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Daily Mail: Shocking rebuke stings Shell

Daily Mail: Shocking rebuke stings Shell

“Officials are said to have found Shell’s behaviour particularly appalling given the fact that the Anglo-Dutch giant had appeared a pillar of respectability.”

Ruth Sunderland,

25 August 2004

THE dressing- down administered to Shell by City regulator the Financial Services Authority is one of the most ferocious and shaming ever suffered by a major British company.

The FSA confirmed it is imposing a £17m fine on Shell, which admitted in January that it had overstated its oil and gas reserves by a fifth.

That is a mere drop in the oil well for Shell. But the truly damning part of yesterday’s announcement was not the financial penalty but the language used to describe Shell’s ‘unprecedented misconduct’.

Both the UK regulator and its US counterpart, the Securities and Exchange Commission, which also confirmed a huge fine, are intent on making an example of the group.

Their findings will make extremely uncomfortable reading for ousted chairman Sir Philip Watts, whose conduct is likely to come under scrutiny in continuing probes by the SEC and the FSA – and may also face class action lawsuits.

Officials are said to have found Shell’s behaviour particularly appalling given the fact that the Anglo-Dutch giant had appeared a pillar of respectability.

Its abuse of the market was shocking in its scale and the length of time it was allowed run unchecked.

The company continued to make false or misleading statements about reserves over a period of five years to 2003, despite warnings as early as 2000 that its figures may have been overstated. This clearly points to a culture of exaggeration and concealment that had grown in the company.

The FSA paints a critical picture of Shell’s internal controls, with the company failing on basic points such as ensuring that its staff were up to speed with the regulators’ reporting requirements on reserves.

Incredibly, considering its importance in the market’s valuation of the company, it appointed a part-time petroleum engineer to the crucial task of auditing group reserves.

This hapless individual was expected to check operations across the globe with only limited resources and no staff.

Not only that, but because he reported to the managers of Shell’s exploration and production division, he was in effect being asked to audit his own bosses.

To his credit, the reserves auditor did raise some concerns, but given his status and resources, it is hardly surprising that he lacked the clout to enforce the rules.

Fortunately for investors, Shell is no Enron. Thanks partly to the high oil price, the business is still making billions and is overhauling its governance.

The regulators for once have not pulled their punches. The formerly arrogant Shell must now eat humble pie and bring in speedy reforms.

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