The Sunday Times: Change board structure now, Shell is told
John Waples and Louise Armitstead
February 08, 2004
SOME of the biggest institutional investors in Royal Dutch Shell, will this week spell out their blueprint for change at Europe’s second-largest oil group. They are determined to make Sir Philip Watts, Shell’s chairman, undertake a big structural transformation of the dual-listed £34 billion company.
The fund managers will tell the company they want a unified board, an independent chairman and greater authority for the chief executive.
One of several American investors that is agitating for change is backed by Calpers, the world’s biggest institutional investor. Eric Knight, who heads the New York investment fund Knight Vinke Institutional Partners (KVIP), said: “An open dialogue between the group’s directors and its institutional shareholders on these subjects is the right next step. We believe the group should be managed by a unified board with a strong independent element selected with meaningful shareholder involvement, and that the chief executive needs greater authority and accountability.”
Calpers and KVIP hold a combined stake in Shell worth several hundred million pounds. Watts is expected to meet a group of British investors, who speak for up to 25% of the company, at a private dinner tomorrow at UBS’s London office. He will be left in little doubt about what needs to be done.
Robert Talbut, investment chief of Isis Asset Management, said: “Shareholders believe a standard board and leadership structure is needed to return Shell to a well-performing company. If the company rejects this, it will need to explain why.”
His view is backed by William Claxton Smith of Insight investment managers. “The company’s peculiar structure has caused problems and we think the move towards a more normal one will be an important step towards improving performance, he said.”
Knight added: “At the operating level, the group is managed by committee. Although this horizontal structure may have some advantages, it can lead to inefficiencies, fosters unclear lines of accountability and, we believe, acts as a deterrent to the emergence of strong leadership.”
For the past four weeks Watts has been under sustained attack from his investors. They blame him for the shock announcement on January 9 when the group wrote 3.9 billion barrels off its estimate of proven reserves.
Last Thursday, at the group’s results meeting, in a bid to head off the growing calls for his resignation, Watts made a humiliating public apology. He said he would now meet and listen carefully to his investors, but he has stopped short of pledging to act on what they want.
“We have agreed that we are going to go through this period of listening and consultation,” Watts said in an interview. “The shareholders will say whatever they want to say to me.”
Separately, members of Shell’s supervisory board are planning to meet fund managers.