Shell Weighs Modifying Dual Setup

The New York Times: Shell Weighs Modifying Dual Setup

By HEATHER TIMMONS

Published: June 18, 2004

Posted 19 June 2004

LONDON, June 17 – The Royal Dutch/Shell Group said on Thursday that it would consider changing its century-old two-company structure to create a unified board.

In the past, the British-Dutch company has been cool to calls for a simplified structure. But Shell is now striking a more conciliatory tone as it grapples with the fallout from a scandal surrounding its overstatement of proven oil and natural gas reserves. In March, the chairman, Sir Philip Watts, was ousted and succeeded by Jeroen van der Veer. The chief financial officer was removed in April; the company is considering a permanent replacement who has a history of shaking up companies, investors say.

Shell said a review would be led by Mr. van der Veer and four members of the two component companies’ boards. The review results will be made public in November. Any changes would take effect after Shell consults with shareholders and holds the annual shareholder meeting in 2005.

“This is the first tangible evidence to outsiders that deficiencies in Shell’s governance and board structures are finally being addressed,” Eric Knight, managing director of Knight Vinke Asset Management, wrote in an e-mail statement.

The transformation could be as radical as a full merger of the two companies that make up Shell, the sale of one company to the other, or the creation of a single currency from their two publicly traded stocks, shareholders who have talked to Shell executives said Thursday.

In addition to the review, the board of the Dutch component company, Royal Dutch, will propose abolishing the company’s priority shares. In the past, only priority shareholders could easily nominate directors to the board.

Shell is trying to reassure investors and regulators after cutting its proven reserves by a fifth in January.

Investors have been increasingly critical of the group’s structure, which consists of Royal Dutch Petroleum, based in the Hague, and Shell Transport and Trading, based in London. The structure has not changed since the group was created 1907.

Executives from each company report to separate boards, and critics say this lack of unity may have contributed to Shell’s reserve problem.

“A number of possible structures, and improvement to decision-making, accountability and enhancement of effective leadership, are under active consideration,” Shell said in a statement on Thursday.

Shares of Shell Transport rose 0.9 percent in London trading, to 410 pence, the highest since Jan. 6. In Amsterdam, Royal Dutch shares rose 0.9 percent, to 43.10 euros.

Shell is also seriously considering at least three outsiders for the chief financial officer job, say investors who have spoken to executives in recent weeks. A decision about the position, which has been filled temporarily since Judy Boynton stepped down in April, is “imminent” said Richard Singleton, director of corporate governance at Isis Asset Management in London.

One of the three candidates is Philip Hampton, a former Lloyds TSB chief financial officer, say some investors and analysts in London and the United States who spoke on the condition they not be named. Mr. Hampton left the London bank in January, because Lloyds’s focus had changed from mergers to organic growth, the bank said then. He has a reputation as an astute dealmaker.

A Shell spokesman said the company could not comment on the timing of, or candidates for, the finance officer job.

Mr. Hampton’s deal-making skills could come in handy if Shell combines the two companies. Options reviewed include selling Shell Transport, which owns 40 percent of the group, to Royal Dutch, or vice-versa, or selling the two companies to a new holding company, in exchange for shares that would be distributed to shareholders, Mr. Singleton said.

Shell has not yet retained an investment bank to help make a deal, a company spokesman said on Thursday, but it has retained the law firms of Slaughter & May and De Brauw, Blackstone, Westbroek to advise it. Any transaction that would combine Shell Transport, with approximately $70 billion market capital, and Royal Dutch Petroleum, with $104 billion market capital, would be a windfall to the bank that executes it.

Shareholders said they hopes to be a factor when Shell considered how it might change the structure.

“It’s good that Shell has indicated it is considering a wide range of possibilities,” Peter Montagnon, the Association of British Insurers head of investment affairs, , said in a statement. “We need to see this open-minded spirit now translated into a rigorous and thorough review.”

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