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