OPENING ADDRESS BY JEROEN VAN DER VEER, CHAIRMAN, COMMITTEE OF MANAGING DIRECTORS, ROYAL DUTCH SHELL GROUP AT SHELL BUSINESS WEEK 2004, HELD IN HOUSTON, TEXAS: 26 MAY 2004

(The speech has been retyped for security reasons)

26 MAY 2004

PLEASE NOTE THIS IS INTENDED FOR INTERNAL USE ONLY

WE ARE GOING THROUGH A VERY DIFFICULT TIME IN THE HISTORY OF SHELL

WE ARE A STRONG COMPANY BUT SOME SERIOUS MISTAKES WERE MADE.

I REALISE THIS MAY HAVE SHAKEN YOUR TRUST AND CONFIDENCE IN YOUR LEADERS

I AM VERY SORRY ABOUT THIS

OUR INTEGRITY IS QUESTIONED BOTH INTERNALLY AND EXTERNALLY

I MYSELF FEEL SHOCKED DISMAYED AND ASHAMED AT WHAT HAS HAPPENED AND I IMAGINE YOU MUST FEEL THE SAME

I HOPE WE CAN ALL LEARN FROM THIS AND TOGETHER TAKE SHELL OUR COMPANY FORWARD

AS LEADERS WE HAVE A RESPONSIBILITY TO LEAVE HERE TODAY WITH A CLEAR VISION OF OUR WAY FORWARD

SO WE NEED STRAIGHT TALKING CLEAR THINKING AND HUMILITY

WE HAVE MORE PROBLEMS THAN JUST THE RESERVES ISSUE

WE WILL SPEND SOME TIME TODAY ON WHAT HAS HAPPENED AND ON OUR STRATEGY ON CONCRETE STEPS FORWARD AS WELL AS ON OUR BEHAVIOURS

THIS IS A SPEECH FOR ALL OF US…

FOR YOU - FOR THE CMD - INCLUDING MYSELF

THIS SPEECH IS NOT TO COMFORT US

IT IS TO EXPRESS MY OPINIONS ABOUT OUR STRATEGY

WHO WE ARE AND QUESTIONS ABOUT THAT

MY WAY FORWARD TO A BETTER SHELL

OUR STRATEGY

OUR STRATEGY IS SIMPLE

MORE UPSTREAM AND PROFITABLE DOWNSTREAM

WE BALANCED OUR GLOBAL BUSINESS WITH CONTINUED LOCAL STRONG DELIVERY

WE WILL TALK ABOUT STRATEGY LATER.

BUT WE ARE WHERE WE ARE PARTLY BECAUSE WE FOCUSSED ON A LOW OIL PRICE AFTER 1998 BUT MUCH MORE BECAUSE OF EXECUTION PROBLEMS IN ALL OUR BUSINESSES

I KNOW THAT ALL BUSINESSES HAVE ASPECTS WHERE WE ARE STILL WORLDS BEST BUT THERE ARE TOO MANY AREAS WHERE WE ARE NO BETTER THAN AVERAGE

IN THE UP-STREAM IN THE NEXT 3 TO 4 YEARS WE MUST BUILD THE FOUNDATIONS FOR STRONG FUTURE GROWTH BY PROLONGING OUR HEARTLANDS BY STEPPING UP EXPLORATION SPEND AND SUCCESS AND BY INVESTING HEAVILY TO BUILD NEW HEARTLANDS ESPECIALLY BASED ON GAS – AND BY REBUILDING OUR SKILLS

IN THE DOWNSTREAM IN THE NEXT FEW YEARS WE WILL RATIONALISE THE PORTFOLIO – WE WILL GLOBALISE AND STANDARDISE

WE MUST RAISE OUR OPERATIONAL GAME

GROW IN CHINA AND INDIA AND FOCUS EVER MORE ON THE CUSTOMER

FOR GOOD ORDER DOWNSTREAM IS OIL PRODUCTS AND CHEMICALS

WHO ARE WE?

OUR PEOPLE ARE THE KEY

I BELIEVE OUR EMPLOYEES ARE AS GOOD OR BETTER THAN THOSE OF THE COMPETITION

HOWEVER I WONDER

HAS EXCESSIVE JOB MOVEMENT CREATED TOO MANY GIFTED AMATEURS IN A WORLD THAT NEEDS MORE PROFESSIONALISM – COMMITMENT TO PERFORMANCE AND DISCIPLINE

THE RESERVES ISSUE WAS NOT CAUSED BY OUR SCORE CARD OR BONUS SYSTEM

NEVERTHELESS WE NEED TO CONSIDER WHETHER OUR SCORE CARDS AND PAY SYSTEM DO DRIVE BEHAVIOURS

SCORE CARDS AND BONUSES WERE DESIGNED TO FOCUS THE ENERGY OF OUR PEOPLE

OUR REMUNERATION PER SENIOR LEADER HAS GONE UP SUBSTANTIALLY OVER THE PAST YEARS.

HAS IT BROUGHT BETTER PERFORMANCE OR A BETTER CULTURE TO SHELL

I DO WANT ALL OF OUR LEADERS TO BE COMPLETELY REWARDED BUT I ALSO WANT TO ENSURE WE HAVE A REMUNERATION STRUCTURE THAT BINDS COHESION LOYALTY AND COMMITMENT TO THE LONG TERM GOOD OF THE COMPANY

OVER THE PAST MONTHS ALL OF US HAVE BEEN IN SITUATIONS IN WHICH WE HAD TO DEFEND OUR ENTERPRISE

BUT IF I LOOK OVER THE PAST YEARS I WONDER HAS THE BALANCE BETWEEN ENTERPRISE FIRST AND SELF FIRST MOVED TOO MUCH TO SELF FIRST

AMBITION IS GOOD BUT AMBITION WITH DISREGARD FOR PEERS OR SUBORDINATES CREATES THE WRONG CULTURE

DO WE UNDERSTAND THE WORD HUMILITY

DO WE THINK THAT THE OUTSIDE WORLD IS WRONG TO LABEL US ARROGANT SLOW AND INWARD LOOKING

DO WE FIX OUR PROBLEMS BY MAKING A PLAN FULL OF OVERSTRETCH OR UNATTAINABLE TARGETS

WE HAVE HAD THE RESERVES ISSUE

MANY DOWNSTREAM ASSETS DO NOT HAVE FIRST QUARTILE PERFORMANCE BUT DO WE KID OURSELVES THAT WE ARE FIRST QUARTILE PEOPLE

AND HOW DO WE KNOW THAT THE NEXT LARGE PROJECT PROPOSAL DOES NOT HAVE TOO OPTIMISTIC ECONOMIC ASSUMPTIONS

AND IF WE THINK ABOUT COSTS DO WE DO IT AS WE DO AT HOME

SO DO WE REALLY SPEND THE COMPANIES’ MONEY AS IF IT WERE OUR OWN

AND DO WE HAVE TOO MANY INTERNAL MEETINGS AND TRAVELLING FOR THAT

THINK ABOUT YOUR LAST 10 JOURNEYS

WHAT PERCENTAGE WAS FOR CUSTOMERS OR TRAVELLING OR NGOS

I BET THAT MOST WERE FOR INTERNAL MEETINGS TALKING TO OURSELVES

OUR WAY FORWARD

I BELIEVE WE NEED A STEP CHANGE IN OUR BEHAVIOURS AND WE NEED TO DEVELOP IT HERE AND MAKE IT TOGETHER

IN DOING SO WE SHOULD BE MINDFUL OF THE LESSONS OF THE TRANSFORMATION WE EMBARKED ON IN THE MID 90S

THIS ACHIEVED SOME GOOD CHANGES

ROACE

COSTS

GLOBAL PROCESSES AND BEST PRACTICES

WE KNOW OUR VALUES OF HONESTY INTEGRITY AND RESPECT FOR PEOPLE BUT DID THE MID 90S TRANSFORMATION BRING THE DESIRABLE BEHAVIOURS

OR DID IT ERODE PROFESSIONALISM CORPORATE COHESION ENTERPRISE FIRST THINKING AND LOYALTY

THE STEP CHANGE IN BEHAVIOURS SHOULD CONNECT DIRECTLY WITH OUR VALUES

SO LET ME GIVE MY THOUGHTS ON OUR WAY FORWARD FOR SHELL

IT RESTS ON 4 LEGS

1

OUR BUSINESS PRINCIPLES OR CODE OF CONDUCT – I EMPHASISE TODAY OUR VALUES HONESTY INTEGRITY RESPECT FOR PEOPLE

2

LAT

LEADERSHIP ACCOUNTABILITY AND TEAMWORK

I WILL COME BACK TO THAT

3

DIVERSITY AND INCLUSIVENESS

4

SUSTAINABLE DEVELOPMENT WHICH GUIDES HOW WE DO OUR OPERATIONS AND PROJECTS

I USED THE LABEL LAT

IT STANDS FOR LEADERSHIP ACCOUNTABILITY AND TEAMWORK

WHAT DO I MEAN BY THOSE WORDS

1

LEADERSHIP

*WE STANDARDISE SIMPLY AND GLOBALISE OUR OPERATIONS AND PROCESSES

WE ARGUE FOR SAMENESS RATHER THAN DIFFERENCE

*WE LENGTHEN OUR JOB TENURES THAT MAKE OUR PERFORMANCE MORE PROFESSIONAL AND DISCIPLINED

*WE HAVE CLEAR AND FOCUSED PRIORITIES

*WE WILL INCLUDE THE DESIRED BEHAVIOURS IN THE WAY WE SELECT AND APPRAISE PEOPLE

*WE WILL MODIFY OUR SCORE CARDS AND REMUNERATION PLANS TO DRIVE PREFERRED BEHAVIOURS

* NO NEW GURUS…   WE WILL DO IT OURSELVES AND LEAD BY EXAMPLE

2.

ACCOUNTABILITY

*WE HAVE ACHIEVABLE TARGETS SO NO OVERSTRETCH NOR COMPLACENCY

*WE MAKE SURE THAT WE COMPLY WITH INTERNAL AND EXTERNAL STANDARDS AND WITH THOSE OF REGULATORS

*WE RETHINK INTERNAL TALKING AND TRAVELLING

*WE REWARD SUCCESS WE ADDRESS FAILURES IN PERFORMANCE AND WE DO NOT TOLERATE MISBEHAVIOUR

3

TEAMWORK

*WE HAVE THE SAME GOOD PEOPLE

ENTERPRISE FIRST IS BETTER THAN SELF FIRST

*WE HELP OTHERS ON THE TEAM BUT WE ALSO CHALLENGE THEM WITH NO BULLYING

*WE CAN HANDLE BAD NEWS BUT WE GIVE IT EARLY

*NO OPTIONALITY THAT BEHAVIOURS IN UPSTREAM ARE DIFFERENT FROM DOWNSTREAM…   WE LIVE APART TOGETHER

YOU HAVE HEARD ME USING THE WORDS PROFESSIONALISM AND DISCIPLINE

LET ME EXPAND ON DISCIPLINE

IF WE HAVE MORE DISCIPLINE WE NEED LESS HIERARCHY LESS BUREAUCRACY

WE WILL LOWER COSTS AND WE WILL HAVE A BETTER COMPANY CLIMATE

IS THAT NOT WHAT WE ALL WANT

WHAT ARE MY KEY PARAMETERS TO MONITOR OUR WAY FORWARD…

I WOULD USE

1

FIRST QUARTILE COMPARISONS WITH THE COMPETITION ABOUT OPERATIONAL EXCELLENCE

PROJECT DELIVERY

UNIT COSTS

RETURN ON CAPITAL

CASH AND REPUTATION

2

TOTAL SHAREHOLDER RETURN – TRS

3

THE PEOPLE SURVEY AND THE ATMOSPHERE DURING MEETINGS LIKE TODAYS

ABOUT HONESTY

INTEGRITY

RESPECT FOR PEOPLE

FINALLY WHAT IS THE REWARD WHEN WE ACHIEVE THIS STEP CHANGE IN OUR COMPANY BEHAVIOURS

THE PRIZE IS THAT WE BECOME A WORLD WIDE PROFESSIONAL NETWORK WITH DISCIPLINE THAT PERFORMS IN A FIRST QUARTILE WAY IN ALL ASPECTS

THIS MEANS WE ARE ALL FIRST QUARTILE AND IT FEELS GREAT TO BE PART OF IT

SO THE CHANGE IS FROM WHERE WE ARE NOW TO BEING FIRST QUARTILE WITH THE RIGHT BEHAVIOURS

THAT WILL BE THE BASIS ON WHICH WE TOGETHER CAN REBUILD SHELLS REPUTATION AND PERFORMANCE

AND THIS MEETING IS A KEY STEP IN DOING JUST THAT

I BELIEVE IT WILL TAKE TIME BUT TOGETHER WE CAN DO IT 

SPEECH ENDS:

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