The Times: 'Some fear that Shell is not going to undergo the drastic shake-up that it is clear is required'

By Patience Wheatcroft

June 26, 2004

WHAT a generous gesture from Shell’s remuneration committee. There was Sir Philip Watts, contemplating a future on a meagre pension of just £568,000 but now he has at least got an extra £1 million in the bank to fund those occasional excursions he may be planning in his retirement. The news must have cheered him up on his 59th birthday. It might even have taken his mind off those investigations that the FSA and the SEC are still conducting into his activities at Shell.

When Sir Phil made an unceremonious exit from Shell back in March, it was amid some rather nasty allegations about how he had insisted on covering up the fact that the company’s oil reserves were worth rather less than the books had been indicating. Significantly less, in fact. So much less that the board managed to sound quite aggrieved about it and went so far as to deprive him of his annual bonus, which traditionally had virtually doubled his pay. His basic pay, however, did jump from £746,000 to £843,000, with a consequent bolstering of his pension pot.

Perhaps the members of the remuneration committee felt that they had been a little harsh on someone who had spent his entire working life with the company. Investors might have felt that the matter of those inflated reserves figures should have ensured that Sir Phil’s career at Shall was halted without any compensation for the loss of office. Misleading shareholders over something quite as crucial as this would surely be tantamount to a breach of contract by the chairman.

It seems unlikely that, in these circumstances, Sir Phil would have felt inclined to head to the courts and demand his contractual rights. But even if the company did feel bound to honour his contractual terms (which translates as ‘take the easy way out’) then most of that £1 million could still have remained the property of Shell’s owners. For Shell senior executives have only three month contracts.

When Shell shareholders gather for the next annual meeting they may wish to ask the remuneration committee why it felt that it could be so generous with their cash. Among the members is Sir Peter Job, whose reign as chief executive of Reuters was not an unqualified success. Maybe he felt some sympathy for the plight in which Sir Phil found himself. Former diplomat Sir John Kerr is also a member.

There are some who fear that Shell is not going to undergo the drastic shake-up that this year’s revelations have made clear is required. The cheque to Sir Phil will add to those concerns, as will the continuing presence at the company of Judy Boynton. The former finance director was removed from her post in the wake of the scandal but remains at work, apparently on her finance director’s salary. This does not smack of firm governance.

Bringing back a former senior executive man to take on the finance director’s role as Shell decided to this week was greeted enthusiastically by the market. But after 20 years with the group, and only a couple away, there is a risk that Peter Voser will turn out to be imbued with the old Shell culture.

The need for that to change was underlined yesterday with the filing of a multi-billion dollar lawsuit against dozens of directors. The US class action also accuses the auditors of failing investors. In total 27 Shell directors and senior executives, past and present, are accused of breach of fiduciary duty. Sir Philip Watts, naturally, is on the list. But at least he has that £1 million cheque to console him. Although some of it may yet have to go towards lawyers’ fees.