The Times: Will more skippers have to go from Shell's leaking ship?

By Carl Mortished

March 10, 2004

European Briefing

SHELL quickly needs to stop the drip-feed of leaks against the company or risks death by a thousand cuts before the Securities and Exchange Commission has even decided whether to pursue the company in the courts for misleading investors. The allegations that have surfaced in US newspapers suggest cover-ups and and bad faith that is tantamount to fraud. If there is substance to any of it, Shell should pack up its inquiry and prepare to defend itself against a tidal wave of suits.

This is the fate of an organisation that has become so in love with its own internal complexity that it has lost its way.  

The combined boards of Royal Dutch Petroleum and Shell Transport and Trading took eight weeks to come together in conclave and reach the obvious conclusion that Sir Philip Watts and Walter van de Vijver had to carry the can for misreporting the reserves. The misreporting itself went on for almost a decade undetected, says Shell, although the recent leaks suggest directors may have been aware of it two years ago. It is now two months since Shell’s audit committee launched its investigation. Is it not time to reach a conclusion? Arriving swiftly at a conclusion has never been one of the Anglo-Dutch group’s strong points. Shell has tended to present its ponderous decision-making as virtue, pointing to its longevity. Only last week, Jeroen van der Veer, the new chairman, was boasting that Shell’s management structure had survived a century. But it is that collegial structure, where responsibility is shared by a committee, that threatens Mr Van der Veer. When it is one for all, all fall as one.

The system does not deserve to survive. Not because of the reserves misreporting or even because of criticism from American shareholders. Shell must change because it has failed in its primary purpose.

Shell has not been finding oil. The last year in which the group significantly added to its reserves through the drill bit was 1998 and that is before taking account of the January cut in the proven reserves. All oil companies go through a few lean years but Shell’s is more than a few. If it cannot find oil or buy it cheaply, the entire edifice of this complex organisation is rendered nugatory.

And it was the edifice that caused the problems. Shell’s local operating companies enjoyed a scandalous degree of autonomy until the late 1990s when Sir Mark Moody-Stuart began the process of removing the country chairmen who frequently resisted rule from London. However, it was not until early 2003 that Shell even started the globalisation (read centralisation) of the upstream division, the business that finds the oil and makes most of the money. The process is still incomplete.

In such a highly political world, it is not surprising that weak people can rise to the top and cause havoc. One of the sadder aspects of Shell’s woes is that at lower levels, it breeds professional and skilled staff. Look at the alumni: Frank Chapman, David Varney and Paul Skinner. The latter, passed over for the top job at Shell, is now chairman of Rio Tinto.

If further argument was needed for change, it is that the West needs Shell to succeed. A company that produces some 2.5 million barrels of crude per day cannot be allowed to drift rudderless. Shell’s contribution represents 3 per cent of the world’s daily demand for oil. We need that oil today and tomorrow we need even more.

http://business.timesonline.co.uk/article/0,,8210-1032059,00.html