THE WALL STREET JOURNAL: Royal Dutch/Shell Begins to See Advantages of Unified Structure (ShellNews.net)

Edited by Hugo Dixon

August 13, 2004

Shareholder pressure is getting somewhere with Royal Dutch/Shell. Only three months ago the Anglo-Dutch oil titan seemed impervious to calls to reform its cumbersome dual-headed structure. Now it has virtually accepted the argument that it must, at minimum, create a single unified board to run the group. It is also looking seriously at the more radical option of merging the two top companies into a single group. (See related article.)

What's the advantage in going the whole hog? Well, there are really two. First, simplicity. Second, and most important, greater accountability. One of the reasons Royal Dutch/Shell has been so successful at resisting shareholder pressure for so long is that investors have had to lobby two separate groups in different countries. They have needed two keys to unlock the boardroom door. With a single company, shareholders would only have to concentrate on one pressure point. Royal Dutch/Shell's parents are Royal Dutch Petroleum Co., of The Hague, and London-based Shell Transport & Trading Co.

This is not to say that merging the two companies has only advantages. The main potential drawback that will worry shareholders is that a merger could result in higher taxes. Then there is the political anxiety in the Netherlands over whether a merger could result in the loss of a national champion. Royal Dutch occupies a position in the Dutch corporate firmament unlike any other. And there are obvious concerns that, following a merger, the balance of power could shift to London.

These anxieties may be real. But they are also probably surmountable. There are, after all, many ways to set a merger. The Dutch firm could buy the British, the British could buy the Dutch or a totally new firm could acquire both -- to name just three. Then there is the choice of domicile. Some permutation may well be able to solve both the tax problem and allay Dutch nationalistic sensitivities.

The key question then for Royal Dutch/Shell as it enters the final stage of its corporate governance review should not be: "Why should we merge?" Rather it should be: "Why shouldn't we merge?"