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Head-butts have a place in struggle for reform

Financial Times: Head-butts have a place in struggle for reform

By Martin Dickson

Jun 25, 2004

How do you make a reluctant schoolboy stop dragging his feet? In the old days, a slap round the head was deemed an effective stimulus. Political correctness now demands more subtle forms of encouragement.

Institutional investors seem to be combining old and new in their attempts to get Royal Dutch/Shell to embrace genuine corporate governance reforms. The large UK institutions prefer to talk quietly behind the scenes. Calpers and Knight Vinke Asset Management, two powerful US funds, are not averse to more full-frontal aggression.

In a letter published in the FT last week they demanded more information on the company’s internal governance review shortly before it finally revealed the names of steering group committee members and Royal Dutch committed itself to scrapping controversial priority shares.

But the Americans are not letting matters rest there. In another letter to the leaders of Royal Dutch they now ask for much more detail on the reform measures under consideration, expansion of the steering group committee to alleviate concerns about its impartiality and an acceleration of parts of the review timetable. The general thrust of their suggestions makes a lot of sense, even if one may not agree with some of the detail.

At present, the steering group evidently intends to stay up on its mountain, thinking private governance thoughts, until November when it will emerge with some preliminary tablets of stone for investors to consider. This does not look terribly healthy, given the group’s history of arrogance and lamentable communications. Investors could get a nasty surprise in November and the company’s standing could suffer again.

These dangers could be minimised if the steering group was more open with investors about what it was considering and engaged in a more genuine dialogue. It is, for example, a sign of Royal Dutch/Shell’s continuing absurd attitude to secrecy that the members of the steering group should have been revealed only a week ago – four months after it began sitting.

Nor, as Knight Vinke and Calpers point out, does the committee have a composition best suited to allaying concerns about its impartiality. It would make sense, as they suggest, to add the group’s non-executive chairmen. However, the Americans also call for shareholder representation on the committee and that looks an excessive and unreasonable expectation, particularly when the group has already been sitting for months.

The Americans are promising “active participation” at next Monday’s annual meetings. Good. UK and European institutions should be just as vocal given the doubts many harbour about the group’s commitment to real reform.

© Copyright The Financial Times Ltd

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