Royal Dutch Shell Group .com

The New York Times: Shell's New Leader Says Predecessor Lost Board's Confidence



Published: March 6, 2004


LONDON, March 5 - The new chairman of the Royal Dutch/Shell Group, Jeroen van der Veer, declined to say on Friday whether the company's former top executives had acted illegally, opting instead to wait for the completion of an internal investigation.


Sir Philip Watts, Shell's former chairman, and Walter van de Vijver, the head of exploration and production, were asked by the two boards of Shell to tender their resignations on Wednesday.


The resignations followed an investigation by the boards' audit committee into the company's January announcement that it was revising its proven reserves downward by 20 percent, or 3.9 billion barrels.


Mr. van der Veer said during a news conference Friday that the boards had "lost confidence" in the leadership of Sir Philip and Mr. van de Vijver in connection with the reserve issue, without elaborating.


Asked whether Sir Philip had done anything illegal, Mr. van der Veer said: "The investigation is not completed. Let's not speculate on what the conclusion is."


The company will make the results of the investigation public when it is completed, Mr. van der Veer said, though the process could take weeks or even months.


Shell's group audit committee, comprising nonexecutive directors, has hired the law firm of Davis Polk & Wardwell to conduct the investigation into the overstated reserves. Current and former Shell executives are assisting in the investigation, a company spokesman said.


Shell has been under formal investigation by the United States Securities and Exchange Commission since last month, and faces at least seven class-action lawsuits filed after the company's stock dropped 10.8 percent in the week following the revision of its reserves.


The company has been tight lipped about what an internal inquiry turned up that might have caused the board to ask Sir Philip and Mr. van de Vijver to leave, or whether their departure was a result of shareholder pressure.


Because the review is being conducted by an audit committee made up of nonexecutive directors, it is "outside the line of management," and therefore Shell cannot answer questions, Simon Buerk, a company spokesman, said.


Aad Jacobs, chairman of Royal Dutch's supervisory board and of the group audit committee, said in a phone interview Thursday night that for legal reasons he could not discuss the issue, but said that he regretted having to ask Sir Philip and Mr. van de Vijver to leave.


Dutch regulatory authorities are also asking questions about the reserve restatement, Mr. van der Veer said, as are a Dutch shareholders' foundation and Euronext Amsterdam, the Dutch branch of the Euronext stock exchange. Shell trades as two separate companies, Royal Dutch Petroleum in the Netherlands, and Shell Trading and Transport in London. Both companies trade as American depository receipts on the New York Stock Exchange.


The Financial Services Authority, Britain's regulator of publicly traded companies, said that it could not comment on whether it was investigating any company on the London Stock Exchange.


In both Britain and the United States, impropriety in a case like this would hinge on whether or not an executive knew that the reserve numbers were incorrect at the time they were booked.


In Britain, punishment for an executive of a publicly traded company who has violated the authority's rules can vary from a private talking-to, known colloquially as an "eyebrow from the governor," to a public dressing-down and fines. The Department of Trade and Industry can also try to bar someone from serving as a director on a public company, but such actions are rare.


In the United States, particularly now with an increased focus on corporate governance and new regulation, punishments are tougher. It has always been a violation of the securities laws to make false and misleading statements, said Dennis J. Block, a partner with Cadwalader, Wickersham & Taft in New York. But under the Sarbanes-Oxley Act, the penalties are even stronger, Mr. Block said.


Sir Philip could not be reached for comment on Friday.


Investors were feeling uneasy Friday over the week's turmoil.


"What you're left with is this lingering sensation that there is something not quite right, but Shell is not able to tell you what that is," said J. J. Traynor, a Deutsche Bank oil analyst.

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