The Daily Telegraph: You can probably be sure of Shell
By George Trefgarne
(Filed: 22/03/2004)
It is funny how businesses evolve. When Marcus Samuel opened up a shop in Houndsditch in 1833, selling curios, trinkets and shell-covered boxes (which he called, rather exotically, "Gifts from Brighton"), he probably never imagined it would grow like Topsy into one of the world's largest oil companies, pumping half a million barrels a day, with 120,000 workers on the payroll, a fleet of 140 tankers, operations in more than 100 countries and net profits of $13 billion.
The knick-knacks have gone, but an echo remains in the pecten logo. For Shell's red and yellow symbol is now one of the world's most recognisable. To most people, the Shell logo is the ultimate emblem of the multinational corporation and a sign either of what capitalism can achieve, or of despoliation, depending on your point of view.
Now it symbolises something else: cock-up. For, on Thursday, this mighty company had to admit for the second time in as many months that it had overestimated its reserves, or exaggerated how much oil it actually has.
The faces of the management are now as red and yellow as the company logo. To compound the embarrassment, the publication of its annual report has been delayed until May, which presumably means a million copies - one each for every shareholder - are being pulped in some secret location. The report had already been redrafted nine times, and probably contained out-of-date or misleading information. It seems that you cannot, after all, be sure of Shell.
The annual general meeting has also been delayed until the end of June. Things don't get much worse than that, because the AGM is the legal mechanism by which shareholders control the company. It is as if Tony Blair suddenly had to say that Parliament will not meet for a few weeks because the Government is in such chaos that it has had to withdraw its Bills.
One of the most important resolutions at an AGM is the approval of the final dividend. Fortunately, Shell's board has used its discretionary powers to pay a second interim dividend, so the flow of income to investors will not be interrupted.
That has done much to calm the market, because the dividend is the one part of the accounts a company cannot fake or manipulate (although Robert Maxwell had a go, but that is a different story). And a nice cheque, hitting the doormat twice a year, drawn on a British bank, is a great comfort.
You are probably a Shell shareholder, through your pension or your life insurance policy. Two matters of public interest arise from the debacle. The first is being muttered in hushed tones around the City and the corridors of Whitehall and Washington.
If Shell has got 20 per cent less oil than it originally said, what about the other major oil companies? Have they overstated their reserves, too? If so, is the oil running out, just as the environmentalists keep saying?
The market is sufficiently worried to have driven the price of crude to more than $33 a barrel last week, a 13-year high. My guess is that some other rednecks are bound to have exaggerated their reserves. But that does not mean oil is running out. In fact, oil
"running out" is one of those perennial non-crises got up by conspiracy theorists and bearded academics. Oil is amazingly abundant; the gods have simply decreed that it is to be found only in the most dangerous, crazy and inaccessible countries in the world.
The second thing everyone wants to know is, "Has there been a fraud? Is this a European Enron?" Certainly, America's Securities and Exchange Commission, our own Financial Services Authority, and something called Autoriteit Financiele Markten in Holland are taking no chances. They want to know whether investors have been deliberately misled or if there has been any insider dealing.
Naturally, some investors are hopping mad - the shares have tumbled, but not collapsed - and various American lawyers with very hard-to-spell names are threatening to sue. According to the Dutch press, the company's biggest private shareholder is Queen Beatrix of the Netherlands, and she is furious.
One person keeping his head down in preparation for a flurry of writs and nasty letters is the former chairman Sir Philip Watts, who was forced out a month ago. Unsurprisingly, one of the pieces of information said to be in those pulped annual reports was that his £1 million bonus for this year had been withheld.
But Shell doesn't look like one of those Wall Street scandals to me. They came about because companies were dominated by monarchical chief executives and greedy egomaniacs who thought they were untouchable.
Shell is the very opposite. Rather than being a monarchy, it is a sort of European social democracy, run by rather polite bureaucrats. Its current, Anglo-Dutch structure was created in 1905, when Marcus Samuel's descendant - the first Viscount Bearsted - merged what had become Shell Transport and Trading with the Royal Dutch company.
The resulting euro-tangle is run by a committee of four managing directors and a board of 18 other directors, including three knights, one peer and two professors.
Its headquarters on the South Bank are dominated by the dreary Soviet-style art popular among the non-personalities and "experts" who rise to the top of so many big organisations. Shell is promising to reform the way it operates. But its current crisis is a warning to those who want to turn companies into similar bureaucracies: when everybody is in charge, nobody is.
And, by the way, assuming the dividend is safe, it could be a great investment opportunity.