The Sunday Telegraph: Shell faces rough ride from investors

By Sylvia Pfeifer and Robert Watts (Filed: 13/06/2004)

Royal Dutch/Shell is heading for a showdown with leading investors at its annual meeting this month unless the oil giant provides greater detail of its promised strategy to overhaul its complex corporate structure. 

The Association of British Insurers (ABI) is threatening to reject Shell's remuneration report ahead of the annual meeting on June 28 if planned discussions with the company's executives over the coming days do not go well. This would lead to the ABI issuing a "red top" warning, which indicates serious corporate governance breaches.

The ABI report on Shell currently carries an "amber top", which signals that a number of breaches of corporate governance best practice remain.

The association, whose members account for more than 20 per cent of investments in the London stock market, is hoping to finalise its recommendation and will discuss the issue at its monthly meeting this week.

Shell has promised to review its complex dual board structure and dual listing in London and Amsterdam following its shock overstatement of its oil and gas reserves. The debacle led to the sacking of Sir Philip Watts, the chairman, and Walter van de Vijver, the head of exploration and production.

Investors want the company to establish a single board structure and appoint an independent chairman and non-executives answerable to shareholders.

"We are concerned that the company should make changes to its corporate governance that will deliver proper accountability of its management's performance," said Peter Montagnon, the head of investment affairs at the ABI.

"If they cannot give us assurances of the direction and timeframe of these changes, then there is the danger that it will be a stormy meeting."

Montagnon said investors remained concerned by a range of issues rather than one single technical aspect in Shell's recent accounts.

"My betting is that it will be a close-run thing between the report being given an 'amber' or a 'red' top," said one leading investor in Shell. "There is currently no clarity on issues like structure or corporate governance, which gives us very little to go on at the moment.

"Another issue to consider is that when shareholders in Royal Dutch [the Netherlands company] vote to accept the report and accounts they thereby also discharge the executives of their responsibility in respect of their management for the past year," he added.

Jeroen van der Veer, who took over from Watts as chairman of the committee of managing directors at Shell, has embarked on a charm offensive with shareholders in recent days.

On Friday he met several of the City's largest institutions, but discussions are understood to have focused on Shell's operational performance rather than on governance issues.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2004/06/13/cnshell13.xml