The Times: Another vanishing act at Shell

By Patience Wheatcroft

March 04, 2004  

SO, farewell then, Sir Philip Watts. His hold on the helm of Shell had looked very limited after the remarkable vanishing act that accompanied his news of shrinking reserves, but yesterday’s axing came surprisingly swiftly. It looks like another victory for the new breed of shareholder activist but it might also have been influenced by the tensions between the Dutch and UK arms of the group.

That Sir Phil takes with him managing director Walter van de Vijver does not indicate any pact for the mutual sharing of blame between the two sides. The pair had been too badly damaged by the recent fiasco, which saw some reserves being written up almost as soon as they had been written down, for either to have remained long with the business.

But Sir Phil, under pressure from angry shareholders, had agreed that he would oversee a review of the arcane structure of the group, which many believe is a major contributor to its difficulties. Whether Jeroen van der Veer concurs with that view has yet to become clear but he is the one stepping into the powerful role of chairman of the committee of managing directors so his view will carry some influence. Perhaps rather more than that of the 69-year-old academic who now takes over as interim chairman of Shell, Lord Oxburgh.

Lord Oxburgh knows a lot about geology, but would not feature high on a headhunters’ list of experienced chairmen ready to address the knotty problems that now beset Shell. But who would? Obvious contenders for the role are few. Yet while the search goes on, the risk is that Shell will continue in its current stultifying form.

Investors are keen to see the structure change because they believe that it is, in part at least, responsible for Shell’s most pressing problem: a lack of oil discoveries. It was that, some suggest, which prompted an over-enthusiastic valuation of reserves with all the nasty aftermath that has entailed. It is certainly the case that rivals had been surprised at the figures the group was prepared to attribute to some of its unproven reserves. Could BP’s successes at the time have contributed to the optimism?

The US Securities and Exchange Commission is now asking questions along those lines, and Shell probably reasoned that the eventual findings could prove less embarrassing if those who were directly involved are no longer with the business. The prospect of legal action from furious US investors might have also prompted that conclusion.

But the search to find a new chairman will not be easy. As Sainsbury so graphically illustrated, investors are no longer prepared to accept whoever is available to do the job. So Sainsbury is back on the hunt, the BBC is still searching and, rather less publicly, British Nuclear Fuels has still to name a successor for Hugh Collum, who steps down this spring.

While the increased interest of shareholders in who is running their companies is welcome, it is going to place directors in some difficulty. How far can they go in seeking approval for a particular appointment before offering the role to an individual? There is much scope for embarrassment here. Sir Ian Prosser’s unacceptability to Sainsbury shareholders was not hard to predict. But should Lloyds TSB’s board have been able to judge that Helen Weir would not be deemed the ideal finance director for their organisation? Probably, and yet it seems likely that this appointment will go ahead.

Another triumph for Sir Ian’s advocates. Whitehead Mann.