THE BUSINESS: Shell shareholders fail to put foot down over vital reforms: "any sense Oxburgh hoped to give of the smooth functioning of the two-board system was undermined by the two chairman’s differing answers on when the company’s non-executive directors had known about the reserves problems."

IT TURNED out to be an anti-climax. After predictions of investigator revolts at Shell’s twin annual meetings, directors got a smoother ride than expected. But the problems remain, especially Shell’s dual structure.

The company provided few concessions to shareholders – no more details on the circumstances behind the reserves downgrade and no proposals from the review of corporate governance that institutional investors have been demanding as the price for the scandal.

There were embarrassments at the meetings, of course. At The Hague, nearly 40% of Royal Dutch shareholders voted against a resolution of confidence in the directors. In London, nearly 10% voted against the company’s remuneration policy in protest at disgraced former chairman Sir Philip Watts’ £1.06m (E1.59m, $1.82m) payoff.

The large proportion of individual investors in Shell’s shareholder mix undoubtedly helped. These are the people who kept the company’s shares from diving during the crisis and they were outspoken in their criticism of those who had launched class action lawsuits against the company. They even attacked the large institutional investors that had given the company a rough ride in the press. Individual shareholders were keen to put the company’s problems behind them. All they want, it seems, is a gentle rising dividend.

Even the institutional shareholders that had been most vocal in demands for reforms seemed to lose some of their fire at the meetings. Those who turned up tended to preface any questions by welcoming the company’s decision in June to publish details on the process of corporate governance reform ahead of the shareholder meeting.

And while the vast venue in the London Docklands Excel Centre rang occasionally with hecklers calling for resignation, the directors were reportedly surprised that no shareholders made a call for directors’ heads in a formal question. Even attacks from environmentalist and human rights activists were mild.

All this is surprising, because it was hard to escape the sense that reform is still seen internally as a concession rather than as a benefit. The group’s businesses are owned by Royal Dutch and Shell Transport & Trading, two separately-listed companies, on a 60-40 split, and managed by a committee of managing directors grouping the directors of the main operating businesses with the group finance director. Investors have argued this arrangement dilutes accountability, leads to confused lines of control and lessens the pressure they can exert on the company.

Lord Oxburgh, Shell’s UK chairman, dismissed suggestions that the company’s structure played a role in the problems with reserves, preferring to give shareholders a narrow explanation that had more to do with the technicalities of reserves accounting and stressed the continuing excellent levels of communication between the two boards. He also highlighted the different tax regimes, listing requirements and governance codes in the UK and The Netherlands that make fusing the companies – which some investors are demanding – a process fraught with complexity.

But any sense Oxburgh hoped to give of the smooth functioning of the two-board system was undermined by the two chairman’s differing answers on when the company’s non-executive directors had known about the reserves problems. While Oxburgh maintained no one had known until just before the downgrades were announced in January, Royal Dutch’s chairman Aad Jacobs confessed that departed head of exploration Walter van de Vijver had mentioned the issue at a lunch with him in November.

Nevertheless, Shell does seem to have accepted that it cannot get away without reform. Jacobs said that Shell’s working group on boardroom structure had put together a 60-page document outlining all the ways to change the company’s structure. In London, Sir John Kerr, a non-executive, gave a sense that investors might not have to wait until the annual meeting next year, as initially proposed, to see changes. Some reforms can be implemented as they are decided upon, he said, pointing to changes Shell has made since its problems began earlier this year. Last month, the company stripped Royal Dutch’s board members of the priority shares that gave them a veto over serious strategic decisions and directors appointments. It has already appointed Oxburgh as non-executive chairman on the UK side and has transferred overall control of the audit lines of each of the major operating divisions from the division heads to the group financial officer.

The worry is that investors will find themselves distracted with a steady drip of smaller reforms, while Shell delays on the greater challenges of simplifying the dual system.

Oxburgh said Shell’s working group on reform had been discussing some “extreme” measures. But what exactly counts as extreme for Shell’s cautious bureaucrats will remain a mystery until the company lays out the fruits of its head-scratching in November.

RICHARD ORANGE