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The Times: William Lewis: Strange times in the Shell Kremlin


March 21, 2004


LISTENING to Shell’s new executive team explain the mystery of the missing oil last week, I had the feeling I had gone, like Alice, through the looking glass. It was a strange, parallel universe, where none of the normal laws of business held true. How else to explain one of the world’s largest multinationals’ ignorance of the requirements of the world’s biggest financial regulator?  


Jeroen van der Veer, the new chairman, and Malcolm Brindred, the new head of exploration and production, insisted the main reason why the crucial reserves were incorrectly classified was Shell staff’s basic ignorance of the relevant Securities and Exchange Commission procedures.


This admission is probably worse than the recalculation of the reserves itself. It says Shell believed its internal rules — which, by the way, were part of the mechanism to calculate bonus payments for executives — were more important than external market norms designed to protect investors. It says that all the hackneyed criticisms of Shell — that it is arrogant, self-centred and as impenetrable to onlookers as Khrushchev’s Kremlin — are bang on the mark.


Now we know the kind of animal we are dealing with, it is easier to see Sir Philip Watts’s departure for what it was. It was not, as some thought, an overdue realisation by Shell of the importance of its shareholders, and a compliance with their wishes for management change. It was another expression of the Kremlin culture — an internal disciplining after an internal inquiry.


This vision of a paranoid and unreconstructed company should provide food for thought for the great and good of the City when they gather tomorrow to discuss the Shell situation. The Association of British Insurers, which is co- ordinating the meeting, needs to do two things. First, it must make common cause with the Dutch institutional investors in Royal Dutch, which makes up 60% of the tangled edifice that is the modern Anglo-Dutch group. Second, it must issue them with a united call for the injection of fresh blood. Shell needs new senior management who will address the reserves question with fresh eyes, not a return to the bad old days of trusting to the company’s own judgment. The Kremlin eventually fell to the persistent pressure of the market, and so will Shell.,,9072-1047232,00.html

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