THE CHANGING FACE OF SHELL
The same week that I went to the (delayed) “Shell Transport and Trading” Annual General Meeting I also went to see the new Harry Potter film. The movie presents a parallel world of wizardry and spells that operates alongside the “real” world in which most of us live our daily lives. Harry Potter’s world overlaps with the real world from time to time - and many of the elements of his world are very similar to real world elements – but it would be dangerous to draw any comfort from that. No sooner do you think that you are back in familiar surroundings than magic intervenes and your journey returns to one in which the dimensions of space and time work quite differently and where the application of normal logic (cause and effect) has to be suspended. And so it is with Shell.
When you worked for Shell as long as I did (37 years) you learnt to accept its strangeness – just as Harry Potter had to adjust to Hogwarts. This adjustment took place quite gradually and I cannot recall one moment when I thought that I was being indoctrinated or force fed an ideology. Indeed Shell is essentially unideological – which is why when it tried to create a set of quasi-ideological principles in the 1990s (in response to external criticism) it struggled. This book is (inter alia) about that struggle and about the inevitable conflict and confusion that can occur when a predominantly “Left Brain Function” organisation has to come to terms with the resolution of mainly “Right Brain Function” issues and challenges.
The book describes some of the paradoxes that existed within Shell and how extremely clever (but “left Brain” dominant) people approached the task of managing the decision-making process in a rapidly changing world. Society’s expectations of what is required of businesses generally (and multinationals in particular) underwent a major change in the last two decades of the twentieth century and Shell was not, of course, alone amongst big businesses in neither fully anticipating these changes nor in developing a strategy to cope with them. However there is a certain irony in the fact that Shell was rather myopic when changes were happening all around (and were plainly visible to those who tried to see them). The irony is that Shell was a pioneer of the Scenario Planning methodology that is designed to help decision makers wrestle with future uncertainty. Pierre Wack’s description of the benefits of “creative foresight” were extensively discussed within Shell at the many “Scenario Planning workshops” in the 1980s and early 1990s, But, as we shall see, an organisation which prefers the certainty of physical phenomenon to the uncertainties which are inevitable when human beings interact, never successfully used scenario planning to develop any unique strategies. It is arguable that Shell was marginally ahead of its major multinational energy company competitors in picking up the growth of environmentalism and the growing power of NGOs (Non Governmental Organisations) but it is hard to find an example of how this affected any major strategic decisions or actions.
So the story of Shell in the 1990s is one of how an organisation dominated by technocrats (for whom the processing of a series of inputs in a structured way always leads to entirely predictable outputs) tried to come to terms with unpredictability. In this book that story is told mainly with anecdotes and there is no pretence that the chronicle is complete. But the intention is that each of the anecdotes is illustrative either of the corporate culture or of how Shell people responded to a “weak signal” – an event that may in itself be comparatively unimportant but which is later seen as one sign of a change that could be very important indeed. The problem with weak signals is that when busy men are wrestling with what they see as big decisions they may have no time for those who wish to draw their attention to minor phenomena which may (or may not) be important.
In the period under review, Shell’s top management had to wrestle with change - but there was nothing unusual in that. Arguably change is the only constant in the Energy industry and, following the first oil price shock of the early 1970s, no successful oil company executive would deny the uncertainties inherent in their world. But what was new was the nature of some of the changes. Suddenly (or so it seemed) there were new “stakeholders” on the block. The NGOs were active, well funded and consummately able communicators and some of the world’s media relished stories about the insensitivity or amorality of big business. Post Bhopal and the Exxon Valdez it became clear that companies operating in the Energy/Petrochemicals sector were going to have to get their act together if they were to protect their reputations.
Notwithstanding the clear signals that the world was increasingly unwilling to tolerate multinationals operating without due regard for the environment or for local communities, Shell was slow to move. There were two principal reasons for this. First the technological imperative of Shell was so powerful that there was a presumption that Shell decision- making would lead always to the “best” technical/environmental solution. Secondly there was a strong pride that Shell, because it had operated in more than one hundred countries for well over one hundred years, was a culturally understanding and caring organisation. Many Shell careers were built on having operated successfully (and therefore, it was assumed, sensitively) in (say) the Middle East or Nigeria.
It was in 1995 that two events blew Shell’s presumptions of superiority out of the water. The extensive protests against Shell’s plans to dump a redundant Oil Platform “Brent Spar” in the North Atlantic caused much heart-searching and eventually led to the abandonment of the plans and to a more environmentally acceptable disposal on land. And it was in Nigeria that around the same time that the political activist Ken Saro-Wiwa implicated Shell during his “treason” trial by saying “…the ecological war that [Shell] has waged … will be called to question sooner than later and the …crime of the Company's dirty wars against the Ogoni people will also be punished.” When Saro-Wiwa was executed on trumped-up charges some of the world-wide condemnation of the act was aimed at Shell who by association was implicated. It was these two events that gradually brought a realisation to some in Shell that the management of reputation was above all about the management of perceptions. The original technical decision on Brent Spar might have been right, but if the public perception was that it was wrong – then it was wrong. Shell may have had entirely clean hands in respect of Mr. Saro-Wiwa – but if the perception was that the company was in some way implicated in his murder then it was.
It was, therefore, in 1995/6 that Shell suddenly burst into a frenzy of activity designed to restore its damaged reputation. In classic Shell fashion a raft of processes and initiatives was launched which was designed to find out the views of key “stakeholders” about Shell - and then programmes were initiated to take action to promote the Shell brand and to restore the Group‘s reputation. The story of this period is extensively covered in this book and, in particular, the role of the then Group Chairman Cor Herkstroter is discussed. Amongst the anecdotes is a description of how the famed Advertising big shot Maurice (Lord) Saatchi became involved and how eventually some ground breaking communications (although not from him!) were instituted. Running in parallel with these changes in respect of the external face of Shell, internally there was an emphasis throughout the organisation on change. The argot of “Old Shell” and “New Shell” was commonly used to describe what was supposed to be a step change in behaviour. Some of this was a change in process and in particular in decision making (greater centralisation was the main consequence). Some of the change was the drive for greater efficiencies and lower costs. The old Shell structure was torn apart and new highly accountable “businesses” within the Group were created. These cut across the old lines of geographic control and the country and its “operating company” became wholly subordinate to the vertically structured global businesses.
Whilst organisational and attitudinal changes were being actively managed other cultural changes were also underway. One of the most significant of these (in the light of later events) was the move towards a far greater performance related remuneration and rewards system. Short term targets (if achieved) delivered high financial rewards to individuals and the old rather structured and rigid remuneration system of the Group was changed.
Whilst virtually all of Shell’s serious money continued to be invested in traditional businesses (especially upstream oil and gas) Shell also dipped a toe in the water of non traditional energy (Wind, Solar and Forestry) a business for which it coined the descriptor “Renewables”. Much of the advertising focused on this area (demonstrating that Shell cared about the environment and about the future needs in a time when fossil fuels ran out) but in reality it was a very small business indeed. Had it not been convenient to attempt to manage the perception that Shell was into the Renewables business for reputation management reasons it is doubtful whether Shell would have got into these activities at all. The subsequent withdrawal from the Forestry business indicates how difficult it is for Shell people to manage something away from their traditional areas of competence. The failed moves into Nuclear Power, Metals and Coal over the years was further evidence of this reality.
“The Changing Face of Shell” addresses the subject of corporate governance and reputation and brand management by the extensive use of anecdotes from the author’s personal experience. These lead to a conclusion that Shell was struggling much of the time to reconcile the need to manage the key imperatives of its business with the need significantly to improve the Group’s public image. This came to a sudden and shocking climax in early 2004 when it was revealed not only that Shell had been systematically overstating its oil reserves for some time but that senior executives recognised that they had been mendacious. Heads rolled – including that of the Group chairman Sir Phil Watts and the resultant crisis was far, far greater than anything that had occurred in the 1990s. The author describes some of the underlying reasons for this disaster and shows how some actions and processes within the Group made such an episode, shocking though it was, not surprising.
When living in a parallel world such as that inhabited by the fictional Harry Potter and his friends it doesn’t really matter whether that world is subject to the checks and balances that would come from a closer link to reality. But for Shell it was not fiction and its parallel world was entirely of its own creation. Whilst virtually every other multinational had a conventional corporate structure with an accountable Board of Directors at the top Shell was different. Shell has two Boards of directors and in reality neither of them is of great consequence. Top decisions are only ratified by these boards – they are taken by a Committee of Managing Directors (CMD) which has almost untrammelled power. The AGM that the author attended (referred to above) had a phalanx of Directors on the top table – but only two of them were executive directors paid to run the business. And the man who took over from Sir Philip Watts was not even there as, being Dutch, he is on the “other” board of Shell and he was at their AGM which was running at the same time!
Another strange fact about Shell is how little top management time is given to one of its major global businesses – the one for which it is best known to consumers and which is the most visible public face of the Shell brand. Shell is the world’s largest retailer (in any sector) with over 45,000 petrol stations around the world in 120+ countries (McDonalds, by comparison, has around 30,000 branded outlets for its Big Macs). Despite this huge business, it is true that issues relating to these petrol stations and their millions of customers daily are hardly ever discussed by the CMD or the Group’s senior management. Their emphasis is almost wholly on upstream oil and gas (and on financial performance indicators) and none of them has ever been much involved in developing customer propositions or in managing retail outlets. Can you imagine the board of McDonalds being similarly remote from its customers?
So the Shell world is a very strange one indeed. It is an important story because Shell is a major business which directly or indirectly affects the lives of millions of people around the world every day. It is a major player in the Energy industry and it has both the technical expertise and the financial muscle to continue to play a part in the world’s energy supply for decades to come. But it also, as recent events have shown an eccentric and even dysfunctional organisation with an archaic structure and some curiously short-term business imperatives. To avoid further charges of hypocrisy and incompetence Shell needs to change.
For further information please contact Paddy Briggs at Paddy@brandaware.co.uk
 Roger Sperry (1973) observed that the human brain has “Left brain Functions” which include logic, facts, maths and science and which is reality based and practical and “Right brain functions” which are “big picture” oriented and where imagination, images, words, language, fantasy and risk-taking are present.
 Pierre Wack, one of the creators of the Scenario method, and at the time working in Shell, described Scenario Planning as "a discipline for rediscovering the original entrepreneurial power of creative foresight in contexts of accelerated change, greater complexity, and genuine uncertainty."
 On March 24, 1989, the Exxon Valdez grounded and spilled nearly 11 million gallons of oil into the biologically rich waters of Prince William Sound, Alaska.