Royal Dutch Shell Group .com

Financial Times: Investors push for changes at Shell

By Carola Hoyos, Energy Correspondent

Published: February 4 2004


Angry investors are pushing Royal Dutch, the Dutch arm of Royal Dutch/Shell, Europe's second largest listed energy group, to change its shareholder structure or face the loss of their support.


They are expected to raise the issue on Thursday as Sir Philip Watts, chairman of Royal Dutch/Shell, explains why the group slashed its oil and natural gas reserves by 3.9bn barrels last month.


The announcement on January 9 that Shell had overestimated its reserves by 20 per cent sent shares in Amsterdam and London 8 per cent lower.


Investors are expected to seize on the fact that the Netherlands issued a new code of corporate governance on January 1 supporting enhanced shareholder power.


Unable to expel Sir Philip from his job ahead of his retirement next year, some shareholders are now focused on improving the company's performance by gaining more influence over decisions about its structure and future leadership.


Currently, shareholders' power is restricted by the shareholder structure of Royal Dutch, the Netherlands-based side of Royal Dutch/Shell controlling 60 per cent of the group.


Royal Dutch has 1,500 priority shares, which carry extra voting rights.


Each of the company's seven supervisory board members and four managing directors hold six of these shares. The Royal Dutch Priority Shares Foundation, whose board consists of all the members of the supervisory and management boards, holds the rest.


Several large holders of ordinary shares said these priority shares gave the company's management and supervisory boards undue power in important decisions, such as the appointment of managing directors and members of the supervisory board and making fundamental changes to the company's structure.


"It acts as a buffer between shareholders and management and stops shareholders getting someone on the agenda to be director," said one corporate governance expert.


Investors angry with Shell's poor performance compared to its peers see a change in Royal Dutch's shareholder structure as critical to gaining the influence needed to change the cumbersome structure of the whole group, which many of them blame for the reserves debacle of last month.


The Association of British Insurers met with Lord Oxburgh, a member of Shell's supervisory board, this week. Though the details of the meeting were not released, ABI says it expects its discussions with Shell to continue after today's announcements by Sir Philip.


Nevertheless, Thursday's full-day meeting, which will include Shell's fourth quarter earnings and an explanation of the reserves miscalculation, will be critical.


Jon Rigby, analyst at Commerzbank, has his doubts about Sir Philip's ability to win over shareholders.


"We are concerned that this is a fearsomely complex issue to deal with. The principals have gained a reputation for handling easier events poorly," he wrote in a recent report.

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