergencypreparedness/

http://www.chevron.com/about/operationalexcellence/managementsystem/reducingincidents/

http://www.chevron.com/documents/pdf/OEMS_Overview.pdf?


Chevron and Water

The proponents specifically note that the requested report should address water supply and water disposal issues that could affect the company's operations. Chevron has developed a Fresh Water Position Statement. In the statement the company notes that its ability to produce energy is dependent upon its ability to access necessary sources of water, which includes fresh water and water of lower quality. Per the statement, Chevron will make efforts to:

"Continually improve environmental performance and reduce impact from our operations.

Integrate freshwater conservation and efficiency drivers into our business decision-making processes and operational management.

Conserve our use of fresh water in freshwater-constrained areas by reusing, reducing, and/or recycling water.

Account for the use of fresh water in our operations with appropriate metrics.

Engage with governments, partners, local communities and other stakeholders on significant freshwater resource issues in areas where we operate.

Build partnerships and participate in industry initiatives to share and promote best practices, assist with the development of industry standards, and shape and influence relevant freshwater resource policy."

Chevron's 2011 10-K Report

Chevron only once explicitly addresses fracking in the company's 2011 10-K Report, when it mentions the ban on fracking imposed by the Bulgarian parliament.

"Bulgaria: In June 2011, the Bulgarian government advised that Chevron had submitted a winning tender for a permit for exploration in a 1.1 million-acre area in northeast Bulgaria. In January 2012, prior to execution of the license agreement, the Bulgarian government announced the withdrawal of the decision awarding the permit and the Bulgarian parliament imposed a ban on hydraulic fracturing, a technology commonly used for shale exploration and production. Chevron is continuing to work closely with the government of Bulgaria to provide the necessary assurances to the government and the public that hydrocarbons from shale can be developed safely and responsibly."

Chevron does note the company's shale gas assets in Argentina, Romania, and the United States, but without further detail.

Analysis Green Century Capital, the Sisters of St. Francis, Philadelphia and additional co-filers are requesting a report on the risks to the company related to public opposition to hydraulic fracturing and associated natural gas development.

Chevron addresses the company's shale gas operations on its Web site. The company generally discusses how it approaches shale gas asset development, including environmental and community impact considerations. In addition, Chevron describes its Operational Excellence Management System, the initiative it has implemented to address operational performance, workplace safety, and environmental protection. Chevron also addresses issues raised in the proposal in its Environmental, Social and Health Impact Assessment and in its Water Position Statement, and the company reports that is operations have been affected by concerns related to the safety of fracking – noting that its exploration permit in Bulgaria was withdrawn by the government after parliament passed a ban on hydraulic fracturing.

While Chevron provides some general information on its position and efforts regarding the environmental, safety, and community issues regarding fracking and related operations, shareholders would benefit from more detailed and more specific information regarding the policies, initiatives and oversight mechanisms the company has implemented to manage its fracking/natural gas development operations and their related community and environmental impacts. Such information would allow shareholders to assess the company's management of any related risks, any operational implications, and any potential consequences for shareholder value. Hence, a vote FOR this proposal is warranted.

http://www.chevron.com/globalissues/environment/freshwater/


Item 19. Report on Accident Risk Reduction Efforts AGAINST

Vote Recommendation A recommendation AGAINST this resolution is warranted based on the company's current disclosure of its operational and workplace safety management system and performance metrics.

Background Information Policies: Facility Safety Proposals


In May 2012, Chevron published its 2011 Corporate Responsibility Report .The 2011 report was published subsequent to the preparation of the ISS analysis of this agenda item and the timing of this update did not allow sufficient time for comprehensive review by ISS or incorporation into the multiple agenda items where the company's environmental and/or social reporting was relevant and Chevron's 2010 Corporate Responsibility Report was discussed. However, based on our initial review of the 2011 report, it does not appear that the report's content would have affected the voting recommendation regarding this agenda item.

Discussion In Brief: This resolution is part of the second year of an AFL-CIO campaign originally directed at seven oil companies, which was inspired by the BP Deepwater Horizon spill, refinery explosions and safety violation citations under the Occupational Health and Safety Administration's National Emphasis Program. In 2011, the proposal received varied support, garnering approximately 7.5 percent at Marathon and ConocoPhillips, but 43.3 percent at Valero and majority support of 54.3 percent at Tesoro. The resolution was proposed to Chevron last year but did not appear in the proxy statement because an individual had proposed a resolution on offshore oil operations first and the Securities and Exchange Commission staff agreed with the company that the proposals overlapped. This year the AFL-CIO got its resolution in first. For 2012, the proposal is pending at ConocoPhillips and Valero, as well as Chevron, and has been withdrawn at Marathon and Tesoro where agreements have been reached.

Proposal The AFL-CIO has filed a non-binding proposal requesting the company report on the steps it has taken to reduce the risk of accidents.

The resolution specifically requests:

"Resolved: Shareholders of Chevron Corporation (the "Company") urge the Board of Directors (the "Board") to prepare a report, within ninety days of the 2012 annual meeting of stockholders, at reasonable cost and excluding proprietary and personal information, on the steps the Company has taken to reduce the risk of accidents. The report should describe the Board's oversight of process safety management, staffing levels, inspection and maintenance of refineries, oil drilling rigs and other equipment."

Shareholder's Supporting Statement In its statement supporting the proposal, the proponent notes the 2010 BP Deepwater Horizon disaster was the largest and most costly human and environmental incident in the history of the petroleum industry but that such accidents are not unique to BP, noting the 2010 explosion at Tesoro's Anacortes refinery. The filer contends that the Occupational, Safety and Health Administration's (OSHA) national emphasis program for petroleum refineries discovered industry-wide failures to comply with safety regulations. The proponent states that, since 2005, OSHA found six serious process safety violations and 14 other violations of lesser severity at Chevron, and that Chevron may also be subject to fines as a result of a November 2011 oil spill that occurred off the coast of Rio de Janeiro. Finally, the filer asserts that the cumulative effect of accidents, safety violation citations, and the public's heightened concern regarding safety and environmental issues in the petroleum industry, are a threat to Chevron's stock price performance, and that the requested report can increase investor confidence.





Board's Statement In its response opposing the proposal, the board asserts that the company has rigorous health, safety, and environmental protection standards, and works continuously to improve them. The company reports that the board is responsible for risk oversight and receives reports on safety, risk management, process safety, environmental performance, Operational Excellence (OE) audit performance, and significant incident reports. Furthermore, the board states that the company recently expanded its Web site content on risk management and the 2012 Corporate Responsibility Report will include an expanded section on the application of the company's Operational Excellence management System (OEMS). In addition to the company's OEMS and OE audits, it notes the company has a risk management process based on the Guidelines for Risk Based Safety, drilling safety programs and initiatives, and stop-work authority so employees and contractors can prevent harm to people or the environment.

Background on Extractive Industry Health and Safety Risks Several major incidents in recent years have highlighted the need for the effective oversight of health, environment, and safety (HES) risks. Companies in the extractives sector, and their investors, can face potentially costly consequences as a result of the mismanagement of risks taken in oil drilling, refining, and transportation and/or mining operations.

BP's 2010 oil spill in the Gulf of Mexico, which came after a fatal 2005 fire at its Texas City refinery and a 2006 breach in one of the company's Alaskan pipelines, is a prime example of these risks, and pointed to lapses in BP's management of its HES responsibilities resulting in serious financial losses and reputational impacts following these incidents. According to an Associated Press analysis, the cleanup, government fines, lawsuits, legal fees and damage claims in connection with the gulf oil spill will likely exceed the $40 billion in related costs that BP has publicly estimated, estimating it between $38 and $60 billion, however, far below the highest estimates made by legal experts and prominent Wall Street banks, such as Goldman Sachs, which previously estimated that costs could near $200 billion. On March 3, 2012, the BBC reported that BP had reached a deal with a group of plaintiffs, comprised of about 100,000 fishermen, local residents and clean-up workers. The $7.8 billion settlement will come from a $20 billion compensation fund the company had previously established. BP has reportedly already paid out $7.5 billion in post-spill costs and compensation. As a comparison, Exxon's costs were estimated at $4.5 billion after dealing with lawsuits and cleanup for decades after its Valdez supertanker ran aground in 1989. To make up these costs, BP has cut its dividend, issued debt, and sold more than $21 billion in assets. In addition, BP's stock price, despite having risen 63 percent from its low of $27.02 on June 25, has also continued to suffer and was down 27 percent at the end of 2010 from its close of $60.48 on April 20, the day of the spill.

Meanwhile, incidents including BP's Texas City refinery explosion in 2005 (and an additional fatality at the same refinery in January of 2008), Occupational Safety and Health Administration (OSHA) safety fines levied on BP's Toledo refinery in 2005, and oil spillages from a corroded BP pipeline in Prudhoe Bay in 2006, have also revealed major operational issues, which have been estimated to have cost BP approximately $10 billion in total, or 40 percent of 2007 cash flow from operations.

Following the Texas City refinery accident in 2005, OSHA fined BP a record $21.4 million and prompted a criminal conduct investigation in February 2009. Additionally in connection with this incident, under the Clean Air Act, the company was ordered to spend $161 million on pollution controls, pay a $12 million civil penalty, and spend $6 million on a supplemental project to reduce air pollution in Texas City, all of which followed a $50 million fine for criminal penalties for the Clean Air Act violation in connection with the 2005 explosion. Further, BP also had to establish a $2.1 billion provisional fund related to the incident and increased spending to $1.7 billion a year over the four-year period from 2007 to 2010, in order to improve the integrity and reliability of its U.S. refining assets.

An additional example of health and safety-related financial risks arose in April 2010, when an explosion occurred at a Tesoro refinery in Anacortes, Washington, killing seven workers. As a result $2.39 million was levied on Tesoro by Washington State regulators the largest penalty for workplace safety violations in the history of the state, according to a Bloomberg article. The fine for the explosion came after the Washington Department of Labor and Industries cited the company for 39 willful violations and five serious violations of state workplace safety and health regulations and was preceded by a fine of $85,700 in 2009 following an inspection that found 17 serious safety and health violations at the same refinery. Moreover, according to the same article, Tesoro is not alone in such health and safety violations, as five percent of U.S. refineries have had significant incidents in the last two years.

In the coal mining industry as well, serious financial ramifications have resulted from poor environmental, health, and safety oversight. Preceded by a long string of health and safety compliance violations at Massey's Upper Big Branch mine,


http://www.google.com/hostednews/ap/article/ALeqM5iQIz6Ju7f8greQEdYv_zkQlr2JOQ?docId=6105acb3932d43eea7e9fea079ce3c23

http://www.bbc.co.uk/news/world-us-canada-17243097

http://www.bloomberg.com/news/2010-10-04/tesoro-fined-2-38-million-for-anacortes-refinery-blast-that-killed-seven.html

http://www.msnbc.msn.com/id/36146392/ns/us_news-life/


an explosion killed 29 miners in the spring of 2010. As a result, Massey suffered substantial financial losses and a major "vote no" shareholder campaign against the directors of Massey's Safety, Environmental, and Public Policy Committee as well as civil and criminal investigations and the eventual departure of CEO Don Blankenship. The financial costs to the company have been estimated at between $129 and $212 million. While Massey serves as the most recent and prime example, several reports have indicated that it may not stand alone in the industry, which is likely to face additional scrutiny and costs from the Mine Safety and Health Administration (MSHA).

OSHA National Emphasis Program (NEP) and Voluntary Protection Program (VPP)

In 2007, following BP's Texas City refinery explosion, the Occupational Safety and Health Administration (OSHA) launched a National Emphasis Program for petroleum refineries (RNEP). This program aims to reduce or eliminate the workplace hazards associated with the catastrophic release of highly hazardous chemicals at petroleum refineries, and under the program OSHA conducted inspections of all U.S. refineries for compliance with the Process Safety Management Regulations. OSHA's Voluntary Protection Program (VPP) promotes effective worksite-based safety and health, and grants VPP status in three categories: Star, Merit, and Star Demonstration. Approval into VPP is OSHA's official recognition of the outstanding efforts of employers and employees who have achieved exemplary occupational safety and health. OSHA says that statistical analysis has shown that the average VPP worksite has a Days Away Restricted or Transferred (DART) case rate of 52 percent below the average for the industry.

2011 Brazil Offshore Oil Spill

In its supporting statement, the AFL-CIO refers to a November 2011 oil spill that took place off the coast of Rio de Janeiro. According to the New York Times, Chevron could be fined as much as $83 million, apparently at least in part as a result of the government of Brazil's displeasure with how the company was handling the spill. The head of Brazil's National Petroleum Agency said the spill could make the company's hopes of gaining access to new offshore exploration areas more difficult to realize. Brazilian government investigators also reportedly said Chevron employees may face prison terms.

OSHA Violations

The AFL-CIO refers to a number of OSHA violations in its supporting statement. These include an incident that occurred on Jan. 15, 2007, when an employee was burned after diesel fuel that was being used to clean pipes caught fire and a July 25, 2010, incident when an employee lost two fingers by amputation in a winch. The other OSHA incidents cited by the proponent do not appear to have detailed descriptions available.

SEC Decisions on Similar Proposals and Recent Shareholder Activism

This is the second year that Chevron has received a proposal regarding operational safety/accident risk reduction. In 2011, Chevron received this proposal on accident risk reduction from the AFL-CIO, but before it received the AFL-CIO's proposal it received a proposal from James Hoy, an individual investor, requesting the company report on its offshore oil wells, expenditures for remedial maintenance and inspection, and the cost of research for oil spill containment and reclamation. Chevron sought and received permission from the SEC to omit the AFL-CIO's resolution based on the company's contention that it was substantially duplicative of the Hoy proposal – which received 8.6 percent shareholder support. This year Chevron received the AFL-CIO proposal first, and was allowed to omit the subsequently received Hoy resubmission.

The 2011 support levels for this proposal varied greatly; it received around 7.5 percent support at ConocoPhillips and Marathon, but majority support of 54.3 percent at Tesoro, whose problematic safety record was specifically mentioned in the supporting argument.

In 2012, the AFL-CIO withdrew the proposal at Marathon, saying that "based upon our continuing and productive discussions with Marathon Petroleum Company, which is the new spin-off of Marathon Oil Corporation, we hereby withdraw our proposal." The withdrawal agreement may have come about in part because of the company's "no action" argument that the proposal was no longer “significantly related” to the company’s operations because it focused on refineries, which Marathon Oil Corporation no longer owned after its 2011 spin-off of this section of its business, which resulted in the formation of Marathon Petroleum Company. The proponent also reached an agreement with Tesoro, after the proposal received majority support in 2012, and withdrew its 2012 proposal. For 2012, the proposal is still pending at Valero and ConocoPhillips in addition to Chevron.

http://wvgazette.com/News/montcoal/201007280901

http://www.businessweek.com/news/2010-04-22/massey-expects-west-virginia-mine-disaster-to-cost-212-million.html

http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=DIRECTIVES&p_id=3589

http://www.osha.gov/dcsp/vpp/all_about_vpp.html

http://www.nytimes.com/2011/11/22/business/energy-environment/brazil-chevron-faces-fines-of-83-million-in-oil-spill.html

http://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2012/aflcio012712-14a8.pdf


Chevron and Operational Safety Chevron provides information regarding the company's operational and workplace safety policies, initiatives, and performance on its Operational Excellence Management System and Health & Safety Web pages, and its 2010 Corporate Responsibility Report. In addition, Chevron is a member of a number of oil spill response and clean-up cooperative companies.

Operational Excellence Management System

Please see the previous agenda item (Item 18: Report on Hydraulic Fracturing Risks to Company) for a discussion of Chevron's Operational Excellence Management System (OEMS).

Health & Safety Web Page

Chevron has a Health & Safety page on its Web site. The company states "Our commitment to the health and safety of our employees and contractors is recognized in The Chevron Way, managed through our Operational Excellence Management System, and reinforced at all levels of the corporation."

Chevron reports that 2010 was the company's safest year to date but that it did not meet its target of zero fatalities – the number of fatalities is not noted on the Web page but that information is available in Chevron's annual corporate responsibility report; see discussion of the 2010 report below. Chevron states that each fatality is investigated and results are reviewed by the Chairman. The company also notes that motor vehicle safety remains a challenge and is being addressed through training.

2010 Corporate Responsibility Report

Chevron addresses workplace safety in its 2010 Corporate Responsibility Report. It provides a number of workplace safety metrics and also reports metrics for the company's spills and environmental, health and safety fines and settlements. The company reports that in 2010, it had a record-low injury and illness rate. It notes that its Days Away From Work Rate has dropped by 90 percent from 2000 to 2010 and reports that almost 800 fewer workers were injured in 2010 than in 2000. Chevron also reports that the number of spills has been reduced by 50 percent and the spill volume has been reduced by 80 percent from 2000 to 2010.

Chevron also discusses the Stop-Work Authority that the company's employees and contractors have. It consists of five parts, or steps: Stop the at-risk act with those potentially at risk, Notify a supervisor if present, Address the issue, Resume work after issue resolution, and Share what is learned.

Workplace Safety In the Performance Data section of the report, Chevron provides data on a number of workplace safety metrics for the years 2006 to 2010. For Total Recordable Incident Rate, Lost-Time Incident Frequency, and Days Away From Work Rate, the company benchmarks itself against the American Petroleum Institute's (API), Benchmarking Survey of Occupational Injuries, Illnesses, and Fatalities in the Petroleum Industry. It notes that 2010 benchmark data was not available at the time of the 2010 report's publication. For the three API indicators the company reports data for the total workforce, and also breaks out employees and contractor performance separately.

Chevron's performance regarding Total Recordable Incident Rate (incidents per 200,000 work hours), Lost-Time Incident Frequency (days away from work incidents and fatalities per million work hours), and Days Away From Work Rate (incidents per 200,000 work hours), exceeded the API benchmark for the four years where the benchmark was available (2006-2009) for total workforce, employees, and contractors.

Chevron reported 12, 17, 5, 9, and 5 Work-Related Fatalities from 2006 through 2010, respectively. Regarding Motor Vehicle Safety (company vehicle incidents per million miles driven-catastrophic and major incidents only) Chevron reports 0.11, 0.10, 0.06, 0.06, and 0.01 incidents from 2006 through 2010, respectively.

On the issue of process safety, the company reports that there were 95 loss-of-primary-containment incidents of significance, as defined by the American National Standards Institute/American Petroleum Institute Recommended Practice 754 Tier 1, compared to 104 such incidents in 2009. There were no fatalities as a result of any loss-of-primary-containment incident.

http://www.chevron.com/about/operationalexcellence/

http://www.chevron.com/globalissues/healthsafety/




http://www.chevron.com/globalissues/corporateresponsibility/2010/documents/Chevron_CR_Report_2010.pdf


Spill performance Chevron reports the company's petroleum spill performance metrics in its 2010 Corporate Responsibility Report. The company graphically notes the portion of each year's volume that is retained in secondary containment. In 2010, Chevron specifically reports that approximately 21 percent of the total spill volume for that year was spilled to secondary containment and did not enter the environment.

2010 – 639 spills with a volume of 12,139 barrels, 10,390 barrels recovered


2008 – 760 spills with a volume of 17, 492 barrels, 14,399 barrels recovered



Environmental, Health and Safety Fines and Settlements Chevron reports the number of such fines assessed against the company for the previous five year period.

2010 – 524

2009 – 460

2008 – 564

2007 – 684

2006 – 699

The company also notes that environmental fines were $93.9 million in 2010, which was 3.2 percent of the company's total environmental expenditures of $2.9 billion. Health and safety fines and settlements were $0.19 million, or approximately 0.2 percent of total fines.

Oil Spill Cooperative Participation

Chevron is a member of two oil spill response and clean-up cooperative companies, Marine Spill Response Corporation and Oil Spill Response. The companies provide training, support, and technical response services to their members in the event of an oil spill.

In addition, Chevron was one of the founding companies of Marine Well Containment Company (MWCC). MWCC introduced its management team on Feb. 17, 2011, and on April 19, 2011, announced that it had concluded its formation period with a membership of 10 companies including Chevron, ConocoPhillips, ExxonMobil, Shell, BP, Apache, Anadarko, BHP Billiton, Statoil, and Hess. MWCC is a not-for-profit company founded to provide containment services for underwater well incidents such as well intervention, the drilling of relief wells, debris removal, and surface clean-up. The company has established an "interim containment system" for use in depths up to 8,000 ft. and with a containment capacity of 60,000 barrels/day. An "expanded containment system" is under development with an operational depth up to 10,000 ft. and a containment capacity of up to 100,000 barrels/day.

Analysis The AFL-CIO is requesting the company report on the steps it has taken to reduce the risk of accidents. The proponent is concerned that that BP Deepwater Horizon accident and OSHA's national emphasis program for petroleum refineries have uncovered safety regulation compliance issues in the petroleum industry.

Chevron provides information on the company's operational management system, including some information on the system's compliance assurance mechanism and external assurance provider. The company also provides information on workplace and operational safety on its Web site, but primarily this information is provided through Chevron's annual corporate responsibility report. Chevron's 2010 Corporate Responsibility Report includes a number of workplace safety indicators and quantitative performance metrics, such as Total Recordable Incident Rate, Lost-Time Incident Frequency, and Days Away From Work Rate, and Environmental, Health and Safety Fines and Settlements.

While Chevron could provide additional, more specific, information regarding the company's operational and workplace safety oversight mechanisms, it appears that the company has demonstrated an overall active commitment to reducing the

http://www.msrc.org/

http://www.oilspillresponse.com/

http://marinewellcontainment.com/index.php


risks of accidents. In addition, Chevron provides shareholders with sufficient information regarding the company's operational and workplace safety policies, initiatives, and performance necessary to evaluate the company's management of these issues. Hence, a vote AGAINST this proposal is warranted.

Item 20. Amend Articles/Bylaws/Charter -- Call Special Meetings FOR

Vote Recommendation A vote FOR is warranted as approval of this proposal would enhance the current shareholder right to call special meetings by lowering the demand threshold, as well as removing the restrictions on calling special meetings for items that have been addressed at the annual meeting.

Background Information Policies: Special Meetings Proposals


Discussion

Proposal A shareholder has submitted this shareholder proposal requesting the company take the necessary steps to afford shareholders the right to call a special meeting. The proposal reads:

RESOLVED: Shareowners ask our board to take the steps necessary (to the fullest extent permitted by law) unilaterally to amend our bylaws and each appropriate governing document to give holders of 10% of outstanding common stock (or the lowest percentage permitted by law above 10%) the power to call a special shareowners meeting.

To the fullest extent permitted by law, such bylaw and/or charter text regarding calling a special meeting will not contain any exception or exclusion conditions that apply only to shareowners but not to management and/or the board.

Special meetings allow shareowners to consider important matters which may arise between annual meetings. This proposal does not impact the board’s current power to call a special meeting.

This proposal topic has garnered more than 60% support at other major corporations, including: CVS Caremark, Sprint Nextel, Safeway, and Motorola.

Shareholder's Supporting Statement The proponent states that, as a long-term shareholder, it is concerned that management has mishandled several issues in ways that may result in liabilities, and points to "significant legal, financial, and reputational liabilities" as a result of the company's acquisition of Texaco. Further, the proponent believes that in failing to negotiate a reasonable settlement prior to the Ecuadorian court’s ruling against the company, it appears that Chevron has displayed poor judgment, leading shareholders to question whether Chevron’s leadership can properly manage the financial and operational risks that it faces. The proponent also cites to substantial liabilities in other areas of Chevron’s operations, specifically, in Myanmar (Burma).

As a result of the acquisitions of Texaco and Unocal, the proponent believes that shareholders face critical issues, and solicits support for this "common-sense corporate governance reform."

Board's Statement The board argues that the company's current provisions already provide a process for calling special meetings, effectively safeguarding the broader interests of all shareholders. Specifically, the company allows for a special meeting of shareholders may be called at any time by 15 percent of the shares outstanding, a proposal that was approved by shareholders at the 2010 annual meeting with approximately 80 percent of outstanding shares supporting the proposal.



The board points out that the proposal seeks not only a lower threshold (10 percent) but also "permit a special meeting without any reasonable limitations," which the board believes is not in the best interests of shareholders, creating a potential for abuse of the special meeting right. The board argues that the company’s current provisions include reasonable limitations on the right to call for special meetings, namely that a special meeting cannot be called if (i) the board has already called for or will call an annual meeting of stockholders for the same purpose or (ii) an annual or special meeting was held no more than 12 months before the request for a special meeting was received and included the purpose specified in the special meeting request.

The board notes that shareholders should be assured that their right to be apprised of and vote on significant matters is protected not only by their existing right to call for special meetings and participate in Chevron’s annual meetings, but also by state law and other regulations.

Analysis Most state corporation statutes allow shareholders to call a special meeting when they want to take action on certain matters that arise between regularly scheduled annual meetings. Most often, this right applies only if a shareholder or group of shareholders owns a specified percentage of the outstanding shares. The percentage of votes required to cause the company to call the meeting depends on the state statute, as does the company's ability to limit or deny shareholders' right to call a special meeting altogether. Notably, Delaware, home to more than half of all U.S. publicly traded corporations, does not have a specific statute that grants this right, though it does allow companies to adopt provisions in their governing documents enabling shareholders to call special meetings.

Commonly, companies will set a threshold to call special meetings at 10 percent of outstanding common stock. According to an ISS analysis of Russell 30000 companies, 48 percent of such companies allow shareholders to call special meetings as of March 26, 2012. The breakdown of such companies is as follows:

Percent Threshold (%) Percent of Selected Population

10 13.2

11-24 1.3

25-49 10.4

Majority+ 19.2

In terms of day-to-day governance, shareholders may lack an important right, the ability to remove directors or initiate a shareholder resolution without having to wait for the next scheduled meeting, if they are unable to act at a special meeting of their calling. Shareholders could also be powerless to respond to a beneficial offer if the bidder cannot call a special meeting. The inability to call a special meeting and the resulting insulation of management could adversely affect corporate performance and shareholder returns.

Ownership Structure While the proposed threshold is set at 10 percent of the outstanding shares, ISS notes that the company's top five beneficial shareholders are as follows:

Ownership – Common Stock* % of Class

State Street Global Advisors 5.03

The Vanguard Group, Inc. 4.20

BlackRock Fund Advisors 3.94

Capital World Investors 3.04

Fidelity Management & Research Co. 2.05

*For additional details, refer to the Equity Ownership Profile below

From the table above, no single shareholder would have the have the ability to unilaterally call a special meeting of shareholders.


Current Exclusionary Language As noted in the proxy statement, currently a special meeting cannot be called if (i) the board has already called for or will call an annual meeting of stockholders for the same purposes specified in the special meeting request or (ii) an annual or special meeting was held not more than 12 months before the request for a special meeting was received and included the purpose specified in the special meeting request. Based on these restrictions, for example, shareholders are currently precluded from calling a special meeting for purposes of election (or removal) of directors which is conducted on an annual basis as long as the company holds an annual meeting, significantly restricting the action of shareholders. In addition to the lowering of the threshold, the proposal would also seek to remove these restrictions on the exercise of the current right.

Conclusion The proposal seeks to further empower investors by reducing the threshold needed for shareholders to call a special meeting to 10 percent for all shareholders. We believe that the lower 10 percent threshold is reasonable and in the best interests of shareholders. Further, the proposal requests the removal of the current restrictions on the exercise of the special meeting right. In addition, no individual shareholder would be able to act unilaterally to call a special meeting. As such, this item warrants shareholder support.

Item 21. Request Director Nominee with Environmental Qualifications FOR

Vote Recommendation A vote FOR this resolution is warranted because:

Chevron does not currently appear to have an independent member of the board with environmental expertise or experience specifically related to the oil & gas industry; and

Chevron is currently involved in a long-standing environmental legal controversy and the company has operations that expose it to additional environmental risks.

Background Information Policies: Director Qualifications Proposals


Discussion In Brief: This is the third year that Chevron has received a proposal requesting it to nominate an independent director candidate with experience or expertise in environmental matters. The proponents are concerned with the ongoing environmental controversy related to its Texaco subsidiary's former operations in Ecuador. Similar proposals are pending at Freeport-McMoRan Copper & Gold and Occidental Petroleum for 2012. The 2010 and 2011 proposals at Chevron received 26.8 and 24.8 percent shareholder support, respectively.

Proposal The New York State Common Retirement Fund has submitted a precatory proposal requesting that the company nominate a director candidate who qualifies as independent and who has expertise in environmental matters related to petroleum exploration and production.

Specifically the proposal reads:

"THEREFORE, BE IT RESOLVED: Shareholders request that, as the terms in office of elected board directors expire, at least one candidate be recommended who:

has a high level of expertise and experience in environmental matters relevant to hydrocarbon

exploration and production and is widely recognized in the business and environmental communities as

an authority in such field, in each case as reasonably determined by the company's board, and

will qualify, subject to limited exceptions in extraordinary circumstances explicitly specified by the board,



as an independent director under the standards applicable to the company as an NYSE listed company,

in order that the board includes at least one director satisfying the foregoing criteria, which director shall have designated responsibility on the board for environmental matters. "

Shareholder's Supporting Statement In the statement supporting their proposal, the proponents contend that environmental expertise is critical to the success of energy companies because of the types of issues associated with their operations. Furthermore, the filers assert that companies that do not comply with internationally accepted environmental standards may find it difficult to raise new capital and obtain necessary licenses from regulators. The proponents include four examples - Ecuador, Brazil, the Niger Delta, and Kazakhstan - where the company, or a subsidiary, has been cited for polluting the environment and local resources, and has faced fines and legal action. The filers then state that such environmental controversies may potentially damage shareholder value and say that a strategic, transparent response is need to restore trust and mitigate the negative impacts of its operations.

Board's Statement In its response opposing the proposal, the board asserts that the company already follows strong environmental practices, and that the current board membership qualification standards already recognize the importance of environmental expertise. Noting that the board currently includes independent directors whose work has "brought them experience with environmental matters," The company reports that its "Board Membership Criteria" was expanded in 2010 to include environmental expertise or experience as a desirable skill when selecting director candidates. The board states that the company uses internal and external environmental professionals to manage the company's environmental protection operations and keep abreast of best practices and technology. Asserting that rigorous standards for protecting the environment have been established, the company points to Chevron's Operational Excellence Management System and Environmental, Social and Health Impact Assessment process, which help the company identify, analyze, and manage social and environmental issues. Finally, the board argues that a diverse board, whose members encompass a broad range of experiences and operate as a group, is superior to one where a member is chosen based on a single criterion.

Chevron and Director Environmental Expertise Chevron's Board Committee Responsibilities

In Chevron's Election of Directors agenda item of its proxy statement, the company notes that a number of current director nominees have environmental expertise or experience in the listing of their "Qualifications, Experience, Attributes and Skills." These directors are:

Linnet F. Deily – Environmental experience based on her previous positions as a Deputy U.S. Trade Representative and U.S. Ambassador to the World Trade Organization.

Robert E. Denham – Environmental experience based on representation based representation of buyers and sellers in mergers and acquisitions; as CEO of Salomon Inc., owner of refiner Basis Petroleum and commodities trading company Phibro Inc., former Trustee of National Resources Defense Council, Chairman of the John D. and Catherine T. MacArthur Foundation which provides funds to environmental and sustainable development programs.

Chuck Hagel – An understanding of environmental matters due to his service as Chair of the U.S. Senate Climate Change Observer Group, the Commission on Climate and Tropical Forests, and Co-Chair of the Disposal Subcommittee of the Blue Ribbon Commission on America's Nuclear Future.

George L. Kirkland – Knowledge of environmental matters from his senior executive level experience at Chevron. However, due to his executive position as Vice Chairman of Chevron he would not be considered to be an independent director.

Ronald D. Sugar – Expertise in environmental issues through his experience as Chairman and CEO of Northrop Grumman where he oversaw environmental assessment and remediation at shipyards and electronics factories.

Carl Ware – Experience in environmental issues through his previous position as EVP for Public Affairs and Administration at Coca-Cola Co.





In the discussion of Board Operations in Chevron's 2011 proxy statement, the company reported that the Public Policy Committee has responsibility for environmental trends and issues regarding the company's operations. In addition, the Public Policy Committee's charter states that the Committee is charged with "identifying, evaluating and monitoring the social, political and environmental trends, issues and concerns, domestic and foreign, which affect or could affect the Corporation's business activities and performance."

Chevron's Environmental Management System and Related Initiatives

Chevron discusses its environmental management system and related initiatives on the "Environment" section of its Web site, including its Operational Excellence Management System (OEMS) and Environmental, Social and Health Impact Assessment (ESHIA) process.

Please see the previous agenda item (Item 18: Report on Hydraulic Fracturing Risks to Company) for a discussion of Chevron's Operational Excellence Management System (OEMS) and Environmental, Social and Health Impact Assessment (ESHIA).

Chevron's Corporate Governance Guidelines

In the discussion of board membership criteria, Chevron's Corporate Governance Guidelines say that "Members of the Board of Directors should have the highest professional and personal ethics and values, consistent with The Chevron Way. They should have broad experience or expertise at the policy-making level in business, government, educational, technological, environmental, or public interest issues. They should be committed to enhancing stockholder value and should have sufficient time to effectively carry out their duties."

The company also indicates in the guidelines that the "Board Nominating and Governance Committee annually reviews the appropriate skills and characteristics required of board members in the context of the current composition of the Board, the operating requirements of the Corporation and the long-term interests of stockholders." In addition, during this review the committee will consider diversity, age, skills, another other factors identified as appropriate noting the company's and board's current needs and maintaining a balance of knowledge, experience, and capability. Chevron reports that a "majority of the Board consists of independent Directors, as defined by the New York Stock Exchange. To be considered "independent," a Director must be determined by the Board, after recommendation by the Board Nominating and Governance Committee and after due deliberation, to have no material relationship with the Company other than as a Director."

Ecuadorean Trial

Currently, Chevron is being sued in an Ecuadorean court for its potential liability relating to pollution from a subsidiary’s former operations in the Ecuadorean Amazon. Texaco Petroleum (now owned by Chevron) ceased operations in Ecuador in 1992. In 1993, under the Alien Claims Tort Act, a class action lawsuit representing an estimated 30,000 Amazon residents was filed against Chevron in a New York court for polluting the environment during Texaco's operations in the region. Chevron fought the litigation and the U.S. courts dismissed the case, but with a stipulation that the case be heard in Lago Agrio, Ecuador and that Chevron accept the jurisdiction of the Ecuadorean courts as well as that any penalties imposed on Chevron be enforceable in the United States.

The case has had numerous developments over the last 19 years, but recent developments include:

On Feb. 15, 2011, the Associated Press (AP) reported that an Ecuadorean judge had ruled against Chevron the previous day and ordered the company to pay $9.5 billion in damages and environmental cleanup costs. In its response to the ruling, Chevron described the decision as "illegitimate and unenforceable" and said that it would be appealed. Previously, on Feb. 8, U.S. District Judge Lewis A. Kaplan issued a preemptory 28-day restraining order to prevent the plaintiffs from enforcing any judgment against Chevron, as reported by the New York Times. Chevron requested the restraining order in connection with a federal racketeering suit the company had filed the previous week against the plaintiff's lawyers and legal team led by Steven Donziger. Judge Kaplan was concerned about reports that the plaintiffs had a plan to file a number of enforcement actions around the world upon issuance of the Ecuadorean decision. On March 8, 2011, the AP reported that Judge Kaplan extended his temporary restraining order. Chevron had requested the extension on Feb. 18, noting that a provision in the Ecuadorean judge's ruling would nearly double the original $9.5 billion judgment to $18.2 billion if the company did not apologize for the environmental and health damage the company allegedly caused -- which it stated it was not going to do. On April 18, 2011, the Courthouse News Service reported that a trial to determine the enforceability of the more than $18 billion Ecuadorean judgment against Chevron would be held in the fall of 2011.

http://www.chevron.com/documents/pdf/publicpolicycommitteecharter.pdf

http://www.chevron.com/globalissues/environment/








http://www.chevron.com/investors/corporategovernance/governanceguidelines/

http://www.nytimes.com/gwire/2011/02/09/09greenwire-chevron-wins-restraining-order-in-113b-polluti-20818.html

http://www.courthousenews.com/2011/04/18/35888.htm


In September 2011, LegalNewsline.com reported that the U.S. Court of Appeals for the Second Circuit issued an order removing the restraining order preventing the plaintiffs from attempting to enforce the Ecuadorean court's judgment against Chevron. It was lifted after the Second Circuit court received written assurances from the plaintiffs that they would not attempt to enforce the Ecuadorean judgment. The Second Circuit order also stayed the November 2011 trial that Chevron had sought to determine the enforceability of the Ecuadorean judgment.

Back in Ecuador, on Jan. 4, 2012, the Los Angeles Times reported that Chevron's appeal of a lower court's $18 billion judgment was rejected by the Provincial Court of Justice of Scumbios. The court's three-judge panel ratified the original February 2011 ruling against Chevron.

In other international developments, on Feb. 28, 2012, Reuters reported that an international tribunal set up through The Hague's Permanent Court of Arbitration found that it does have jurisdiction to make a decision as to whether or not Ecuador violated its treaty with the United States that required Chevron be given a fair trial in the lawsuit brought against the company for allegedly polluting the Ecuadoran Amazon. Chevron had originally filed its arbitration claim in 2009.

Chevron asserts that the case has involved fraud, gross errors, and conflicts of interest on the part of the courts and the plaintiffs. The company addresses these issues in further detail on its Web site, in its 2011 10-K report, and on a special Web site containing "Chevron's Views and Opinions on the Ecuador Lawsuit."

Chevron and its ongoing controversy regarding the former Ecuadoran operations of Texaco, and to a somewhat lesser extent Chevron's business ties to Burma, prompted Newground Social Investment to submit a proposal requesting Chevron amend its bylaws to give holders of 10 percent of the company's common stock the right to call special meetings. That proposal will also be voted on by shareholders at Chevron's annual meeting this year.

Niger Delta

Chevron is involved in the extraction of oil and natural gas in Nigeria's Niger Delta region via its Chevron Nigeria Ltd. (CNL) subsidiary. The company's operations in Nigeria have been controversial, in part because they have involved payments for oil leases to Nigeria’s government. The Niger Delta is populated by a number of minority ethnic groups whose desire for increased autonomy is perceived as a threat by Nigeria’s national government. Groups living near Chevron Nigeria’s Niger Delta operations have said that they have received little to no benefit from the company's operations there; instead, they say exploration and extraction work has resulted in environmental damage and has forced some villages to relocate. Ongoing conflict in the Niger Delta among government troops, indigenous rebel groups and local criminals has erupted into violence on a number of occasions since Chevron began operating in Nigeria. This violence has been met with reprisals on the part of the Nigerian government. Villagers from the Niger Delta sued Chevron in U.S. courts under Alien Tort Claims Act (ATCA). This case, Bowoto v. Chevron, was heard in the U.S. District Court for the Northern District of California and a verdict was reached on Dec. 1, 2008, when nine jurors unanimously agreed Chevron was not liable for any of the numerous allegations. In March 2009, a federal judge denied the plaintiffs' request for a new trial, finding that the evidence presented at trial supported the jury's verdict.

Chevron states in its Nigeria Fact Sheet that it takes seriously its role as a member of the community in Nigeria and is active in many projects promoting health, economic and educational programs. Chevron reports that it supplies communities near its operations with power and drinking water, sometimes directly from company facilities. In 2011, the company announced that it and the U.S. Agency for International Development would contribute $50 million to the Niger Delta Partnership Initiative (NDPI) Foundation. Chevron states that it founded the NDPI to address the region's socioeconomic issues. The company's $25 million contribution is to be taken from its 2010 endowment that established the NDPI Foundation.

Kazakhstan

Chevron describes its operations in Kazakhstan in a publicly available Kazakhstan Fact Sheet. Chevron says that it is Kazakhstan's largest private oil producer, with interests in that country's two largest petroleum production projects the Tengiz (50 percent) and Karachaganak (20 percent) fields. Chevron holds the largest interest in Tengizchevroil (TCO), which operates the Tengiz field. Chevron adds that it is the largest private shareholder in the Caspian Pipeline Consortium pipeline, which provides an export route for crude oil from both TCO and Karachaganak, and that it also has a polyethylene pipe plant in Atyrau.

http://www.legalnewsline.com/news/233850-second-circuit-rules-against-chevron-in-ecuador-case

http://articles.latimes.com/2012/jan/04/business/la-fi-chevron-ecuador-20120104

http://www.reuters.com/article/2012/02/28/us-chevron-ecuador-idUSTRE81R29I20120228

http://www.chevron.com/ecuador/


http://theamazonpost.com/

http://theamazonpost.com/

http://www.chevron.com/documents/pdf/nigeriafactsheet.pdf

http://www.chevron.com/documents/pdf/kazakhstanfactsheet.pdf


Chevron says that in Kazakhstan, Chevron is a strong supporter of programs that help the community and describes some of its community engagement activities in basic human needs, education and career training, and support for local small and medium-size businesses.

In October 2007, Reuters reported that Tengizchevroil denied it was violating environmental laws and said that it would fight a $609 million fine imposed by the government of Kazakhstan. The fine was announced by the Environmental Protection Minister Nurlan Isakov, who accused the Chevron-led project of making slow progress in removing open air sulfur stocks at the Tengiz oilfield. On July 10, 2008, International Oil Daily reported that the government of Kazakhstan urged the Chevron-led project to store all of its open air sulfur by 2010. Tengizchevroil had been fined $71million in 2003 by the Kazakh government for open air sulfur storage, which was reduced on appeal to $7 million. On Aug. 2, 2010, APS Review Oil Market Trends reported that the fine imposed on Tengizchevroil was $219 million, and as a result the company built a plant to turn sulfur into pellets for export to address the on-site stockpiling of sulfur.

Brazil

In their supporting statement, the proponents refer to a November 2011 oil spill that took place off the coast of Rio de Janeiro. According to the New York Times, Chevron could be fined as much as $83 million, apparently at least in part as a result of the government of Argentina's displeasure with how the company was handling the spill. The head of Argentina's National Petroleum Agency said the spill could make the company's hopes of gaining access to new offshore exploration areas more difficult to realize. Argentine government investigators also reportedly said Chevron employees may face prison terms.

Oil & Gas Industry Governance Comparison

ConocoPhillips has an independent board member with environmental expertise. Victoria J. Tschinkel is currently serving as a director on Conoco's board; her previous roles include serving as a director of the Florida Nature Conservancy from 2003 to 2006, as a senior environmental consultant to law firm Landers & Parsons from 1987 to 2002, and as a former secretary of the Florida Department of Environmental Regulation.

BP has a Safety, Ethics and Environment Assurance Committee, which is charged with looking "at the processes adopted by executive management to identify and mitigate significant non-financial risks and receive assurance that they are appropriate in design and effective in implementation. BP also has an independent director who is a petroleum geologist (Cynthia Carroll) sitting on this committee.

Occidental Petroleum has an Environmental, Health and Safety Committee, which is responsible for reviewing and discussing with company management the status of health, environment and safety issues, including legal and regulatory compliance matters. Occidental also has an independent director, John E. Feick, with environmental experience and is Chair of the Environmental, Health and Safety Committee. Feick is a former Chairman of an environmental remediation and reclamation services company and is a former Chairman and partner in a petrochemical, refining and gas processing industry engineering and design firm.

Analysis The New York State Common Retirement Fund is requesting the company nominate, as the terms in office of elected board directors expire, at least on director candidate who qualifies as independent and who has expertise in environmental matters related to petroleum exploration and production.

Currently, Chevron's Public Policy Committee of the board evaluates environmental issues that could have an impact on the company; the company also expanded its board membership criteria in 2010 to include environmental expertise as a desirable skill when selecting director candidates. Furthermore, Chevron reports and discusses the company's environmental policies, related programs, and initiatives such as its Operational Excellence Management System (OEMS) and Environmental, Social and Health Impact Assessment (ESHIA) process on its Web site and in other company materials.

However, though the majority of the company's board consists of independent directors and the company asserts that six current director nominees have environmental expertise or experience, none of the independent director nominees appear to have had responsibilities regarding environmental matters related to the oil & gas industry as a significant focus of their previous professional positions. A director with environmental credentials would be of particular value at Chevron because the company has been involved in an ongoing high-level legal and environmental controversy related to the former

http://www.reuters.com/article/2007/10/05/environment-kazakhstan-tengiz-dc-idUSL0453587020071005

http://www.nytimes.com/2011/11/22/business/energy-environment/brazil-chevron-faces-fines-of-83-million-in-oil-spill.html


operations of Texaco, which was acquired by Chevron, in Ecuador. Furthermore, local authorities and constituents in other countries where Chevron operates, specifically Nigeria and Kazakhstan, have made allegations of environmental damage by the company and its affiliates; in addition, the company had an oil spill incident off the coast of Rio de Janeiro in 2011. A board member with environmental expertise related to the oil & gas industry, in addition to other qualifications for a position as a director, though not necessarily having "designated responsibility" per the proponents' request, could help enhance the board's oversight of past and future environmental risks and concerns in the company's operations. Hence, a vote FOR this proposal is warranted.


Equity Ownership Profile Type Votes per share Issued

Common Stock 1.00 1,972,674,191

Ownership - Common Stock Number of Shares % of Class

State Street Global Advisors 100,651,365 5.03

The Vanguard Group, Inc. 84,116,222 4.20

BlackRock Fund Advisors 78,838,710 3.94

Capital World Investors 60,886,443 3.04

Fidelity Management & Research Co. 41,052,429 2.05

Wellington Management Co. LLP 41,064,979 2.05

T. Rowe Price Associates, Inc. 27,486,657 1.37

Northern Trust Investments 26,856,870 1.34

BlackRock Advisors LLC 24,847,980 1.24

State Farm Insurance Co. Asset Management 16,281,400 0.81

Capital Research Global Investors 15,230,111 0.76

Columbia Management Investment Advisers LLC 14,782,059 0.74

TIAA-CREF Asset Management LLC 14,769,007 0.74

JPMorgan Asset Management, Inc. 14,121,462 0.71

Geode Capital Management LLC 13,554,005 0.68

Norges Bank Investment Management 13,273,869 0.66

Bank of New York Mellon Asset Management 13,090,696 0.65

MFS Investment Management, Inc. 12,113,455 0.61

Dodge & Cox, Inc. 11,721,862 0.59

LSV Asset Management 11,452,965 0.57 © 2007 Factset Research Systems, Inc. All Rights Reserved. As of: 30 Sep 2011

Additional Information

Meeting Location Chevron Park Auditorium, 6001 Bollinger Canyon Road San Ramon, California 94583-2324

Meeting Time 8:00 a.m. (PDT)

Shareholder Proposal Deadline Dec. 13, 2012

Solicitor Georgeson Inc.

Security IDs 166764100(CUSIP)


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