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When Shell freezes over

The Observer: When Shell freezes over

“The Anglo-Dutch group will tighten up its sloppy board structure, which arguably contributed to the reserves scandal. Power will be concentrated in one board, rather than three, and the group will have a single chief executive. But big deal. That’s what most sensible companies do already.”

Richard Wachman

Sunday September 19, 2004

If anyone thinks that Royal Dutch Shell is going to make an earth-shattering announcement at its long-awaited City strategy briefing this week, they will probably be disappointed. The wheels turn exceptionally slowly at Shell.

Take the long-running review of corporate governance that has been going on since Easter, unveiled in the wake of revelations that Shell had improperly booked 20 per cent of its oil and natural gas reserves.

In the months that followed, three senior executives walked the plank and Shell has paid $151 million in fines to regulators on both sides of the Atlantic. It still faces a probe by the US Department of Justice. But results of the internal review into how corporate governance could be improved will not be known until November. And it will probably end up telling us what we always suspected.

The Anglo-Dutch group will tighten up its sloppy board structure, which arguably contributed to the reserves scandal. Power will be concentrated in one board, rather than three, and the group will have a single chief executive. But big deal. That’s what most sensible companies do already.

And why has it taken so long for Shell to reach this conclusion? Surely it could have told us the obvious a long time ago. How many committee meetings does it take?

It is possible, of course, that the group is planning something more radical: merging the Dutch and British companies to create a single entity. At the moment, the group spans two firms, one in the UK (Shell Transport) and one listed in Amsterdam (Royal Dutch). But insiders have hinted that there would be enormous tax implications, so don’t count on it. And there may be another issue.

In the current set-up, the Dutch-based half of the group has 60 per cent of the voting rights, and I can’t see the directors from the Netherlands giving up their privileges and agreeing to squish the two companies together to reflect the fact that only 10 per cent of shareholders are from Holland.

That would mean a single domicile for the company, with its base in London and a secondary listing in New York – just the sort of streamlining that is needed.

But turkeys don’t vote for Christmas, so we cannot expect Royal Dutch to sit idly by and watch the pride of corporate Holland move offshore, at least not without a fight.

Operationally, Royal Dutch Shell remains boxed in: it must find more oil as production is tailing off, thanks to underinvestment by previous management.

No doubt Shell is a recovery play for those prepared to wait for long overdue reforms, but it’s a painfully slow process: we may die of boredom before things take a turn for the better.

http://observer.guardian.co.uk/business/story/0,,1307698,00.html

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