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Shell faces shareholder wrath

Date: 29-Jun-04
Country: UK
Author: Anna Mudeva and Sudip Kar-Gupta

The oil giant's twin annual general meetings (AGMs) in The Hague and London yesterday were two months late because of the turmoil caused by news in January that it had overstated its oil and gas reserves by 20 percent.

The overbookings, and subsequent evidence that the problem was kept secret for months, has cost three top executives their jobs and stained the company's reputation.

Shareholders believe Shell's complex structure is partly to blame, and are using the AGMs to campaign for a more modern and accountable company. One group in The Hague plans to rebel over a normally routine resolution which protects management against prosecution for their actions in that year.

"We want to get clear answers on what the management is doing to improve corporate governance," said one Dutch institutional investor arriving for the Royal Dutch AGM in the Hague.

Directors of the 170-year-old Anglo-Dutch firm were braced for a humbling day.

"These recent months have felt simply dreadful," the group's top executive Jeroen van der Veer told the meeting. "I agree that such a crisis should never have happened. But it has, and I sincerely regret this."

SHAREHOLDER REBELLION

One of the proposals for the Royal Dutch AGM asks shareholders to agree "that the managing directors be discharged of responsibility in respect of their management for the year 2003."

Some U.S. shareholder activists are threatening to vote down the resolution. Others may abstain. They want to embarrass the directors, but they also fear that if the vote is carried, class action suits brought over the reserves issue against former and current executives on behalf of investors may be weakened.

Longer term, investors want clearer reporting lines and a simpler structure at the world's third-largest oil firm. Shell has already made some changes, and earlier this month it said it would look further at its options.

A full merger of the Royal Dutch Petroleum Co with London-based Shell Transport and Trading is among the scenarios being considered, though no decision will be taken on such changes until November.

At present Royal Dutch holds 60 percent of the operating company while Shell Transport holds 40. Executives from each are not easily accountable to the boards of the other.

Institutional shareholders have been exerting strong public and private pressure on Shell to get some changes in place quickly, and they remain unhappy with the pace of change.

"We regret that you are not going to present today a view on the changes to the corporate structure," a representative of the Dutch pension fund ABP told the directors. "You are asking for more patience than the market has."

Private investors were horrified at the one million pound pay-off agreed last week with former Chairman Phil Watts, who was sacked in March for his part in the scandal, and the human rights environmental activists that regularly steal headlines at oil company AGMs piled on the pressure.

"Not only has Shell been overstating its oil reserves, it has exaggerated its social and environmental performance too," said Friends of the Earth executive director Tony Juniper.

Shell faces lawsuits this year over its social and environmental conduct in Nigeria and elsewhere.

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Reuters
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