The New York Times: Ex-Officers and Board at Odds Over Investigation at Shell

By HEATHER TIMMONS

Published: April 15, 2004

LONDON, April 14 - The early conclusions of an internal investigation into Shell's reserve write-down earlier this year has created warring factions of the board and former executives, and has some investors and legal experts questioning whether the audit committee conducting the inquiry has gone far enough.

On Tuesday night, Shell's former head of exploration and production, Walter van de Vijver, said in a statement that he had informed the company's managing directors in 2001 that some of Shell's reserves might need to be reclassified, indirectly implicating the company's new chairman, Jeroen van der Veer. Mr. van der Veer, who became chairman last month, is the only person still at the company who was a managing director in 2001.

Shell is being investigated by regulators in the United States - including the Justice Department - and in Europe after the company said in January that it was subtracting 20 percent from its estimate of proven reserves, the most valuable assets for any oil company. The company's audit committee has been conducting its own investigation since the reserve change.

Shell's board will vote Friday on preliminary results of the internal investigation, after reviewing a report of several hundred pages. The report lays much of the responsibility on Mr. van de Vijver, and Shell's former chairman, Sir Philip Watts, one person close to the inquiry said.

But internal documents show that several other executives, including Mr. van der Veer and Shell's chief financial officer, Judy Boynton, were aware of the company's problems as early as 2002.

Mr. van de Vijver's statement on Tuesday said that he "regularly communicated'' to the senior executive committee "regarding the nature and quantity of the potentially noncompliant reserves.''

Some investors and outside lawyers are questioning the thoroughness of the internal audit committee. Decisions on reserve estimates are generally of such magnitude that they are not taken on solely by individuals, said Ivor Pether, fund manager with Royal London Asset Management.

"What's the evidence that this is solely the responsibility of Watts and van de Vijver?" Mr. Pether said. Shell's board, he said, may need to "cast their net a little wider."

While declining comment on the Shell case specifically, outside lawyers say that the Securities and Exchange Commission has become more vigilant and that thoroughness is crucial to avoiding prosecution when a company is under investigation.

"If you ask the S.E.C. these days, they'll say you should have fired everyone from the janitor on up," said Jack C. Auspitz, partner with Morrison & Foerster in New York. Boards have to assign responsibility, he said. "You have to make some tough choices about who actually was responsible, who knew about the problem, and who was just standing in the vicinity," Mr. Auspitz said.

John B. Wade III, a partner with Dorsey & Whitney in New York, said, "Companies that don't take action quickly and cooperate fully will come up on long side of federal sentencing guidelines."

Companies under investigation need to dismiss those responsible for the initial problem, as well as those who failed to check that any reports issued by the company were correct, he said.

Mr. van de Vijver's comments would not prompt further investigation, the head of the audit committee said on Wednesday. "The investigation is proceeding as scheduled," Aad Jacobs said in a telephone interview. The investigation has drawn battle lines between the company's ousted executives, and its current management and board, securities lawyers said. Already, at least six law firms have been retained to represent Shell's audit committee, the company and various current and former executives, including Mr. Watts, Mr. van de Vijver and Ms. Boynton.

Mr. Jacobs denied that there was any dissent over the audit committee's preliminary report among board members of Royal Dutch Petroleum and Shell Transport and Trading, the two companies that make up Shell.

"There is no question of a rift, nothing at all," Mr. Jacobs said. "All the decisions taken have been made unanimously."

Some, possibly all, of the audit committee report will be made public in coming weeks, pending approval from regulators.

http://www.nytimes.com/2004/04/15/business/worldbusiness/15shell.html