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Reuters: Shell to unify boards

Reuters: Shell to unify boards

Tue 3 August, 2004

By Andrew Callus

LONDON (Reuters) – Royal Dutch/Shell is to unify the boards of its Dutch and British holding companies as a “minimum” concession to shareholders who want change, according to a senior industry source.

“Both boards accept now that the status quo is not an option,” the source told Reuters this week, six weeks into an internal review of the issue. “They know that the absolute minimum they are going to get away with is a unified board.”

The source said even more radical change than this, including a full merger or takeover of one holding company by the other, was also still under consideration.

The source would not say how board unification might be achieved if the firm stopped short of a full merger. However shareholders who have held talks with the boards on the issue say it could be achieved quite simply. They favour making executive and non-executive directors of each firm a director of the other as well.

A Shell spokesman said an internal review of company structure and governance was continuing. “Amongst other alternatives, forms of a unified board to which a CEO (Chief Executive Officer) would report are being studied,” he said. “Nothing is ruled out at this stage.”

Change has been forced on Shell by investors angered by the revelation of over-optimistic reserves bookings in January this year. The company disclosed a 20 percent downgrade to its proved oil and gas reserves, a key measure of value in the oil industry.

As the debacle unfolded in the following months and top executives were sacked, independent investigators appointed by the world’s third-largest energy group itself said executives hid the scale of the share-price-sensitive problem for months.

This led shareholders, some of whom have long criticised Shell’s structure, to blame a system where top executives drawn from one holding company are not accountable to the board of the other for the failure to communicate the problem earlier.

Operating company Royal Dutch/Shell is owned 60 percent by Royal Dutch, and 40 percent by Shell. At present, executives of the operating group are drawn from the boards of each.

Some say the structure has also prevented Shell SHEL.L from making bold strategic decisions, such as the giant takeover deals executed by its top rivals BP BP.L and Exxon Mobil XOM.N in recent years.


The group has already made changes this year to a structure that dates back to 1907. News of this latest move comes as Shell’s top executive, Chairman of the Committee of Managing Directors Jeroen van der Veer, prepares to ring the opening bell at the New York Stock Exchange on Tuesday to celebrate the 50th anniversary of its U.S. listing.

The UK arm Shell Transport & Trading has made the role of chairman a non-executive post for the first time, to improve investor accountability. Meanwhile Royal Dutch Petroleum has abolished a set of “priority shares” which gave its directors unusual powers over new board appointments.

Beyond this, Shell has agreed to consider all its options, and a steering group of executive and non-executive directors, including van der Veer himself, has been looking at the matter since June. It is due to report its conclusions in November. A strategy update is due on September 22.

On July 13, the group appointed restructuring experts NM Rothschild as bank advisers for the review, along with heavyweight U.S. financer Citigroup C.N , increasing speculation that radical plans are taking shape.


Shell and Royal Dutch shares have largely recovered from the initial shock of the reserves downgrade, but are still down one and four percent respectively in the year to date despite bumper profits from record crude oil prices. Those of its rivals, U.S.-based Exxon Mobil and British giant BP, have climbed 13 percent each over the same period.

Analysts at Deutsche Bank estimated last week that the world number three’s energy group’s shares were still trading at a 25 percent discount to world number one Exxon Mobil, and at a 15 percent discount to number two BP, based on 2004 estimated debt adjusted cash flow.

“Shell remains a stock for true 12 month investors,” said Deutsche analyst JJ Traynor. “The corporate governance review looks key.”

Shell shares were ahead by 2.1 percent at 407-1.4 pence on Tuesday at 1:11 p.m. on Tuesday. Royal Dutch shares were up 1.6 percent at 42.05 euros.

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