Royal Dutch Shell Group .com

Financial Times: Shell insiders defend dual boards


By Ian Bickerton in Amsterdam and Carola Hoyos in London

Apr 24, 2004


Royal Dutch/Shell is understood to be considering increasing the transparency and authority of its dual non-executive boards rather than unifying them, as some investors have demanded, to strengthen governance in response to its reserves crisis.


People close to the oil giant believe it is unnecessary to combine the separate Dutch and UK non-executive bodies, arguing that the structure played no role in the crisis.


One person close to Jeroen van der Veer, chairman of Shell's management committee, said the executive was not in favour of unifying the boards. Instead, said another person with knowledge of the company, Royal Dutch/Shell was understood to be focusing on strengthening supervision.


"Supervision needs to be much more transparent and effective ... that is where I believe they are thinking."


Analysts have picked up signals from Shell executives that the company might keep two boards but reshape voting rights.


Neil McMahon, analyst at Sanford C. Bernstein, the financial services company, said he got the impression Shell might move that way, on the sidelines of its conference on Monday. "That might appease some investors," he said. But others may argue that anything short of unifying the boards will not answer demands for an overhaul of what they consider an outdated and cumbersome system of governance.


When Moody's, the credit ratings agency, this week cut its AAA rating on Royal Dutch/Shell it hit out at the company's dual board structure, saying it was likely to slow its ability to make changes and regain credibility.


That view was echoed by a Dutch legal expert who said: "You have to bring governance systems in line. Otherwise you are tinkering with the problem rather than fixing it."


However, while unifying the boards was unlikely, the person with knowledge of the company said Royal Dutch/Shell would consider all options.


Royal Dutch/Shell's UK and Dutch non-executive boards jointly meet a minimum of eight times a year, together with the company's executive directors, in what is called "the conference".


However, agreements reached there are ratified later, separately and independently, by the individual non-executive boards.


The person with knowledge of the company said: "The conference is invisible and that partly explains the criticism. You can try to make that a more formal affair, with more corporate proceedings and approvals taken when matters are discussed jointly - and a bit less gentlemanly perhaps." The century-old company, which dramatically cut its proved oil and gas reserves to satisfy US regulators and witnessed the departure of three of its most senior executives, is also likely to look at broadening the responsibility of members of its committee of managing directors.


Separately, the Financial Services Authority, the City watchdog, confirmed it was formally investigating Shell.


The company said it was co-operating with the FSA "to assist them to complete their inquiry expeditiously".

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