The Independent: Something must give as Shell shocks again
By Jeremy Warner
19 March 2004
Every time Shell and its directors open their mouths, they seem to sink further into the mire. The latest revelations give a whole new meaning to the company's long standing slogan "You can be sure of Shell". There are few things we can be sure of with Shell nowadays, but one of them is the company's growing state of disarray.
Yesterday's gusher of nasties included the announcement that Shell's estimate of proven oil reserves has had to be trimmed even further as a result of a shortfall in one of the company's Norwegian fields, that the annual report will be delayed until the group has completed a fuller appraisal of the reserves position, that the Dutch authorities have begun an insider dealing investigation, that the US Justice Department has joined the SEC in investigating the affair, and that even the FSA, late as ever, has begun to ask questions. It only remains for Uncle Tom Cobleigh and all to join the already swollen posse of investigating regulators and the party would be complete.
The other thing we can be sure of after yesterday's shocker of an announcement is that the company's response thus far to the crisis that has engulfed it is almost wholly inadequate. Jeroen van der Veer, the new chairman, cuts a deeply unimpressive figure with little apparent notion of the profound challenges that lie ahead.
As a Shell lifer, he cannot be the right person to oversee the root and branch operational and cultural changes Shell so desperately needs. Malcolm Brinded, the new head of exploration and production seems a man in rather better command of his brief, but all over the shop there seems to be a lack of urgency, a cultural resistance to change, and a need to consult, consider and discuss long and widely before anything is done. The delay in the annual report and shareholders meeting, like some spivvy little AIM stock, should be a profound embarrassment and call to arms for a company of Shell's size and history, yet it was treated yesterday as if it were a matter of administrative importance only.
Meanwhile, the questions over the reserving debacle keep multiplying. Was it deliberate deception or incompetence? If it was the former, could any directors past or present be guilty of insider dealing? How could the company, having already conducted what was claimed to be an exhaustive reappraisal of reserves under Sir Phil Watts, be so soon forced into yet another one? Mr van der Veer is unable to provide answers.
As for any changes to the structure of the board, he could promise only that they would be ready in time for next year's annual general meeting. That's quite a wait. Shell is not yet in a state of financial crisis, but it is already clear that there have been major failings in exploration and development strategy running over many years that have left the company unable to replace reserves as they are used up. If there is a root cause of past management's penchant for exaggerating the position, this appears to be it. To draw a line under the débâcle, and reverse the decline, the board must wake up and smell the coffee. Action is required now, not in a year or two's time.