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Embattled Shell braces for shareholder showdown Embattled Shell braces for shareholder showdown

“officers and directors of these interconnected companies have hidden behind an opaque and complicated corporate structure to falsify proved oil and gas reserves for nearly 10 years”

27 June 04

LONDON : The management of Royal Dutch/Shell is bracing for a showdown with angry shareholders this week over the oil giant’s energy reserves scandal.

The Anglo-Dutch group is facing calls for changes to its governance and ownership structure, under which London-based Shell owns 40 percent of the group and Netherlands-domiciled Royal Dutch Petroleum Company holds 60 percent.

The two companies are to hold what promise to be stormy dual annual shareholder meetings in London and The Hague on Monday.

Two heavyweight investors ratcheted up the pressure on Shell ahead of the gatherings, calling for two representatives proposed by investors to be included on a committee reviewing the group’s governance and structure.

“We will be attending the meetings and intend to participate actively and constructively,” California pension fund Calpers and US asset manager Knight Vinke wrote in a letter to the oil giant, according to excerpts printed in the Financial Times.

Shell faced further embarrassment on Friday when lawyers representing Shell shareholders filed a new lawsuit in the United States which names 27 directors and officers of Royal Dutch/Shell, and also their accounting and audit firms, PricewaterhouseCoopers International and KPMG International.

The suit was filed by Lerach Coughlin Stoia and Robbins LLP, the firm leading the civil prosecution of Enron executives, on behalf of US pension funds that have major holdings in Shell.

It accuses each of the defendant executives of breach of duties to shareholders, abuse of control, mismanagement, fraud and unjust enrichment.

It alleges also that the accounting firms, which had unlimited access to information in all of the companies, were guilty of professional negligence and accounting malpractice.

“This is a case in which the officers and directors of these interconnected companies have hidden behind an opaque and complicated corporate structure to falsify proved oil and gas reserves for nearly 10 years in order to make the company seem more competitive and more profitable than was the actual case,” said William S. Lerach, counsel for the shareholders.

Shell is trying to restore investor confidence in the wake of its admission that it has been overstating its energy reserves for several years.

The Anglo-Dutch group has cut its proven reserves by a total of 4.47 billion barrels, or more than 20 percent, since January.

Several key executives have been ousted from the group amid an ensuing investor backlash, including chairman Philip Watts.

Shell published internal memos and emails in April showing that senior executives were aware that the group was overstating the size of its recoverable energy reserves long before they told investors in January.

Institutional Shareholder Services, a US-based group which advises shareholders on corporate governance issues, is urging investors to vote at the Royal Dutch shareholder meeting in The Hague against two motions to “discharge” management and the supervisory board from their responsibility of the previous year.

“Each year shareholders are proposed a resolution essentially to review the performance of the board from the previous year and to sign off the board’s actions, and we’ve advised shareholders to withhold for this year because of the board’s actions surrounding the reserves,” said the ISS’s director of research, Stanley Dubiel.

“In addition there is some legal action taking place against the company and the board and we think it’s prudent for shareholders to hold the board accountable until the fog really clears around the lawsuits,” he told AFP by telephone from Rockville, Maryland.


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