The Times: Tough Shell needs to be prised open

17 June 04

SHAREHOLDERS in Shell are making it clear that they want to see drastic changes in the governance of the company. They are right. The indications are that, despite the horrors that have come to light this year, there is resistance to changing the basic structure of the group, with its unwieldy combination of a UK plc board and the Dutch business with its supervisory board and management board.

It may be that the inflating of oil revenues might still have happened had Shell been governed by a single board. Sir Philip Watts was a formidable boss who did not encourage disagreement. But it is debatable whether the culture that allowed him to exercise such undisputed authority would have survived had it not been for the complicated set up which allowed the divide-and-rule principle to flourish.

So shareholders should now push for the organisation to abandon its Dutch and British boards and form a single board under a conventional leadership structure. That would not mean giving up the dual listing, which is still important for investors. But it must be easier for a company to operate with one chairman, rather than two, and one chief executive, rather than a committee of managing directors.

Reed Elsevier was beset with problems when it tried to exist under a similarly complicated Dutch/British structure. The problem was solved only when a tough new chairman, Morris Tabaksblat, was recruited and he dispensed with the services of the directors from both sides of the Channel. Lord Oxburgh is probably not the man to be so brutal. He is a geologist, rather than a tough corporate operator. But someone needs to lead the change and shareholders should be vehement in demanding it.

After what has gone on, there can be little excuse for retaining many of the current directors. If the new boss decided that any of them had a particularly valuable contribution to make, a few might be recruited to the new unitary board.

Naturally, this idea is not, apparently, proving popular with those who inhabit the various boardrooms in London and the Hague. Nor is it likely to be popular with some of the senior workforce in Holland who enjoy their involvement in decision making. But the owners of the companies should have the final say. Unilever is simplifying its structure to, effectively, a single board. Shell must do the same.