The Wall Street Journal: Shell Weighs End Of Dual Boards As Pressure Rises
By CHIP CUMMINS
Staff Reporter of THE WALL STREET JOURNAL
June 18, 2004; Page A3
Posted 19 June 04
LONDON -- Royal Dutch/Shell Group said it is considering doing away with its nearly century-old, dual-board structure amid mounting pressure from big investors following the Anglo-Dutch oil company's energy-reserve scandal.
Creating a single, unified board is among a number of options the company said it is considering to simplify its corporate structure. Royal Dutch Petroleum Co. of The Hague and London-based Shell Transport & Trading Co. jointly own Shell's operating companies, holding 60% and 40%, respectively. The company is run by a committee of managing directors, a group of executives who act as Shell's top management body. The committee answers to separate boards from each parent company.
Shell also said it will propose at its 2005 annual meeting the elimination of special shares held by board members of its Dutch parent company. The shares have drawn criticism because they give directors enhanced power over appointments to the company's board.
The dual-board structure long has drawn complaints from investors for being anachronistic and opaque, but that criticism intensified earlier this year after Shell disclosed it had overstated oil and natural-gas reserves. Shell previously said it had begun reviewing the company's structure for changes, and the company has made minor changes, including naming a nonexecutive chairman to its British parent.
In a statement yesterday, Shell said a steering committee of board members is considering a number of alternative corporate structures, including a chief executive who would report to a unified board. "Nothing is ruled out at this stage," the statement said.
Still, it isn't clear whether Shell will act fast enough to satisfy shareholders. Shell said it would disclose the results of its review in November and consult shareholders about possible choices. The company expects to be able to begin implementing changes after its annual meeting in 2005.
Earlier this year, Shell reduced its energy reserves by 4.47 billion barrels of oil equivalent, or about 23% of its total reserves as of Dec. 31, 2002, the last time it reported its numbers to the Securities and Exchange Commission. Amid the reserves-accounting scandal, the company also said it will reduce earnings by a total of $402 million for the years 2001 to 2003. It also ousted former Chairman Philip Watts and former head of exploration and production Walter van de Vijver.
In meetings with big investors in recent weeks, Shell declined to discuss its overhaul review in any detail. That position frustrated fund managers and this week prompted a public rebuke by two influential U.S. investors.
Eric Knight, managing director of Knight Vinke Asset Management, a corporate-governance activist fund, and Ted White, director of corporate governance at the California Public Employees' Retirement System, chastised Shell for a lack of transparency during the review in a letter Wednesday in the Financial Times.
The two called on Shell to disclose the names of members of the steering committee reviewing change and to detail the panel's scope. Shell said yesterday that the group included Jeroen van der Veer, chairman of the committee of managing directors, and four nonexecutive board members.
Write to Chip Cummins at chip.cummins@wsj.com