Scotsman.com: Shell considers unified board to win confidence

JIM STANTON DEPUTY BUSINESS EDITOR

Thu 17 Jun 2004

• Investors say structure partly to blame for debacle

• Shell to make its governance review public

• Analysts welcome greater transparency

EMBATTLED oil giant Royal Dutch/Shell Group may unify its British and Dutch boards as part of a drive to simplify its management structure and win back investor confidence, it said today.

The announcement comes after a fresh wave of investor fury yesterday when two major investors in the United States slated an alleged lack of transparency in the company’s corporate review.

Knight Vinke Asset Management and Californian-based pension fund manager Calpers cranked up the pressure by calling on Shell to open up about the review process it is following

Today, Shell said it plans to make results of a corporate governance review public in November and will put into effect any resulting changes after its annual shareholder meeting in 2005.

"Amongst other alternatives, forms of unified boards, to which a CEO would report, are being studied. Nothing is ruled out at this stage," Shell said in a statement.

The money managers had said the recent "debacle" where Shell made four downward revisions to its "booked" oil and gas reserves - wiping 20 per cent off the total - was in part due to the company’s boards meeting separately in London and The Hague.

Further woe came last week as the group admitted its activities in war-torn Nigeria have unwittingly helped fuel poverty, corruption and further conflict in the African country.

Since the initial revision in January, investors have been lobbying the company to overhaul its management structure.

At the moment, Shell is operated under a complicated management structure of two parent companies - Royal Dutch Petroleum and Shell Transport - with the two entities listed on both the London and Amsterdam stock exchanges.

The equity stakes in the combined group are split 60:40 per cent in favour of Royal Dutch Petroleum which is headquartered in The Hague.

When Shell made the first revision in January - which was followed by the resignation of the chairman Philip Watts and other key executives - it also said it was reviewing its corporate governance.

However, in a letter to the Financial Times yesterday, Knight Vinke and Calpers - one of the world’s biggest investment houses - both slammed Shell for not having issued any terms of reference for the review, set a timetable for its completion, or even said who is leading the process. "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.

It added: "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."

Oriel Securities analyst Richard Rose said Shell’s corporate governance review was a step in the right direction.

"It sends out the right signals, although the review had been widely expected by investors," he said.

Rathbones fund manager Julian Chillingworth said: "We welcome the move for greater transparency and we would eventually like to see a single board."

http://business.scotsman.com/economy.cfm?id=689782004