Viewpoints on Energy, Geopolitics, and Civilization
Matt Levine / Bloomberg: Citgo
Isn't Sure Who Its Boss Is
Guaidó nombrará nueva directiva de Citgo
Mr. Guaidó is planning to install new boards at PdVSA and Citgo, raising complex legal
questions about who controls those businesses and potentially creating a governance crisis.
Who controls a company?
We have talked about this question a few times in the past , and I have advocated for a sort of legal-realist approach, one that focuses less on philosophical debates about shareholder rights and board accountability and more on practical questions like, who has the keys to the front door and the password to the website? I feel like that approach is soon going to be very useful in understanding Citgo Petroleum Corp. If you look at an org chart, you will notice that Citgo is owned by Petróleos de Venezuela SA, and that PdVSA is in turn owned by the nation of Venezuela, giving the president of Venezuela the ultimate power to appoint (the people who appoint) the people who run Citgo.
But if you look at a map, you will notice that Citgo is mostly in the U.S., while Venezuela is mostly in Venezuela, which has important implications for the exercise of that power, given that the U.S. is trying to oust Venezuelan President Nicolás Maduro and is supporting opposition leader Juan Guaidó's claim to the presidency. So for instance the president of Venezuela, Maduro, can appoint the president of Citgo and send him to the U.S. to run Citgo, but the U.S. can just not let him come in. That happened :
The U.S. State Department last year revoked the passport of Citgo's current president, Asdrúbal Chávez, who has been presiding over the company from afar.
“Presiding over the company from afar” suggests that he at least gets to appoint and order around the subordinates who run Citgo day-to-day in the U.S., but that too is somewhat precarious, as the U.S. government could always lock those people out of the company on national-security grounds. That might also happen:
Loyalists to Mr. Maduro inside Citgo may be referred to the Treasury Department for further scrutiny over concerns around their personal access to company assets, a person with knowledge with the matter said.
“Loyalists to Mr. Maduro inside Citgo” is a bit of an odd idea in the context of corporate control. Whatever their political loyalties, or nationalities for that matter, presumably everyone who works at Citgo has a boss, and mostly they do what their bosses tell them to do. The bosses have bosses, etc., until ultimately they all answer to Chávez, the president of Citgo, who answers to PdVSA, which answers to Maduro. This is not a matter of political loyalism but of corporate hierarchy. On the other hand, you could if you wanted—that is, the U.S. federal government could if it wanted—chop off the hierarchy at some point near the top, and graft a new top onto it. That also seems like the plan:
Mr. Guaidó is planning to install new boards at PdVSA and Citgo, raising complex legal questions about who controls those businesses and potentially creating a governance crisis.
Oh I think the governance crisis is pretty inevitable, but let's focus on how you “install” a board. This is a matter of corporate formalities, shareholder voting, etc., but mostly it is a matter of, when the people you name as directors show up at the boardroom, do they get to come in or not. Deep down at the bottom of all analysis of legal rights , the question is “will men with guns show up and make this thing happen?” To oversimplify, Guaidó right now does not seem to have much ability to send men with guns to PdVSA's headquarters to install a new board, though he is working on it . On the other hand Maduro definitely does not have any ability to send men with guns to Citgo's headquarters to keep his board there, and Donald Trump more or less does have the ability to send men with guns to install Guaidó's, 1 which means that if Trump's administration backs Guaidó then it should not be too hard for his appointees to take control of Citgo. (Though not, yet, of PdVSA.) Here, when I say “control,” I am not referring to abstract concepts like beneficial ownership of the requisite number of voting shares. I mean, like, do they get to push the button that turns on the refinery or whatever.
Anyway all of those quotes are from this Wall Street Journal article about how Citgo is considering filing for bankruptcy as a way to … well, as a way to sort out all the claims of Citgo's and PdVSA's and Venezuela's creditors in an orderly fashion, for one thing, but also as a way to get a U.S. federal court involved in figuring out all of these questions about who controls Citgo:
A bankruptcy filing isn't imminent or certain, people familiar with the matter said. But it is one of several options the company and U.S. government officials are considering to keep Citgo's Gulf Coast crude operations running and to preserve the assets from being looted by loyalists to President Nicolás Maduro or dismantled by creditors, they said.
Obviously the actual legal analysis, in or out of bankruptcy, is more complicated than “this guy is the guy who the U.S. government wants to be president of Citgo, so now he is president of Citgo,” and if your analysis of corporate control generally is as simple as “the government can do whatever it wants” then you will mostly be wrong. I'm not sure you'd be that wrong here though!
1. I am eliding a lot of questions of federalism, legal constraints on the U.S. government, etc., none of which seem all that essential here. Like at some point Guaidó will say “I control PdVSA, and PdVSA owns Citgo, and PdVSA appointed the following board of directors to run Citgo,” and Maduro will say “no I control PdVSA, and PdVSA appointed this board to run Citgo,” and state courts in the U.S. will have to decide who actually runs PdVSA, and I bet they will defer to the State Department's decision about who the recognized president of Venezuela is rather than conduct their own de novo analysis of the question based on Venezuelan law, and so they'll side with the Guaidó board, and if the Maduro board tries to seize the company the police will evict them.
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Matt Levine is a Bloomberg Opinion columnist covering finance. Petroleumworld reprint this article in the interest of our readers.
Editor's Note: This article was originally published by Bloomberg, on Feb. 1, 2019. All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld.
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