The Times: Power of one: “While it is a shame that it took this year's reserves crisis to alert the group, and shareholders, to the threat of the 200lb gorilla in the room” (ShellNews.net)

COMMENT: Royal Dutch/Shell has dreamed up a solution to its problems. Now it is time to deliver. By Mike Verdin

August 12, 2004

Posted 13 August 04

In Sleeping Beauty, it was a kiss from handsome prince which awakened the princess from a century of slumber.

For Royal Dutch/Shell, it has been a kick in the backside from shareholders and regulators which has awakened the oil giant to the idea that, 97 years on, the agreement on which the company was founded is flawed.

It was in 1907 that a tie-up was agreed between Royal Dutch, founded to exploit Asian oil fields, and Shell Transport, a sea shell importer which discovered greater prospects in the remains of long-dead marine life.

However, rather than undertake a full merger, the companies stopped halfway. They, as the group itself puts it, reached an "agreement between two separate companies whereby they share interests in the companies they jointly invest in". It was as if the two companies had shaken hands across the North Sea but left their feet on home territory.

Shell remains a UK company with its stock listed primarily in London while Royal Dutch is Netherlands focused. Crucially, the two companies maintained separate boards and a 60-40 power split in favour of Royal Dutch.

While such an arrangement may have made sense in the year when Sir Robert Baden-Powell founded the Boy Scouts, it is a nonsense in an era in which knowledge of the web is more useful than that of knots. The national considerations which were, in part, a reason for the Royal Dutch Shell arrangement have been transformed by years of European conflict, and economic and political co-operation.

While it is a shame that it took this year's reserves crisis to alert the group, and shareholders, to the threat of the 200lb gorilla in the room inherent in its corporate structure, at least executives have responded positively. They promised a sweeping, no-sacred-cows, review and have delivered. It appears that the company has considered not just unifying its boards but merging its holding companies. Royal Dutch/Shell would be one in more than name.

While there are considerable hurdles to the completion of the merger begun 97 years ago, not least in the resolution of the 60:40 control split, it is in becoming one that the group can achieve its potential.

A complex business structure benefits most those who understand it, flattering those who understand internal processes rather than the world of business. It prizes masters of internal politics over captains of industry and strangles enterprise beneath red tape additional to that being spun by governments by the mile.

Its impact was evident in the group's decision in June to poach Peter Voser from ABB as finance director. Mr Voser boasted not just an admirable record at the engineering company but 20 years' previous experience at Shell on top. He had proved able to navigate through mazes of both figures and internal walls.

It must be suspected, especially since this year's debacles, that Shell's record of internal promotion reflects the need to comprehend politics as well as business.

In Sleeping Beauty, the handsome prince is granted the throne by his future father-in-law and lives happily ever after.

Shell, too, can enjoy a prosperous future if it gives full vent to the suggestions of the shareholders who awakened it.