Posted Sunday, April 25, 2004; 10.30BST
The board at shell knew it needed to do something, and fast. A shock revelation in January that the world's third-largest oil company had overstated its proven petroleum reserves by 20% was pummeling its stock price and angering its shareholders. Regulators on two continents were opening far-reaching inquiries. So in early March the board took action, ousting Philip Watts, who had been managing director of the Anglo-Dutch company for almost seven years and chairman since 2001, and replacing him with Jeroen van der Veer, president of Shell's Dutch sister company, Royal Dutch Petroleum.
A quick cure for all those headaches? Hardly. Just six days after Van der Veer took the helm, internal memos leaked to the press suggested that other top Shell executives still in office including Van der Veer himself may have known about the reserves problem as long as two years ago. Van der Veer vigorously denied the charges, but failed to calm the jangled nerves of Shell's institutional investors. And so the company was forced to ask itself an unpleasant question: How many times can you fire your CEO in a year?
Last week, after an inquiry by an outside law firm, the Shell board gave what it hopes is the definitive answer: just once. It said the probe had uncovered "disturbing deficiencies" in company practices, and announced the replacement of chief financial officer Judith Boynton. And for the third time this year, the company revised the size of its oil reserves downward. But Van der Veer was spared. "We have complete and unreserved confidence in [his] leadership," the board said. Shell stock recovered slightly in a sign that market traders believe the worst may be over, but the internal inquiry handed further ammunition to a swarm of U.S. lawyers who have filed class-action suits against the company. And Shell is still under pressure from some of its biggest shareholders, who want Van der Veer to do much more to address shortcomings in the firm's management. Peter Montagnon, the head of investment affairs at the Association of British Insurers, which includes some of Britain's biggest institutional investors, says Shell needs to put in place "a governance arrangement that provides for proper accountability and no longer tolerates chronic underperformance." Shell said the company is accelerating its review of management practices, but made it clear that it considers the reserves issue to be settled. In a statement, Van der Veer said the report "draws a line under the uncertainties that have surrounded" Shell's accounting for reserves.
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