The Guardian: Big investors go public with Shell demands

Mark Tran

Wednesday June 16, 2004

Big shareholders today stepped up the pressure on the oil giant Shell to be more open in the way it is reviewing its management structure. Representatives of the Californian pension fund Calpers, one of the world's biggest investors, and another US fund manager, Knight Vinke Asset Management, have gone public with their concerns by writing a letter to the Financial Times.

The Anglo-Dutch group, effectively two firms run as one, has come under fire after it stunned investors in January when it admitted to having overstated its oil reserves by one-fifth. Since then, investors have been pressing the company to overhaul its management structure.

After the January announcement, which was followed by the resignation of the chairman, Philip Watts, and other top executives, the group said it was reviewing its corporate governance. But Calpers and Knight Vinke complained in their letter that Shell had not spelt out the terms of reference for the review, nor given a timetable for it.

"At the very least, a portion of the blame for the reserves debacle is to be attributed to the prevailing governance culture of the group and the absence of orthodox board structures," the letter said.

"We and other shareholders believe that, if the process is to be at all credible, the directors must disclose publicly the terms of reference of this review - namely: the specific issues to be considered; the composition of the body conducting it; and a timetable, involving further shareholder consultation before formal approval of any changes is sought," it said.

Shell announced its governance review in March and said it would reveal the findings "in good time to enable the process to be concluded" before next year's annual meetings of the group. It said at the time it would consult investors and advisory bodies in its review of overall group governance, including the composition and operation of parent and holding company boards.

Calpers, America's largest pension fund, with a reputation for taking a proactive approach in pushing for changes at big companies, earlier this month put the embattled Anglo-Dutch oil group on its annual hit list of companies that need to boost performance.

Shell executives failed to satisfy the influential investor at a recent meeting in New York that necessary changes were under way, Calpers said. The pension fund also noted that Shell's shares had lagged behind its peers for five years and expressed concern that the board had failed to respond effectively to shareholders' demands.

Shell is to hold its annual general meeting on June 28. It promises to be a lively affair, not just because of the issue of corporate governance but also over questions about the company's practices in Nigeria. A report commissioned by Shell said the company might have to leave the country because of the violence in the Niger delta. Shell executives have admitted that the company "sometimes feeds conflict by the way we award contracts, gain access to land, and deal with community representatives; how ill-equipped our security team is to reduce conflict; and how drastically conflict reduces the effect of our community development programme".

http://www.guardian.co.uk/business/story/0,3604,1239947,00.html