Financial Times: A triumph of form, now for the content: Shell's unitary answer to several questions: “Mr Van der Veer portrayed the latest revelation on the overbooking of proved reserves as evidence that the company was now prepared to come clean as soon as it had bad news. But sceptics accused it of burying the announcement under the exciting stuff about its governance revolution.”: “A lack of rigorous follow-through on the changes made by Sir Mark Moody-Stuart in the late 1990s may have sown some of the seeds of the oil-reserving disaster. Sir Mark has quietly and rightly retired from the board as part of this process.”: “For too long Shell has relied on its "culture", which it assumed was morally superior, to ensure good behaviour. The test of its reforms - both internally and in its dealings with the outside - will be whether its new systems pick up human failings before they infect the whole company.” (ShellNews.net)
By Jane Fuller
Published: October 29 2004
When Royal Dutch/Shell descended into crisis early this year, it blamed "human failings". On that narrow interpretation, it could chuck overboard the failing humans - Sir Philip Watts, Walter van de Vijver and Judy Boynton - and sail on with its structure and culture intact.
By opting for the most radical structural solution it has admitted that the malaise ran far deeper than that. Changing shape is one thing, changing behaviour is another. But Shell has certainly obeyed the first law of reform by recognising that it has a problem.
Its governance solution deserves three cheers from the City of London since it has plumped for the British unitary board structure over the continental duality of supervisory and management boards. The wasteful and confusing geographic double act between the UK and the Netherlands is also terminated.
Coupled with the abolition of the committee of managing directors, the unitary board brings executives and non-executives closer together. This should improve communication, making it easier for outside directors to advise and scrutinise.
Accountability will obviously be improved by having one chairman and one chief executive. The only caveat, with Aad Jacobs due to retire in 2006 and Jeroen van der Veer in 2007, is that the leadership has a transitional feel. A lack of rigorous follow-through on the changes made by Sir Mark Moody-Stuart in the late 1990s may have sown some of the seeds of the oil-reserving disaster. Sir Mark has quietly and rightly retired from the board as part of this process.
The unitary solution looks simple but it represents a clever pick-'n-mix of answers to both nitty-gritty and emotional questions. Shell seems to have optimised its choices by having its HQ and tax residence in the Netherlands, while being incorporated in the UK and having its primary listing in London.
On the nitty-gritty side, UK investors' concerns about keeping sterling paper and avoiding Dutch withholding tax have been allayed by the A and B share division. The status quo on corporate taxation also seems to have been preserved.
The emotional part comes down to national pride. The Dutch keep the HQ and six seats on the 15-person board, and have landed the top two jobs.
This has fuelled questions about a Dutch "takeover" of Shell Transport & Trading. But the Dutch, who do own 60 per cent of the group, might be equally sensitive about the UK-style board and the primary listing.
The image of the Royal Dutch supervisory board as a natural home for the great and the good of Dutch business (and politics) is on the way out. The search for Mr Jacobs' replacement has started and Wim Kok, the former prime minister, and Jonkheer Aarnout Loudon are among those who will retire by 2008. No doubt the odd Brit will go too. National quotas should play no part in the choice of successors.
If the structure is right, can we be sure the culture is changing? Not yet, and yesterday's signs were ambiguous.
Mr Van der Veer portrayed the latest revelation on the overbooking of proved reserves as evidence that the company was now prepared to come clean as soon as it had bad news. But sceptics accused it of burying the announcement under the exciting stuff about its governance revolution.
Malcolm Brinded, head of exploration and production, said he had learnt not to "speculate on what you don't know". But, despite acknowledging a potential cut of more than 10 per cent to the proved reserves checked so far, he reaffirmed the target of a 100 per cent reserve replacement ratio. Will this apply pressure to bend the rules and suppress bad news?
Details of a big internal training exercise on compliance and the seriousness of the review of reserves gave some reassurance.
For too long Shell has relied on its "culture", which it assumed was morally superior, to ensure good behaviour. The test of its reforms - both internally and in its dealings with the outside - will be whether its new systems pick up human failings before they infect the whole company.