Big Oil lets sun set on renewables

Comments on article in "The Guardian" 11th December 2007:



http://www.guardian.co.uk/business/2007/dec/11/oil.bp

This report should not come as a surprise to anyone who knows Shell well. Over the past thirty years or so Shell has tried a variety of diversifications but failed to make any of them work:

Minerals: Billiton …………..…...SOLD
Nuclear: General Atomic…..……SOLD
Coal: Shell Coal…………….……SOLD
Power Generation: Intergen……SOLD
Agrochemicals:………………….SOLD
Forestry…………………………..SOLD
Solar………………………………SOLD

The reasons for these failures are not particularly complex. At the top in Shell there is a culture which is really only comfortable with the familiar – not for them the challenge of “unknown unknowns”. There is a bias for the scientific, technological and the quantifiable and an aversion to uncertainty. So the people who rise to the top are not original thinkers or creative – they are the apparatchiks who play the corporate games most successfully. As these top executives have rewarded themselves more in more in recent times there has been an increase in the safety first mindset. The huge remuneration and pension packages that are on offer do not encourage originality or risk taking – they cause retreat to the familiar where income streams can be more accurately predicted. This sheer lack of imagination is well illustrated by the share buyback schemes which continue – essentially Shell is saying that it has no capital investment, acquisition or diversification opportunities so the only thing it can think of doing with the windfall earnings from $90+ oil is to buy its own shares.


The other force in play at Shell at the moment is the continued centralisation of decision making. The traditional upstream oil and gas businesses do need central decision making but other areas (Renewables is one) are substantially local in character and far smaller in scale. Shell does not have the processes in place to manage decentralised businesses any more. In the past strong and independent country based “operating companies” often stepped out into non traditional activities where they saw a local opportunity. Since the power of these local companies has been curtailed there is no longer the organisation in place to encourage such experiments.


The changing Shell culture is placing one of its historically traditional businesses at risk – the huge network of petrol stations around the world. There is no more local business than retailing as any retail professional will tell you - the great retailers (McDonalds for example) really do “think global and act global”. There is always hands-on local management in every country or region in which McDonalds operates with globally developed products, services and offers being tailored to the local market. Shell used to do that in the past when the operating company structure was in place. But since its demise “Retail” (that most local of businesses) has been centralised and now has to kow-tow to the ridiculous nostrum that it is really a “global business”. Shell is gradually walking away from hands-on Retail in many markets and it would be no surprise if the business is not disposed of entirely in time.



The irony of all of these changes is that the centralisation of decision-making and the narrowing focus has not brought better corporate governance. There was nobody more adverse to risk and to delegation that Phil Watts – a hands-on manager if ever there was one - but the facts now emerging about the reserves scandal over which Watts presided showed that this centralisation was one of the causes of the problems. How ironic that in the post Watts era the centralising trends have continued with so-called “global businesses” now existing across the board. One of the reasons for this is the fear of legal actions and the presumption that the risk of these is reduced by not delegating or placing trust in subordinates. There are now far more lawyers in Shell than there ever were in the past and there is hardly a business decision made without the lawyers being consulted. So whilst the executive directors of Shell richly reward themselves this is not in recognition that these rewards are partly a compensation for the directors for having to take greater personal risk. How close Phil Watts has been to following the Enron directors, the Nat West three and Conrad Black into the criminal courts we don’t know – but you can be sure that the current Shell board will be very conscious of the need to avoid personal liability. Again this means that they are reluctant to move away from the very familiar.


The one area where Shell has been willing to go public and try and differentiate itself has been in its corporate communications and its green posturing. As Terry Macalister rightly points out Shell has “trumpeted its commitment to a low carbon future by signing a pre-Bali conference communiqué” – in my opinion an astonishing act of hubris. There can be little doubt that Shell is only in Renewables at all because they believe that this will paint them greener than in reality they are. Let’s be clear about this – the whole business imperative of Shell is to exploit hydrocarbon resources. That is what they do. Every hydrocarbon molecule that they find, produce, refine, transport or market contributes to global warming and climate change. My view is that there is nothing immoral in this – oil and gas are the main drivers of economic growth and prosperity and will remain so for the foreseeable future. Shell’s considerable skills in this business, combined with their good track record in reducing there own carbon emissions at refineries etc., should be a source of pride. There is really no need to be apologetic about Shell’s strong position as a global player in the oil and gas exploration and production world and Greenpeace’s suggestion that Shell “…needs to become not just an oil company but an energy company” with a strong commitment to Renewables is wishful thinking. Shell has neither the competences nor the inclination to move away from its traditional businesses – on the contrary all the signs are that they are retreating back to familiar ground rather than being creative or genuinely diversifying in their investments.

Corporate Social Responsibility - an oxymoron...

I think that it is very important to make a distinction between State power over the individual and state power over institutions – especially private sector businesses. In an ideal world, I agree, that it would be good if individuals were free to pursue their lives peacefully and lawfully with the minimum of intervention from authorities. This does, of course, require that there is a code of behaviour which people follow that goes beyond what the law says they should do. But it doesn’t always happen. For example, the hope that pub or restaurant customers who smoked would be sensitive to the feelings and comfort of other customers who did not smoke was shown to be a forlorn one! The banning of smoking in public places came about, at least in part, because too many smokers could not be relied upon to care about others. Some might argue that the legislation was anti-libertarian – I would argue the opposite. My freedom, and the freedom of the majority population who don’t smoke, was hugely enhanced by this legislation of which I approve wholeheartedly.

Essentially the test should be to ensure that the worth of legislation is determined by its contribution to overall utility - there has to be judgment about the point at which you curtail freedoms. You cannot, of course, conceive of an “anything goes” world without laws. Commercial organisations – especially big businesses tend to argue for self-regulation. They want to be free to police themselves – but there is no evidence that this ever works. The imperative of a company is overwhelmingly a shareholder driven imperative – indeed the law states that it must be. So for a corporation to suggest that it follows self-imposed “Corporate Social Responsibility” rules is so much poppycock. When faced with the choice between profits and principles they will choose profits 99% of the time! So government HAS to legislate to curb the powers of business and ensure that they serve more than the narrow self-interest of their shareholders. Nobody else will do it!

(c) Paddy Briggs December 2007

Shell says “No to Yes”

Just when you thought it was safe to buy a newspaper or a serious magazine again up pops Shell with more of its absurd corporate advertising. The “Say No to No” campaign, running again this week, almost defies belief in its self-congratulatory and disingenuous copy and tone. Let’s first take a look at one of the ads – the one with the teacher writing on the blackboard – here, word for word, is what it says:

"Say No to No

Isn't it high time someone got negative about negativity?Yes it is.Look around. The world is full of things that, according to nay-sayers, should have never happened."Impossible.""Impractical.""No."And yet "yes."Yes, continents have been found.Yes, men have played golf on the moon.Yes, straw is being turned into biofuel to power cars.Yes, yes, yes.What does it take to turn no into yes?Curiosity. An open mind. A willingness to take risks.And, when the problem seems most insoluble, when thechallenge is hardest, when everyone else is shakingtheir heads, to say: let's go."

The tag line is “Real energy solutions for the real world” and the implication is that Shell has these solutions because of the position it takes (as described in the copy). So Shell is not negative then? Shell is up there with those who found continents and played golf on the moon. With Columbus and Neil Armstrong. With NASA. With the fifteenth century Spanish court of Ferdinand and Isabella. Shell is a risk taker just like they were? What arrant nonsense.
Shell is one of the most risk averse, short-sighted and cautious enterprises of modern times. And especially in its energy category. When other companies made acquisitions (Exxon for Mobil, BP of Amoco, Chevron of Texaco, Total of Elf…) Shell stayed nervously out of the fray. When opportunities arose Shell said “Yes to No”. They shook their heads and said not “Lets’ go” but “let’s not”.

Shell always says “No” to diversification – to the risks of getting out of their comfort zone. Here’s an (incomplete) list to prove this point:

Minerals: Billiton ……………...SOLD
Nuclear: General Atomic………SOLD
Coal: Shell Coal…………………SOLD
Power Generation: Intergen……SOLD
Agrochemicals:………………….SOLD
Renewables……………………….?

As far as alternative energy (Renewables) is concerned can their be the slightest doubt that it would go the way of the other diversifications – if it wasn’t for the phoney “green” kudos it brings to Shell’s reputation?

The comfort zone of Shell gets narrower as the years roll by not wider. All of the daily emphasis is on the traditional businesses and in particular on the upstream – the search for oil and gas. Old world, old energy, old core competences. I don’t mind this at all either as a small shareholder or as a pensioner – but I do object when I am being bamboozled into believing something that patently isn’t true.

And isn’t it pretty negative to sell or franchise your brand – your most valuable intangible asset? And Shell is selling its brand – for example in Ireland where the Shell branded petrol stations now have little or nothing to do with the company at all. The Shell logo stands over petrol stations that Shell has sold and which it no longer controls. Here is what Shell in Ireland says about this:

“In July 2005, Shell announced that it had signed sale and purchase agreements with Topaz Distribution and Logistics for the divestment of the majority of Shell’s oil products businesses in the Republic of Ireland and Northern Ireland. The agreements relate to Shell’s retail, commercial fuels, lubricants, marine, and supply and distribution businesses.

Topaz will continue to use the Shell brand and Shell UK will continue to supply high quality fuels and lubricants to the company, which means that the Shell brand will remain visible in Ireland and service to customers, dealers, and distributors will be maintained.”

So the “Shell brand will be visible” – as if this, in itself, is something that consumers could be concerned about. A brand is more than a logo – it stands for a total commitment to the customer. Shell has walked away from its customers in Ireland and divested itself of this commitment. Shell is also walking away from a host of other markets, because it perceives that it cannot operate these businesses profitably. Who is being negative now? Who is saying “Yes to No” again not “No to No”?

One of the cases for the powerful multinationals is that their very financial strength should allow them to be long term in their outlook. They ought to be able to ride the waves of the squally world of business. Shell was built up on this very philosophy – risks were really taken in the past – new ventures, new countries, new markets, new technologies. Not all worked, but the sheer size of the organisation meant that it could ride the storms and tolerate the failures that will inevitably happen when you really do take risks. The Shell of today is utterly different from this – far more short term in its thinking and far more risk averse. And yet they have the supreme arrogance to think that they can credibly preach the virtues of “a willingness to take risks” and to suggest that they are on the moral high ground – an organisation that rejects negative thinking. It isn’t true – and I, for one, am sick and tired of being lied to by those who want me to believe that it is.

© Paddy Briggs December 2007

Alastair Campbell on the Oil Companies in Britain

Crisis management and the Oil Industry


At a recent event with Alastair Campbell – formerly Tony Blair’s Press Secretary and chief spin doctor – he discussed (inter alia) crisis management. One of the crises that he talked about which happened in September 2000 in Tony Blair’s first term was the protests by haulage companies about fuels prices. The crisis involved the blockading of fuel facilities (refineries and depots) and very nearly brought the country to a grinding halt. Campbell described how the crisis was handled at Number 10 and elsewhere in the Government apparatus. When asked about the role of the oil companies, including Shell and BP, Campbell said that they were “hopeless” and showed a complete lack of leadership retreating completely from the fray. Campbell commented that he felt that this abrogation of any responsibility in the matter was particularly shameful given the excessive salaries that top executives in the oil industry paid themselves!

In Campbell’s diaries (pages 471ff) he describes a meeting with the “oil company executives” and describes them as “…not a very pleasant, compelling or impressive group of people” and specifically that “…the BP and Shell people were not impressive. I guess part of them was happy for this to be seen as a government problem…the guy from BP said that he was worried that they would be left holding the baby.” Later as the crisis began to be solved the Prime Minister called the oil companies in again. Here is how Campbell described that meeting:

“TB [Blair] said he wanted to read the riot act because he wasn’t happy with their systems, and didn’t really feel that they had pulled out the stops. Mark Moody-Stuart [chairman of Shell] was dreadful. He had earlier asked if TB minded if he sent his deputy. Yes he would was the answer. It was pretty tense at time, not least when JP [John Prescott] had a go at their contracts system.”

I think that I can throw some light on this matter from my own experiences in Shell (although I was not working in the UK at the time of the fuel crisis in 2000). Sixteen years earlier (in 1984) I had been responsible, as a member of Shell’s executive team in Scotland, for the management of the company’s commercial/industrial business in that country. Shortly after taking up my appointment the miners’ strike hit the United Kingdom – Scotland was one of the hardest hit areas. One of the issues that I had to deal with was in respect of the Ravenscraig plant of British Steel. If the furnaces at Ravenscraig did not get coal then they would shut down and could not be restored again. Ravenscraig would have to close. The normal supply route to Ravenscraig for coal was by train directly to the plant, but the rail unions, in sympathy with the miners, refused to move coal supplies. So the only solution was to have dozens of trucks on a permanent journey from a coal import port at Hunterston on the west coast of Scotland to Ravenscraig – a journey of some sixty miles. Shell’s interests were twofold – Ravenscraig was a huge customer, the largest consumer of Shell lubricants in Europe. And the haulage company running the coal supply trucks was a Shell customer as well! But there was clearly a problem – on the one had we did not wish to be seen as taking sides in the miners’ strike which was the hottest political issue of the time. On the other hand we had a duty to look after our customers and, as a long established business in Scotland, most of us also felt a sense of duty towards the thousands of people who relied on British Steel (and their suppliers) for their livelihoods. With the consent of my bosses in London the action that I and my colleagues took was to approach the Transport Union (TGWU) and ask them whether they would sanction our continued supply of diesel fuel to our customer – the road haulage company involved. I had a long meeting with the TGWU shop steward and we came to an agreement – it was, of course, a very difficult decision for this official as on the one hand he was instinctively in support of the miners but on the other he also had a duty to his members (Shell’s drivers) and to our customers. Anyway we kept fuel supplies going and Ravenscraig was saved.

The key point of the Scottish story and its relevance to the situation sixteen years later described by Alastair Campbell was that back in 1984 we had staff on the ground at a reasonably senior level to help resolve this crisis. Also the drivers were our own staff and we genuinely worked together as a team. By 2000 most of this had gone. Shell had cut back its business to such an extent that only junior staff would have been at the fuel facilities that were under siege. And these staff, unlike my colleagues and me back in 1984, were not empowered to act. Further the drivers and other staff were no longer Shell employees and had no loyalty to Shell. All delivery of Shell fuel in the UK had been contracted out to haulage companies – the very ones, no doubt, also involved in the protests against the government - John Prescott was quite right to “have a go at the contracts system”! In the Thatcher/Major years Shell had ruthlessly eradicated the unions from its UK operations as well – so there were no Shop Stewards to talk to either. Finally Moody-Stuart, although Chairman of Shell Transport and Trading at the time, would have had little or nothing to do with Shell’s downstream business in the UK. Shell UK once a fairly large and independent operating arm of Shell was by the year 2000 neutered, moving out of its offices at Shell-Mex House and losing its independence and focus. Regional offices, such as the one I worked from in Glasgow back in 1984, had long since closed. Although there was a figure-head Country Chairman he had little or no line authority and the sort of bias for action that we saw back in 1984 was entirely absent. There was nobody to pick up the ball and run with it.

(This is an extract from Paddy Briggs’s book “The Changing face of Shell” to be published in 2008)

Shell in Pakistan

Shell in Pakistan

When multinational corporations embrace a commitment to Human Rights the test is not (only) the immediate check as to whether such a commitment gels with their history and their current behaviour but also how they respond when the circumstances change in one of their areas of operation. So as the eyes of the world are on Pakistan at the moment and we are all asking whether the livelihoods and security of the millions of innocent citizens in that benighted country have been better protected by General Musharraf’s “second coup” it is also reasonable to look at the response of the many multinationals operating there particularly those, like Shell, which have boasted a commitment to Human Rights.

The imposition of virtual martial law in Pakistan has been condemned by the respected “Human Rights Commission of Pakistan” as well as by opposition parties, lawyers and other Human Rights groups in the country and abroad. So in the circumstances what do corporations, like Shell, say or do? Clearly an over precipitate reaction would help nobody but if, as is likely, the restrictions on opposition and the suspension of legal restraints on Musharraf’s Junta continue, and all democratic processes are suspended, can a company which has so openly embraced Human Rights credibly remain silent?

Words are cheap and of no value unless they stand for more than just self-promoting hype. Shell Pakistan is a significant player in that country’s energy sector and has declared that it has “Business Principles” which are to: “… conduct business as responsible corporate members of society, to comply with applicable laws and regulations, to support fundamental human rights in line with the legitimate role of business, and to give proper regard to health, safety, security and the environment”. So what will Shell Pakistan do or say now that “fundamental human rights” have been suspended? If it is argued that for commercial reasons they should do nothing then one must question what the point of the Human Rights commitment was in the first place. There is no obligation on Shell in Pakistan, or anywhere else, to make a Human Rights commitment. But if they have chosen to do so it is reasonable to ask what this really means when political circumstances change so radically that individuals’ freedoms are threatened – as is presently clearly the case in Pakistan.

Will Shell condemn the suspension of Human Rights in Pakistan referring to their published commitment of support for the principle such rights and to the company’s general support for the UN’s “Universal Declaration of Human Rights”? Don’t hold your breath!

Response to article on Brand Channel re gasoline brands

Response to article on Brand Channel. See:

http://www.brandchannel.com:80/start1.asp?fa_id=388



The substantive point about gasoline brands is that marketing is only an incidental activity for oil companies – nearly all of their efforts are on the “upstream” (the search for and exploitation of oil and gas reserves). As a 37 years service Shell veteran, now retired and active as a brand consultant, I can assure you that the chapter on marketing in the average oil executive’s memoirs would be one blank page. This is not to say that there aren’t competent marketers in the oil companies – just that they linger low in the hierarchies and that they have no prospects of reaching the top if marketing is “all” they can do. When the boards of Shell or BP or ExxonMobil and the rest meet the agenda items are rarely if ever about customers, brands, channels of distribution, market share, communications and the other imperatives that drive the business in proper branded marketing companies. The discussions are about exploration, production, refining and all the other key business activities – the so-called “upstream”.

The irony of the almost complete ignorance of oil company top executives about branded marketing is that these companies are amongst the world’s biggest branded retailers. Shell ahs more than 40,000 Shell braded gas stations in over 100 countries, but in a recent extensive interview for the London Guardian newspaper Shell CEO Jeroen van der Veer didn’t even mention Shell’s marketing business once - see: http://tinyurl.com/ytxhjf . Everything in an oil major is top down and that top is so far removed from its consumer customers (motorists for example) that they probably wouldn’t recognise one if they saw one. This leads to minuscule and wholly inadequate amounts of money being allocated to advertising and other brand promotion initiatives. The culture of the men at the top is essentially a cost minimisation culture. When you drill for oil you can secure a completive advantage by doing it more efficiently (cheaply) than your competitors. As any marketer knows this is a mindset which leads for disaster in marketing. It is 35 years since the late Stephen King’s seminal “What is a brand” (recently reprinted by JWT here in the UK and circulated with Campaign magazine) which showed (even proved) that brands which invest consistently over time prosper and those that do not fail. That is a lesson that the oil industry has forgotten.

I believe that the only way that oil companies can properly exploit their brand potential is to separate completely their “upstream” from their marketing business. And I mean completely – not just some fudged separation within the same corporate structure. Only when the main preoccupation of the top management of Shell or BP is with the brand and with the customer will we start to see proper and focused branded marketing in this important sector. Please see my article in “Market Leader” magazine for the development of this argument: http://tinyurl.com/3dau4e .

Business and Human Rights

The myth of Corporations’ commitments to Human Rights

“Shell supports the Universal Declaration of Human Rights and believes that business, as an integral part of society, can make an important contribution to furthering these rights”. Shell statement


“Business doesn't have to choose between profits and principles, Royal Dutch/Shell Group Managing Director Jeroen van der Veer told the Globalisation, Ecology and Economy conference in the Netherlands today.”

“We have to be particularly attentive to our contribution to local economic and social development and to human rights issues.” Christophe de Margerie, Chief Executive Officer: Total

The focus of the attention underway at present on the grotesque abuses of Human Rights in Burma has rightly drawn attention to the part that the Oil company Total plays in shoring up the appalling regime in that benighted country. Total is heavily involved in Burma – especially in a major pipeline project – and you need to be terminally naïve to think that such investment does not give support and comfort to the Burmese dictators. That a multinational oil company thinks that it is acceptable to be active in Burma is deplorable – even more so when you see the self-promoting statements saying that they are “attentive to human rights” as in the recent remarks of the company’s CEO.

If the dark arts of Public Relations are to have any moral underpinning then the contradictions between rhetoric and actions, such as those of Total have to be avoided. There is frankly no point in having your PR Department issue “commitments”, on the one hand, whilst your business managers go their own sweet way in ignoring these so-called assurances on the other. My experience in Shell, and I have little doubt that most oil multinationals are just the same, is that commitments to human rights are not worth anything at all. I could choose many examples to illustrate this assertion (Nigeria the most obvious) and which suggest that when push comes to shove the choice will nearly always be Profit rather than Principles – whatever Mr van der Veer and others might like to say. To be fair it is true that Shell has moved away from involvement in Chad, Cameroon, Peru and elsewhere partly because of concerns about the reputational damage which could have resulted. But these withdrawals are the exception rather than the rule. Back in 1991 EIRIS (Ethical Investment Research Service) stated that Shell was operating in 24 Countries where extra-judicial executions or disappearances had been reported, 44 countries where torture has been reported, 36 Countries where 'official violence against citizens' was reported, and 26 countries which were holding prisoners of conscience. Shell continues to operate in most of these countries today. To illustrate the dichotomy between rhetoric and behaviour let me choose two examples of which I have personal experience.

China

Back in the late 1980s I was working in Hong Kong and, increasingly, in China – and part of my job was to try and boost Shell’s brand and to advise on the avoidance of damage to Shell’s reputation. China was beginning to open up to the West and Shell was hungry for a piece of the action. Some of us in Shell felt that China’s pursuit of economic change would be accompanied by a change to the repression that had characterised the country for forty years or more – that the people would be given greater personal freedoms as well as greater wealth (we were wrong, of course). Others simply pursued the money and developed investment and other plans to be part of China’s economic progress. Amongst these was the Chief Executive of the Shell Companies in China and Hong Kong whose mantra was “China is very big” and who was determined to give Shell every chance to succeed - not for him any uncomfortable concerns about human rights! In the spring of 1989 the emerging democracy movement in China was brutally cut down when the tanks entered Tiananmen Square and it seemed for a moment that or Chief Executive’s dreams were likely to be shattered. He went into a sort of denial mode saying that as soon as things calmed down all would be normal again. Within a few months Shell was back at the negotiating table with Chinese officials as if nothing had happened in Beijing in April at all.

In August 1989, in an attempt to suggest that there were likely to be some squally waters ahead for Shell unless we acted with greater care and sensitivity, I wrote a mock newspaper article entitled “Do Tanks go well on Shell”. Here is the text of this mock article:

Do Tanks run well on Shell?

On Friday it emerged that Shell, the Anglo/Dutch multinational that is now the world’s largest energy company, is to invest over one billion US Dollars in a Refinery and Petrochemical complex in Southern China. Although officially only a commitment to a “Feasibility Study” at this stage, informed sources within the industry say that Shell is unlikely to proceed to this study unless they are fairly certain of a positive outcome. Observers of China say that such an outcome can be virtually guaranteed given the PRC Government’s wish to demonstrate to the world that the confidence of western business is returning following the political disruption in China earlier this year.

The Shell Group has had its share of controversy in recent years, not least because of its continued presence in South Africa. Shell’s role in sanction busting in Rhodesia is alos not forgotten. Those with longer memories will recall the questionable role played by Henry Deterding (One of Shell’s founding fathers) at the time of the Nazi military build up in the 1930s. Despite this rather ignoble history the announcement of the Refinery plan comes as a surprise. The plan would be the largest foreign investment by far in China. For it to be announced (however much that announcement is covered in caveats) in 1989 seems insensitivity on a grand scale. Shell may believe (as one of their Hong Kong directors said) that “Business is separate from politics”, it is doubtful whether many of the people of Honk Kong would agree. Firstly the announcement of an investment of this size gives a signal to China that no matter what they do to their own citizens the international business world will turn a blind eye. Secondly the investment is unquestionably strategic in nature. By building facilities that will produce a full range of oil and chemical products Shell will play its part in ensuing that the People’s Liberation Army in the South of China does not fall short of the essential products it needs. (The refinery will also produce a wide range of materials that can be used in Chemical warfare, including Naphtha used with such devastating effect by US forces in Vietnam).

For Shell morality and business have always been uneasy bedfellows. Once again it seems that you can be “Sure that Shell” will pursue what it seems to be its commercial objectives and be deaf to public opinion”

This mock article was circulated only to the twelve members of our Hong Kong and China management team and was meant to stimulate thought. In fact a storm broke out and or CEO instructed me personally to get back every copy and to destroy them! It had struck too exposed and vulnerable a nerve and in the CEO’s view even to discuss the possibility that Shell might be criticised for being back in China in a big way just months after the Tiananmen Square massacre was unacceptable. The rest is history. Shell did pursue the project and although it changed radically in format, took far longer than was planned and cost far more construction was completed and commercial operations stared last year. The “CSPCL Nanhai” complex at Daya Bay is, according to Shell, the largest single investment ever made by the Shell Group in the petrochemicals sector.

The point about this story is that although back in 1989 Shell did not have any open commitment to Human Rights it did institute such a promise in the 1990s and declare it openly. But notwithstanding this commitment the project went ahead in a country which has been accused of continued human rights abuses on a huge scale. My perhaps mischievous attempt to make us think about what we were doing way back in 1989 had little effect (other than to brand me as a trouble-maker in the eyes of some!). So you can imagine my scepticism when all the human rights commitment hype started to emerge from Shell Centre in the 1990s!


Saudi Arabia

In March 1997 Shell issued a “Statement of General Business Principles” (SGBP) to the world which included the following statement “…to express support for fundamental human rights in line with the legitimate role of business.” The launch of the SGBP was a much hyped event and the responsibility of those working in operating companies around the world was to promulgate them in the public domain. I was working in the Middle East at the time and part of my role was to communicate with “stakeholders” about Shell and try and enhance our reputation. I discussed ways to promote the SGBP with my management colleagues - including the production of local language (mostly Arabic) versions. I was a little way into my task when I received a phone call from the head of Shell’s businesses in Saudi Arabia instructing me not to promulgate Shell’s commitment to Human Rights in that country for fear of upsetting the rulers of this seriously human rights abusing state. “What should we say them?” I asked “That Shell supports human rights – except where it doesn’t because if we did our business prospects might be damaged?” Once again, as you might imagine, I got into a bit of trouble and the SGBP were never circulated at all in Saudi Arabia and a number of other counties where it might have damaged our business. Hypocrisy – of course! Profits before Principles – likewise!

© Paddy Briggs
September 2007

Royal Dutch Shell AGM 15th May 2007

Royal Dutch Shell AGM 15th May 2007

In the good old days small shareholders of Shell Transport and Trading, the British arm of the Shell Group, could pop along once a year to see our Board of Directors and see the colour of their eyes as they answered our questions. We knew that they were a bit of a dodgy lot – well trained in the arts of obfuscation and the giving of elegant sounding but unrevealing answers to all our questions. Twinkly old Mark Moody-Stuart would wiggle his eyebrows in astonishment when anyone suggested impropriety and Phil Watts would glower down at us contemptuously as if we were all particularly inattentive students at his bible class. We suspected that deep down they were really, all of them, only just on the right side (or the wrong side in Watts case) of being mendacious bastards – but at least they were our bastards!

But now the British small shareholder is the poor relation of our Dutch cousins and we don’t have a meeting of our own any more. True there is still an event and we are entitled to sit in a hotel in Hammersmith whilst the real meeting is beamed to us from The Hague. But it’s a Clog run affair these days and with all the wit and humour that that suggests. That only around 200 of us bothered to journey to the meeting today suggests that it is not, for all, a very appealing prospect. The law requires that these AGM’s take place and that we have the opportunity to vote on the various motions in front of us. But these votes are rather Orwellian – Big Brother has already determined what the outcome will be. Today most of the votes were of the order of 97% “For” and 3% “Against” – so the 200 of us present were unlikely to foist an upset on the Board.

Quite a few of us at the London event were former employees so there was a bit of a reunion over the odd glass of wine after proceedings were over. I would guess that the average age in the hall was about 75 but that didn’t restrict the strength of feelings that were expressed. Virtually all the speakers/questioners were mildly or very hostile to Shell and I found virtually no defenders afterwards either. And I am not talking about the professional protesters here - but the ordinary small shareholders like me. In the past there was usually some chap who would stand up and thank the Board for their efforts and genuflect a little and generate a little ripple of applause. No more.

Corrib natural gas project

But let’s deal with the professional protesters first both in London and The Hague. By far the most moving were the folk from County Mayo in Ireland who are very vocal opponents of the Corrib Natural gas project. One speaker, Willie Corduff (pictured) , was an obviously totally sincere critic of Shell who in a softly spoken voice told us about the loss of his farm and his livelihood as a result of Shell’s project plans. He had gone to jail for 90 days in June 2005 for protesting against Shell but although he was aggrieved, and seemed to have every right to be, he was remarkably unbitter – as well as eloquent. Other speakers on Corrib were a bit more strident and this whole session reminded me so much of the Brent Spar debate of the mid 1990s. Shell’s defence was to apologise for the errors of failed consultation that had occurred early in the project planning stage but to claim that most of the local community was now behind the scheme and that Ireland as a whole would benefit from it. I know little about the details of the Corrib project but (as with Brent Spar) Shell seems to have the technical highground but has lost the hearts and minds of people they need to have on their side. The solution is clear. They must be prepared to invest more capital in the project to ensure that the concerns of all the local people like Willie Corduff are addressed. It’s as simple as that. Every effort must be made to make the design of the terminal and the pipeline acceptable – and if that costs more money then so be it. The final solution for Brent Spar cost far, far more than what would have been the cost had Shell been able to do what they originally wanted to do. If they want to get Corrib on stream then they must make it a model project in environmental, safety and local community terms – and above all see that it is perceived to be this by all. Even if their technical boffins say a particular refinement is not really necessary then they must still do it if that is what the locals want. The people of Rossport deserve no less. Getting senior Shell executives to spend money when they don’t really think that it is necessary is not the easiest of tasks – but that is what must happen if the project is to go ahead – the protesters made it clear that they will fight Shell all the way if some major compromises on the project scope are not made. We shall see if Malcolm Brinded was listening and got the message.

Nigeria

Most of the comments and questions about Nigeria were about gas flaring and the danger and risk to the health of local residents in the Delta that this practice brings. Again it seems to me (I am not an expert!) that this is a question of the application of financial resources. The technical solution to reduce and eventually eliminate flaring is employed elsewhere so it could be applied also to all the Nigerian wells if the funding was made available. Of course it would be a big project but for years Shell has been planning to put a stop to flaring but deadlines for achieving this are constantly being put back. In its corporate communications Shell is keen to be seen as environmentally responsible. They could end gas flaring in the Delta to help make this ambition a reality – and (like at Corrib) they might win a few hearts and minds along the way as well.

Sakhalin
The Board presented Sakhalin more as a triumph than the disaster it was and they got quite an easy ride from those present at the AGM. There were questions and some of these were informed and pointed but the fact that senior directors’ remuneration was actually increased as a result of the “successful” renegotiation of the project with the Russians (rather than reduced as many of us would think would have been more appropriate!) almost escaped the meeting. When I look at the Sakhalin story it seems almost unbelievable to me that a company of Shell’s stature could manage a project of this scale so incompetently. The story is well documented elsewhere so there is not need to repeat it here – other than to say that I was surprised that nobody in either hall called for heads to roll.

Share performance and buy-backs
The inadequate performance of Royal Dutch Shell shares over the past year (see graphic for comparison with the FTSE 100) was a very live item – as was the company’s continued share buy-back schemes. Questions elicited an extraordinary response from Jeroen van der Veer and CFO Peter Voser. They claimed that there was nothing that they could do about the share price other than to continue to manage the business as competently as they could! The disingenuousness of this response was astonishing to anyone who knows how much time is devoted by Shell to the cultivation of the Financial Analyst stakeholder. Let’s be clear about this – in the past Shell has used the enhancement of shareholder value as a key measure of performance. Whilst dividends keep pace with inflation (although not in Sterling terms now that they are given in $US) the share price underperforms. And in addition the company buys back its shares rather than finding proper investment opportunities for the spare cash (or returning the money to shareholders in extra dividends). Voser claimed that in the long term buy-backs would increase shareholder value – but as one questioner pointed out in the long term we will all be dead! The shareholders hated buy-backs but there was no sign from the Board that this practice will cease. A few less buy-backs and a few more community friendly capital investments would be my personal preference. The share price might do better as well – in the short term anyway!

Remuneration
We were asked to approve the Remuneration report and this led to a lively discussion about the huge salaries that the high-priced help in Shell is now rewarding itself with. Jonkheer Aarnout Loudon is the non-executive director responsible to making sure that there is an argument to defend the multi-million pound salaries and other benefits of the Executive Directors in Shell. Now Jonkheer Loudon may not quite have the common touch – “Jonkheers” are noblemen and right at the top of the pile in the Dutch class system. And the poor man has to struggle on himself with just barely £100,000 a year from Shell to compensate him for his arduous work. But then I suppose apart from helping set his Executive Board members remuneration, he doesn’t really have a lot to do. And perhaps he has some savings to help pay the gas bills to ensure that his is warm during the cold Wassenaar winter nights. One most eloquent speaker in the Hague couldn’t believe how much CEO van der Veer was paid last year (around $10million- excluding pension benefits!) and said that this was more than all the members of the Dutch cabinet combined! He has a point. I know why they pay themselves so much – because they can (and there is always a handy Jonkheer around to help you make the case).

Is Shell in good hands?
That’s the acid test question when once a year we see the heavies who run the company and who protect our investments and (in my case) my pension. I suppose that my conclusion has to be that they are probably as good as we could expect. But let me pose just one question to them. You are all now rich beyond the dreams of avarice and no doubt in your personal lives you live very well indeed. Whether this means yachts and homes in tax havens and art collections and fine wine and private jets I don’t know. Perhaps you are all being prudent so that your partners and families will be looked after. But now you are rich can you imagine what it must be like not to be? To be a poor County Mayo farmer; or a long retired Shell Pensioner of 75 on a pension of £5000 a year; or someone living near a refinery belching out noxious fumes and who doesn’t have the money to move. Can you imagine what it must be like? If you can then why not show some real compassion when you manage Shell’s wealth? Sort out Corrib. Sort out the Delta flaring. Sort out all the other social and human and environmental problems that your business almost inevitably brings with it. You never know – the share price might even go up if people believe they can be sure of Shell again.

© Paddy Briggs 15th May 2007