From 29 January 2004: Evening Standard: Shell’s hard case

By Chris Blackhurst
29 January 2004 

SIR PHILIP Watts went down a storm last Friday. There, I’ve written it – so you’d better believe it. And if that sentence reads like the no-nonsense, minimal-smalltalk, tell-you-straight – so much so you can feel like you’re dealing with a battering ram – Watts, then … tough. 

But he did get a good reception, did the chairman of Shell. He put on quite a show, apparently, speaking to and taking questions from 900 of his most senior employees worldwide. After telling them they were all ‘ambassadors for Shell”, he went on to explain the group’s recent shock decision to cut proven oil and gas reserves by 20% or 3.9bn barrels – a move that wiped £3bn off the company’s value. ‘Ask any question you like,” he said. So they did. They asked whether he was going to resign. No, he said, he had no intention to do so. 

As motivational in-house gatherings go, this sounds like desperate fare, akin to The Office’s David Brent, on a bigger scale. But this was Shell and this was Watts, the famously uncommunicative boss who, when he made the cuts announcement to the City, refused to explain himself on a conference call to investment analysts. Still, it’s a start, as is the appointment by Watts of Finsbury, the high-flying financial public relations firm. The moves come a bit late to alter the impression of a man rushing headlong to ignominy – but they’re a sign of a change in approach, nonetheless.  

There are two sorts of top executive: those who listen and take advice, and even if they think they know best, put on an act of collegiality and inclusivity; and those who don’t give a damn, who seem to say ‘sod you, it’s my company and I’ll do what the hell I like”. Into the former category fall Lord Browne of BP and Sir Terry Leahy of Tesco. In the latter camp come Sir Richard Greenbury, ex of Marks & Spencer, Jean-Pierre Garnier of GlaxoSmithKline, and Watts. As far as the last lot are concerned, it’s as if Dale Carnegie’s seminal work, How to Win Friends and Influence People, was for the little people. 

You would think by now that the penny may have dropped, that Browne and Leahy don’t consistently top the survey of Britain’s most admired bosses for nothing but, no, there’s a type of corporate mogul who seems to plough on regardless, oblivious to image and spin, refusing to bow to the modern need for communication and presentation. The excuse that’s often given, of course, is that they’re hard-working, shirt-sleeves-rolled-up ‘company men” – loyalists who, by dint of being ‘good operators”, have risen to the top table. While other would-be chiefs were jumping round from pillar to post, seizing opportunities here, abandoning the cause for a better deal there, and all the time building up external reputations, they were quietly working away, not seeking plaudits, happy just to serve. 

Rubbish. Browne hasn’t worked anywhere but BP, Leahy has only ever known Tesco. Sir Mark Moody-Stuart, Watts’s charismatic, urbane and popular-with-the-City (yes, everything, hitherto, that Watts hasn’t been) predecessor, was also with Shell, man and boy. So no change there, then. 

More, it’s as if there are some managers who are superb at the nuts-and-bolts stuff and who can play office politics brilliantly, so much so that they can get to the very pinnacle of huge organisations, only to flounder on the wider stage. Watts would appear to be one of them. No sooner did he take over from Moody-Stuart and the City gave the largely unknown new man the benefit of the doubt (one analyst complimented him as ‘grittier and more hands-on” than Moody-Stuart) than gaffes flowed.

First, Watts spoke, in August 2001, of ‘uncertainties” in Shell’s oil and production, then took weeks to clarify what he meant. Meanwhile, the City marked down the company by £4bn. What made this calamity more baffling is that, until accession, Watts had headed exploration and production so, you would suppose, he would have been in an ideal position to know what the uncertainties were and whether set targets were achievable.

That was followed, a few months later, with a reduction in the group’s target for return on investments, which again wasn’t accompanied by a full explanation. He was then asked by analysts if Shell might pull out of gas and power in the US. His rare attempt at a joke failed to impress: ‘I have no intention of leaving my wife, or gas and power.” He became embroiled in a fat-cat row. His pay went up 83%, more than that of his oil industry rivals. 

Finally, in August last year, some shareholders openly threatened revolt, complaining that his poor communication skills were doing the business harm. What was Watts’s response? To declare himself ‘perplexed, frankly” at their attitude and to promise ‘we’re going to redouble our efforts to get the message to people, and shareholders who have the highest priority because they own the company”. Weak words, subsequently made all the weaker by his refusal to discuss the reserves announcement earlier this month with analysts.

This week, Shell has been hit by a US class action from investors demanding damages for the reserves downgrade. Next week sees Shell results. Watts, unless last Friday’s meeting and the hiring of Finsbury really does mark a change of style, could be heading for the door. 

In some ways, such a result would be a pity. British industry needs people like Watts. Born into a poor Leicester family (he remains attached to the city and once rebuked Patricia Hewitt, one of its MPs, for making a negative comment about the condition of the council estate where he grew up), he was an 11-plus boy who went to grammar school and university where he read physics followed by geophysics. With his wife Jan, he went to Sierra Leone for two years to teach science. The rest of his career has been with Shell.

HE HAS worked in oilfields in the Far East, Scandinavia and Africa; he ran Nigeria for the company; he led the team that developed the huge Troll field off Norway; he proved himself adept at dealing with the UK arm’s partners from Royal Dutch in Holland. On taking over, finally, he instituted reforms, making the group’s five managing-directors more accountable for their divisions, pushing Shell down the sustainable, eco-friendly route and adding major acquisitions in Pennzoil Quaker State and Enterprise Oil. 

Due to retire in 18 months, he faces an uphill battle to convince investors they should let him see out the remainder of his term. When he goes, Shell will almost certainly change – the days of a company of that size not having a non-executive chairman must surely be over. Watts and Shell are finding out the hard way that these days style also matters. It’s a sad fact of modern business life but substance on its own is no longer enough. 

Life and Times of Sir Philip Watts

BORN: 1945. 

EDUCATED: Wyggeston Grammar School, Leicester; Leeds University. 

FIRST JOB: Science teacher, Sierra Leone. 

KEY CAREER MOVES: Joining Shell; exploration director, UK; managing director, Nigeria; director, planning, environment and external affairs. 

HOBBIES: Tending Japanese garden of his Berkshire home; travel; reading, mostly political biographies.

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