Shell director was told of reserve woes: ‘a Shakespearian drama’

Financial Times: Shell director was told of reserve woes: ‘a Shakespearian drama’

By Ian Bickerton in Amsterdam

Published: July 5 2004 17:59 | Last Updated: July 5 2004 17:59

Posted 6 July 04

The controversy over internal communications at Royal Dutch/Shell intensified after its most senior non-executive admitted it was “not easy” to corroborate information he received from the group’s directors.

The frank admission by Aad Jacobs fuels speculation about the prior knowledge of directors and officers before a crisis erupted about the state of the Anglo-Dutch company’s oil reserves. Mr Jacobs, chairman of the supervisory board of the group’s dominant Dutch arm last week told shareholders that Walter van der Vijver, then head of the exploration and production division, had mentioned “a problem with reserves” at a lunch last November.

This was two months before the public admission that reserves had been overstated, a move that led to three downgrades in the proved reserves and the exit of some of its most senior executives.

Mr Jacobs told shareholders that Mr van der Vijver provided no details about the problems. He had been advised to discuss the matter with his boss, Sir Philip Watts, then chairman of Royal Dutch/Shell’s management committee. Both executives resigned in March.

Mr Jacobs told the current issue of Shell Venster, the company’s Dutch staff magazine: “I often hear it said that [supervisory board] directors should actively seek information within a company. But that is not easy. If something is told to me by the directors, it can still be hard to go to middle management and ask ‘is what I have been told really true?’.”

He said the supervisory board had other sources of information, but did not say whether it had used them. “The workers’ council is obviously a good source of additional information. We also, for that matter, sometimes ask country managers and production managers to come and tell us their story.”

Mr Jacobs reiterated that non-executives had no prior knowledge of the reserves problem, and restated the company’s view that its dual-board structure was not a factor in a crisis that he blamed on an “exceptional incident”.

Investors have demanded an overhaul of the company’s century-old dual board structure, which they say is outmoded and cumbersome.

Royal Dutch/Shell is considering those calls and has promised to make public in November the outcome of an internal structural review.

Although Mr Jacobs did not refer to the former executives by name, he described the conflict between Mr van der Vijver and Sir Philip as a “Shakespearian drama”.

Mr Jacobs also addressed the wider issue of executive pay in the Netherlands and said moves to make pay packages public had been “absolutely disastrous” by allowing executives to benchmark themselves against colleagues, thereby giving rise to dissatisfaction.

He also argued salary incentives had been a cause of corporate scandals, and that options packages had encouraged a focus on short-term share value.

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