Royal Dutch Shell Group .com

Financial Times: SHELL SHOCK: Shareholders step up calls for structural reform


By Norma Cohen in London and Ian Bickerton in Amsterdam

Apr 20, 2004


Shareholders stepped up their calls for structural reforms of Royal Dutch/ Shell's governance after the release yesterday of a scathing report on how it failed to disclose its true reserves position for two years.


But Lord Oxburgh, non-executive chairman of Shell Transport and Trading, appeared to cast doubt on the extent to which directors were determined to undertake structural reforms, saying: "It [the report] makes quite clear that structure had nothing to do with the problems."


Shell has not moved forward the expected completion date of 2005 for a review of its structure despite accelerating the process by appointing a working party and recruiting external legal, tax and financial help.


UK shareholders said they were adamant about seeing reforms through. "There is no going back for this company," one institutional investor said. "The question is whether they have to have [reform] dragged out of them or whether they participate in the process."


Guy Jubb, head of corporate governance at Standard Life Investments, said: "We want to see a more unified structure and more efficient management arrangements."


One Dutch shareholder said he would be disappointed if no conclusions on the review were announced before 2005's annual meetings. But Netherlands-based ABP and PGGM, two of Europe's largest pension funds, while welcoming the move to speed the review, stopped short of criticising the dual-board structure under which the Dutch and UK arms of Shell are overseen separately.Royal Dutch accounts for 60 per cent of the group, and Shell Transport for 40 per cent.


PGGM welcomed the "seriousness with which the company takes this matter", and said: "We have always said that whatever Royal Dutch/ Shell does is fine with us as long as it is a clear step and they are moving in a way that is positive."


ABP said: "Shell has listened to the shareholders and the signals."


UK shareholders, however, said they want the company to scrap the Committee of Managing Directors (CMD), the executive directors of the two companies.


The CMD was warned in February 2002 about mis-reported reserves but there is no sign that it passed that information to the boards.


"This report confirmed a view that has been forming for some months - that the company was dysfunctional in the way information flowed and in the way authority flowed," one shareholder said. "Reporting lines were unclear, information reporting was unclear. Individuals were able to bury information for a long time."


Although Shell had made previous public efforts to upgrade its image - "You got the feeling they were waiting for their BP moment but it never came," said one shareholder (referring to the success of Shell's rival) - investors said senior management privately had never accepted the need to change.


"You got the feeling there was a kind of a reverse duck going on," one institutional investor said, referring to an animal notable for its calm demeanour above water while churning wildly underneath. "But all the action was above the water with nothing going on below."

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