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Shell fighter begins the big clean-up

Financial Times: Shell fighter begins the big clean-up

“it could itself become a bid target”; “if you get it hopelessly wrong, then people start sniffing around.”: “In answer to a question about whether they are sniffing now, he said: “You will have to ask the sniffers.”

By Deborah Hargreaves

Jul 30, 2004

Jeroen van der Veer, chairman of the committee of managing directors at Royal Dutch/Shell, has just completed the most bruising episode of his 33-year career at the Anglo-Dutch oil company.

He was appointed to the top post in March to clear up the mess left after the company downgraded its proved reserves by 20 per cent – a debacle that led to the departure of three executives, including Sir Philip Watts, his predecessor.

Mr van der Veer is now fighting on all fronts to put the reserves issue behind him and draft a future for Shell in which it clarifies its complex governance structures, opens itself up to the outside world and focuses on building the business. But he still has a long way to go to convince shareholders that the company has taken the issues seriously enough.

“It is by far the most difficult part of my career, there is huge pressure all the time and you are living absolutely in a glasshouse with magnifying glasses on top wherever you go,” he said.

“Where you feel tension is that I try to give nearly all my time and thinking about how to drive the company forward and check we are not on the wrong track,” he said. “But in the outside world, they are still busy with the past and intellectually, I understand that . . . but there is a kind of tension and I try not to show irritation.”

Mr van der Veer is still saddled with the legacy of the reserves debacle and the way it was handled. The problems were blamed by many investors on the company’s complex governance structure. He now heads the steering group looking at governance changes for the group, which will report in November.

Mr van der Veer, who also sits as a non-executive on the board of Unilever, the home products group, which has decided to unify its board structure, said most shareholders agree that the Shell boards must be unified. It is a question of how it is done and made to work.

But the review committee is still examining more drastic options. Some shareholders have been pressing for changes to the corporate structure of the parent companies. “You have to look immediately at how it works from a legal and tax point of view, which has to be studied,” Mr van der Veer said.

“It is logical that whatever we propose has to be fair to shareholders of Shell Transport and Trading [the UK-listed company] and Royal Dutch [the Dutch entity],” he said. He also pointed out that different countries view best-practice in different ways and what is seen as good governance in one jurisdiction might not work elsewhere.

One of Mr van der Veer’s greatest challenges, however, is to improve Shell’s ability to find oil and increase its production.

But he does not rule out acquisitions.

“The bread and butter of the company is organic growth – if you spend $10bn (£5.5bn) a year in upstream development over five years, then that’s $50bn and that’s a sizeable acquisition in itself. If you can buy a target where you can apply your technology or other skills and where you don’t overpay – of course, you should be prepared to do acquisitions.”

Shell is tender to the charge of profligacy: it is still reeling from accusations it paid too much for Enterprise Oil in 2002.

Mr van der Veer said Shell is monitoring all opportunities in the market.

But the oil company’s famous long-term scenario planning has not ruled out that it could itself become a bid target. “If you can address all the issues successfully and build a very strong company, and maybe it is possible from time to time to do acquisitions, but if you get it hopelessly wrong, then people start sniffing around.”

In answer to a question about whether they are sniffing now, he said: “You will have to ask the sniffers.”

Mr van der Veer comes from an engineering background. But he said his career pattern should not be a model for the company now. He moved from maintenance in refining to front-line marketing. “It was great from a personal development point of view but in itself a strange move.”

He wanted to see Shell employees increase their job tenure, taking on more responsibility but essentially staying in the same role longer. At the same time, the rewards and bonus scheme are being made consistent across the group to encourage teamwork.

Mr van der Veer is big on teamwork. “I am not an ‘I’ guy . . .I am only one contributor to culture change.”

But he is going to have to ensure that the whole company goes with him if he is to rebuild the reputation of the world’s third-largest oil company.

© Copyright The Financial Times Ltd

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