Financial Times: A diplomatic dance at Royal Dutch/Shell
By Martin Dickson
Mar 23, 2004
The blandest of diplomatic language poured forth from the Association of British Insurers and Shell Transport and Trading yesterday as they reported on their high profile morning meeting held in the wake of the oil company's two reserves downgrades.
Shell was willing to acknowledge that "various matters of mutual interest" had been discussed. Both sides characterised the discussions as "constructive". And that was about all they were saying.
The reticence is hardly surprising. The institutions want to encourage Royal Dutch/Shell to some fundamental corporate governance reforms. Beating it around the head in public is hardly the best means of achieving this. The chastened company, for its part, is ostensibly in listening mode.
Jeroen van der Veer, appointed chairman of the committee of managing directors when Sir Philip Watts was ousted this month, says the group wants to hear shareholders' concerns and introduce any governance changes next year.
The company should be thinking of radical change: scrapping its cumbersome governance structure, involving separate Dutch and UK boards linked through the board of management, and moving to a unitary structure along the lines of other Anglo-Dutch companies, such as Reed Elsevier and now Unilever. Given the inward-looking, complacent company culture that has produced the current crisis, it also needs to bring in fresh blood from outside, preferably in the form of a non-executive chairman for the whole business, in line with UK best corporate governance standards.
The institutions may well have a receptive audience for such ideas in the two men who met the ABI yesterday: Lord Oxburgh, appointed chairman of Shell Transport following Sir Philip's departure, is an eminent UK scientist; while Sir Peter Burt, the senior non-executive director, is a seasoned captain of British industry who ought to know the governance framework backwards.
Note too that Lord Oxburgh has been appointed non-executive chairman of Shell Transport, in contrast to Sir Philip's executive role. Could this be a sign that the UK board has become more sensitive to governance concerns?
Yet, however constructive the discussions between UK institutions and directors of the UK company, no substantive change at the group is possible unless Royal Dutch, the dominant partner with 60 per cent of the equity, is also fully committed to reform. And there must be considerable doubts that it is, given the conservative character of its directors; the sensitive, flagship role of the company in the Dutch economy; and the entrenchment of the board through its control of priority shares, which carry extra voting rights.
The Shell crisis, coming hard on the heels of the accounting scandal at Ahold, another national champion, is hardly a good advertisement for the traditional, cosy Dutch model of corporate control. But change is in the air, for the country has just introduced a corporate governance code that is supposed to re-establish the authority of shareholders.
The Royal Dutch board needs to be encouraged to embrace radical change. Ideally, the Dutch institutions would speak as one with their UK counterparts, though there are no signs of that so far. In its absence, too much noisy drum-beating this side of the