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The Times: Investors demand changes at Shell

By Carl Mortished and Joe Bolger

January 12, 2004


ANGRY investors are this week expected to step up their calls for a change in corporate governance rules at Shell, the world’s third-largest oil group, after Friday’s admission that 3.9 billion barrels of oil and gas, a fifth of it’s reserves, had been misidentified.


Shareholders are likely to query the role of Shell’s committee of managing directors, the college of senior directors who take collective responsibility for running the energy group, and ask further questions of Sir Phil Watts, Shell’s chairman. He did not appear at a meeting of City analysts on Friday to explain and is under pressure to resign.


The announcement led to a slump in the share price and a warning from Standard & Poor’s that it may downgrade its triple-A credit rating.


Shell’s corporate governance structure, with Sir Phil as both chairman and an executive director, contravenes best practice in corporate governance, which dictates that chairmen should be non-executive. It also leaves the chairman, who as group head of explorations from 1997 to 2002 would have had ultimate responsibility for the reserves, in charge of reviewing his own decisions.


Shell’s non-executive directors are also likely to come under close scrutiny. They include Sir Mark Moody-Stuart, the former chairman, who led the group when the reserves were wrongly booked and, even if he took no part in this, had final responsibility during the relevant period.


It is understood that Sir Phil, who is under pressure to resign, will be given until February 5, when the group unveils its full-year results, to prove he should remain in his position. However, fund managers say he will have a difficult task.


Potential successors have begun to emerge, with Malcolm Brinded, chief executive of Shell Gas and Power, the favourite candidate. He was formerly Shell’s chairman for the UK and has spent most of his career with the company.


Shell has long argued that its idiosyncratic management structure is its strength, providing checks and balances.


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