The Observer: The Shell supertanker is holed below the line

Sunday March 21, 2004

'Everyone's very scared. They've all got their own lawyers,' said one City expert late last week about Shell, the once-unsinkable flagship of the global oil industry.

Well, now the Anglo-Dutch vessel resembles nothing so much as a stricken supertanker, firmly stuck on the rocks, battered by the winds of speculation and investigation. Every day, it seems, another huge haemorrhage of black news pours from its sides, while the crew - or at least those who have stayed with the ship until now - try desperately but unsuccessfully to plug the gaping holes.

The company has never been good at public relations. Regarding itself almost as an arm of government, something like the Department of Oil, it has never felt the need to explain to shareholders, let alone the media, what it was up to.

I remember well the Brent Spar crisis of 1995, when the company was humiliated by the environmental activists of Greenpeace. The eco-warriors inspired the biggest ever consumer boycott of a corporation across Europe, and forced Shell to a grovelling surrender. Even when it was later revealed that Greenpeace had miscalculated the environmental damage its protests were meant to stop, Shell refused to take advantage of its mistake, and Brent Spar became a synonym for dodgy global capitalism.

The company staggered from one PR disaster to another. In Nigeria, it was reviled following the death of a prominent local politician, Ken Sara-Wiwa, at the hands of the military government. And all the while allegations of corruption and environmental barbarism in the south east of the country persisted, largely ignored by Shell's patrician executives in Britain and Holland.

The situation now is much more serious than any of those debacles. Shell's enemies now are not Greenpeace activists or Orgoni tribesmen, but international investors, who have seen their share values badly damaged by the two mark-downs in estimated reserves. Of these, the first was the bigger, but the second - after the departure of chairman Philip Watts - was the more serious. It was almost as if Shell was saying: 'We can't really bottom this one out yet, but here's the latest bad news. There's more to come.' Drip, drip.

But the really formidable foes are only just flexing their muscles - America's litigation-addicts, the mass-tort lawyers, are preparing actions that will cost billions of dollars and aeons of man-hours to fight.

Reputational damage is the most difficult for a large corporation to repair, and Shell has been well and truly holed below the water-line. The best job the Dutch chairman could now perform for the company and its shareholders is to arrange the organised break-up of Shell and give as much value as possible back to shareholders while the dying hulk is still above water.

http://observer.guardian.co.uk/business/story/0,6903,1174288,00.html