Forbes.com: Shell directors to face UK shareholders next week

By Andrew Callus

Reuters, 17.03.04, 2:01 PM ET

LONDON, March 17 (Reuters) - Royal Dutch/Shell <RD.AS> <SHEL.L> will meet UK shareholder representatives next week to discuss possible structural changes to the oil firm and the crisis surrounding its overstated reserves.

Fund manager sources and a source close to the Anglo-Dutch group said top officials of the Association of British Insurers (ABI) and directors of Shell would lead the meeting.

They said some top institutional investment firms would also be present.

Shell declined to comment, while an ABI official said "we never reveal when, or whether, we have meetings with companies".

Shareholder confidence in the world's third largest oil firm was shaken by its shock revelation in January that it had overstated its proven oil reserves.

One institutional investor said it may be the most significant event since two top executives were sacked over the downgrade two weeks ago. "I don't plan to miss it," he said.

The group's former top executive, Chairman Phil Watts, was fired on March 3 along with his then number two, the head of exploration and production, Walter van de Vijver.

They were blamed for overestimating Shell's oil and gas reserves by 20 percent through overbookings in the period 1996 to 2001, and then failing to correct the overstatement.

U.S. newspapers have reported in recent weeks, citing leaked documents, that Watts knew two years ago the proved reserves were not compatible with U.S. Securities and Exchange Commission (SEC) guidelines.

Watts himself has not been reachable for comment.

The reports say that the firm's new top bosses, including Chairman Jeroen van der Veer, knew as well, but failed until the end of 2004 to communicate this to non-executive directors, whose duty it is to protect the interests of shareholders.

Watts went on a round of fund manager meetings in the weeks after Shell's fourth quarter results on February 5. Some investors have not met management since. It was not clear whether Van der Veer would attend next week's meeting.

COMMON MEMBERSHIP OF BOARDS

Shell is held 60 percent by Royal Dutch Petroleum, based in The Hague and listed on the Amsterdam Stock Exchange, and 40 percent by London listed and based Shell Transport & Trading.

Investors have been critical for years of the management structure, in which executives and non-executives of both boards meet only rarely all together in a so called "conference".

In the late 1990s, shareholders blamed the set-up for Shell's inaction over the takeover opportunities that followed a slump in oil prices, and which allowed its rivals BP <BP.L> and Exxon (nyse: XOM - news - people) to grow through acquisition.

Now some are proposing that all directors should be members of both boards to simplify communications.

Richard Singleton of ISIS Asset Management said shareholders should be cautious but forthright in pointing out the flaws.

"I don't think it is for investors to propose an ideal board structure," he said.

"It would be wrong to presume, but there is good reason to bring concerns and suggestions to their attention. Common membership of both boards, we hope, would eliminate the slightly odd structure of the conference, which is too large to be an effective governing body.

"If people are only directors of both companies, then their moral and legal responsibility is clear."

He said Shell's audit committee, now investigating the reserves debacle, might have picked up on the problem earlier had it not been such a loosely formed organisation.

"There wasn't the kind of structure which allowed for probing by the audit committee that one would normally expect," he said.

"Three non-executives from Shell and three from the supervisory board of Royal Dutch nicely reflects the dual structure, but it does slightly take away from their hard-nosed responsibility."

The SEC is conducting its own Shell probe. According to Wednesday's New York Times, the U.S. Justice Department has also opened an inquiry into whether executives violated any laws.

Copyright 2004, Reuters News Service