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The Scotsman: Time to come out of his Shell


Ian Watson

Sun 7 Mar 2004


NOBODY was more surprised than Dutchman Jeroen van der Veer to be plucked from near anonymity and pitched into the top job at Royal Dutch/Shell suddenly vacated by last week’s sacking of chairman Sir Philip Watts.


Preferring a modest public profile and dubbed the ‘low-flying Dutchman’, Van der Veer hates the cult of the celebrity executive, which is a tad unfortunate now. "I hope the time of the celebrity chief executive is over," he told students at Stanford Graduate School of Business last year.


Now, as head of the world’s second largest oil company - it was largest until the merger of Exxon and Mobil in November 1999 - he’s just about to become a celeb.


Until last week, Van der Veer was living an obscure life in Holland as president of Royal Dutch Petroleum with the odd game of golf as the only thing likely to raise his blood pressure. Few people outside the industry had heard of him and that’s the way he liked it. He’s a thinker and a listener. He makes jokes about the size of his ears. He says his management style is to "use my very big ears to listen". He takes time to reflect on the facts. He describes this as "in-depth listening".


True to Shell’s management culture Van der Veer likes the slow collegiate approach to new business development, which begins with dialogue with shareholders, local communities, government officials and environmental representatives. He admits that "this slows down the decision-making process, but there is a huge payout in this kind of investment".


He doesn’t like to make waves, but neither does Shell. That’s the way this ultra-conservative, politically correct Anglo-Dutch oil giant has gone about its business since its formation in 1907. Like others employed by companies whose operations have a major impact on the environment and are scared stiff of organisations such as Greenpeace and Friends of the Earth, Van der Veer has a tendency to spout greenlike inanities such as "we develop harmony with the environment".


But for some time now, not all has been going well for Shell. Sacking anybody, never mind the chairman, is unheard of. "This is the biggest top-management change at Shell in its history," says Kofi Osafo-Maafo, an oil and gas analyst at ISIS.


Perhaps then it’s no real surprise that to succeed the arithmetically challenged Watts, Royal Dutch/Shell’s directors have chosen an ultra-conservative, ultra-politically correct oilman and in the process pitched the reluctant hero straight into the limelight he dislikes. He will need to summon up more than Dutch courage when shortly facing angry investigators on the US Securities and Exchange Commission (SEC), currently probing the company’s massive overbooking of oil and gas reserves, which occurred from 1996 to 2002 under Watts’s watch and which has cost him his job.


Accounting for oil and gas reserves has always been tricky, but accounting rules generally require companies to book reserves only when they are reasonably certain of extracting oil and gas economically. The rules allow considerable discretion, but Shell’s January restatement of reserves presented investors with a different picture of Shell’s worth and has led to the filing of about a dozen class-action law suits.


Typically, the reaction to news of Van der Veer’s sudden elevation ranged from ‘safe pair of hands’ to ‘who?’ as Walter van de Vijver, a member of the combined board, and head of exploration and production, had been widely expected to succeed Watts when he retired in two year’s time. Instead, Van de Vijver has also been blamed for the blunder and, like Watts, has been shown the door with immediate effect.


Van der Veer is 56. His career at Shell has been slow and steady. He joined the group in 1971 in refinery process design and held a number of positions in refining and marketing in The Netherlands, Curagao and the UK. Between 1995 and 1997 he was president and chief executive of Shell Chemical Company in the US. He’s been a managing director of the company since 1997 and president of the Dutch end of the business since 2000. He is also a member of the supervisory board of De Netherlandsche Bank and an advisory director to Unilever, another Anglo-Dutch giant.


Van der Veer is a chemical engineer by training. He was born in Utrecht, studied in Delft and is married with three daughters. He is typically Dutch in that he is straight down the line with no angles and no politics. He is said by colleagues to be able technically and good with people.


Insiders said it was always believed that Van der Veer would make it to board level at Shell, but some question whether he really is the right man for the top job. There are worries that his lack of political nous might make him vulnerable, much the same concerns that were harboured about Watts when he got the top job.


It is worth noting that he was already powerful as president of the Royal Dutch/Shell board of management, which is 60% of the whole of Shell. Therefore, in terms of sheer financial clout he was, in theory, more powerful than Watts. When Watts took over as chairman in July 2001, Shell Transport & Trading’s shares stood at more than 600p. Today, they stand at around 380p.


Shell’s recent problems began on January 9 when it sent shockwaves through the world investment community by announcing it was slashing its tally of proven oil and gas reserves by four billion barrels, equivalent to 20% of its total reserves. The absence of Watts - he was on holiday at the time of the announcement - further enraged shareholders.


On February 5, Watts proffered a grovelling apology and that might have been the end of the matter but for the SEC announcing a few days later that it intended to investigate Royal Dutch/Shell’s restatement of its oil and gas reserves.


But mystery still surrounds Shell’s decision to eject Watts and Van de Vijver. "The resignations were tendered by the executive directors promptly on receipt of the indication of the board’s wishes," a company spokesperson said. That same spokesperson, it is worth noting, was as recently as February 5 supporting Watts’s statement that he would not resign and that he enjoyed the full support of the board.


The reason for Shell’s sudden change of mind may lie in the initial findings by an internal working group formed to investigate the reserves overbooking and report to the audit committee. This appears to have triggered the directors’ immediate action. Later last week, the group abandoned its assertion that its management had acted "in good faith" when wrongly booking four billion barrels of oil and gas, an argument it has used many times since the overbooking was revealed.


Until last week’s sackings, many energy analysts believed the pressure on Watts had eased and few expected him to go before his scheduled retirement date in June 2005. During recent meetings with Shell’s largest shareholders there had been no concerted call for Watts’s resignation, so clearly the directors have recently learned something new which alarmed them enough to demand the immediate resignations of Watts and Van de Vijver.


True to its reputation for non-communication, Shell has crept into its shell again. It won’t explain why the board suddenly decided to throw out Watts and Van de Vijver. Certainly, the SEC probe, announced on February 19, and continued shareholder pressure for change, appear to have added to pressure on the boards of Royal Dutch and Shell Transport & Trading to act decisively. The companies hold 60% and 40% respectively of Royal Dutch/Shell.


Anyway, the quiet life is over for Van der Veer. Florian van Laar, a fund manager with Eureffect, says: "Van der Veer has a good name and standing, and this means Shell is trying to clean the slate and start afresh."


The clamour now among the investing institutions is to see the sweeping away of the cumbersome dual company structure in favour of a US or British model.


Van der Veer certainly knows the oil business and he has a clear view about the industry’s future. It is that while the 20th century was all about oil discovery, the new century will belong to gas. "Increasingly," he says, "the name of the game is gas."


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