Rex Tillerson Testifies in Exxon Climate Change Case
The shareholder fraud lawsuit brought by the New York attorney general against Exxon Mobil has entered its second week, and on Wednesday a star witness took the stand: Rex Tillerson, the company’s former chief executive and a former secretary of state in the Trump administration.
In more than two hours of testimony and cross-examination, Mr. Tillerson calmly disputed the state’s contention that Exxon Mobil lied about its efforts to take the potential costs of climate change on its business into account.
From 2014 on, Exxon publicly stated that it was estimating the possible costs of climate change regulation as a “proxy cost” that it included as part of its economic outlook. The state argues that in fact, Exxon was using a much lower number internally, and that the oil industry giant for years “in effect erected a Potemkin village to create the illusion that it had fully considered the risks of future climate change regulation and had factored those risks into its business operations.”
The deception “exposed the company to greater risk from climate change regulation than investors were led to believe,” according to the lawsuit.
That deception, if there was one, occurred on Mr. Tillerson’s watch; he was chairman and chief executive of the company from 2006 until 2017. (After retiring from the company, he served as secretary of state for one tumultuous year.) Attorney General Letitia James’s case relies heavily on public statements from Mr. Tillerson, including his comments at a 2016 shareholder meeting in which he said that, when it comes to the potential costs of issues like climate change regulation to their business, “we have accommodated that uncertainty in the future and everything gets tested against it,” and that the cost “gets put into all our economic models when we make investment decisions as well.”
The state argues that Exxon did not do that and “when it began to appear that maybe Exxon was not following through on what it said about its use of a cost of carbon, the company share price took a hit” to the tune of hundreds of millions of dollars. That loss to investors is the argument that puts the case under the Martin Act, New York’s powerful shareholder protection law.
Exxon counters that the state’s case is fatally flawed and is based on a misunderstanding, perhaps a willful one, of how the company calculated the costs of future projects. The internal number that the state characterizes as part of a subterfuge, the company argues, is in fact an entirely separate financial tool used in a different way. Ted Wells Jr., the lead lawyer representing Exxon in the case, said in his opening statement Tuesday that “The only thing that’s a Potemkin village, an illusion in this case, are the allegations in the complaint.” Mr. Tillerson, he said, “put in place a robust system to manage the risk of increasing climate change regulations.”
During his friendly cross-examination of Mr. Tillerson, Mr. Wells asked Mr. Tillerson a series of questions about whether he and the company had willfully deceived shareholders about the company’s commitment to measuring the effects of climate change, or even themselves, eliciting simple answers.
“Would Exxon Mobil have any incentive to lowball the cost assumptions it used?” Mr. Wells asked Mr. Tillerson.
“No,” Mr. Tillerson replied. “We would be misinforming ourselves.” While he acknowledged that climate change is an important issue and that the company studied it extensively, he said that the estimate of the costs of potential regulations to the development of local projects was not a major consideration in the grand scheme of the company’s planning.
In a brief set of questions after the cross-examination, Kim Berger, a lawyer with the attorney general’s office who had conducted the earlier direct questioning of Mr. Tillerson for the state, pressed him on a specific set of Canadian projects that were cited in the lawsuit.
The state claimed those cases showed that when the company did briefly try to use greenhouse gas costs in line with the publicly disclosed higher figure in projects in Alberta, it led to the prospect of what one employee called “large write-downs” of the assets. The company then decided to use an “alternate methodology” that substantially lowered the cost estimate, the state claimed.
This line of questioning led to a series of responses in which Mr. Tillerson said that he did not recall the events and “I’m not sure I ever saw that level of detail.”
One issue that did not come up during the morning of testimony, to the surprise of many observers: the “Wayne Tracker” emails. During its investigation, the attorney general’s staff discovered that along with the official email account under his real name, Mr. Tillerson primarily used a separate email account for company business, email@example.com. (Wayne is Mr. Tillerson’s middle name.)
The company destroyed the Tracker emails from before Aug. 18, 2015 because it had “failed to disable its automatic ‘file sweep’ deletion program” for the account even though the emails were subject to subpoena, the state said in its memorandum about the emails.
The state has asked for legal sanctions against the oil giant because of the emails, including a ruling that the missing emails be assumed to be damaging to Exxon’s case.
The state asked Judge Ostrager to rule that those earlier emails “would have corroborated other evidence indicating that ExxonMobil senior management, including Mr. Tillerson,” did plan the fraud that the state accused the company of.
In a pretrial hearing in mid-October, the judge expressed skepticism about the state’s argument, saying he was satisfied that the deletion was unintentional and commenting, “no harm, no foul.” He denied the request to impose a sanction. But he said he would allow the argument to be renewed during the trial.
So far, at least, it hasn’t.
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