Financial Times: Unconsummated Anglo-Dutch marriages Or should we be shocked by Shell?
By John Plender
Feb 16, 2004
Unilever is ready to move to a unitary board and to abandon the system whereby advisory directors have to do their job without voting power or legal responsibility for the actions of the group's two boards. So what about the other great Anglo-Dutch dual-listed concern, Shell? Sir Philip Watts, chairman of Shell Transport and Trading, recently responded to investor concern on corporate governance by saying that he would listen to shareholders' worries on the dual structure. Whether anything much will happen is another matter.
Shell, to oversimplify a little, is a near-century-old unconsummated merger between Dutch engineers and British marketing people. As the UK company traditionally puts it, "the sole activity of Shell Transport is the ownership of a 40 per cent interest in the Royal Dutch Shell Group of Companies of which it is not a part and in whose activities it does not engage". Shareholders in Royal Dutch own 60 per cent of the group. So far, so odd.
In modern corporate governance terms, Shell Transport appears deficient. Sir Philip is executive chairman, which leads some fund managers to worry about an excessive concentration of power. The non-executives include former executive directors, who also sit on the remuneration and succession review committee.
If the test of a corporate governance set up is the ability of the non-executives to sack the executive directors, Shell's governance appears fundamentally flawed. Sir Philip could not be put in the ejector seat without the agreement of the Royal Dutch board. It would be possible, in theory, for the Dutch to eject a Shell Transport chairman unilaterally but only at the cost of destroying the Anglo-Dutch joint venture relationship. An outsider might think this a recipe for the executives to divide and rule. The big question is whether the appearance equates with reality.
The allegation of unfettered power is far-fetched. The group is really run by its committee of managing directors. The chairman, currently Sir Philip, is first among equals and the committee is overseen by an exalted body called "The Conference", where Shell Transport directors meet regularly with members of the supervisory and management boards of Royal Dutch.
Oversight can be tough, not least because the boards contain former managing directors who know their onions. When executives have pushed over-ambitious takeovers, such as one proposed for British Gas in the 1990s, they have sometimes been blocked. Until recently, executive pay was also kept low by oil industry standards. And candidates put up by the managing directors for seats at the top have been turned down.
The checks and balances at Shell, then, are potent, even if they depart from conventional governance. The real concern is the presumption in favour of succession from within Shell. This is helpful for continuity but less so for radical change, especially in the event of a crisis more serious than the present spat over the size of proved reserves. Of course everything would be neater if the merger-in-suspense was finally consummated. But I doubt the Dutch will ever buy that.