Article in Media Week

Why there’s a role for agencies to play in helping clients manage CSR

In a world where corporate social responsibility plays an important role in decision-making, former Shell brand manager Paddy Briggs says the media industry must embrace the “climate of concern” to succeed.

A remarkable and welcome shift in the positioning of advertising professionals is beginning as they move away from the traditional stance that the advertising world has taken.
Your feature (Doing the right thing, page 30, 7 June) on the changing climate for advertising in a world increasingly concerned with social and moral issues, was timely. This position is still summarised in the International Advertising Association's (IAA's) stated role that it will "champion the freedom to advertise responsibly without unwarranted restrictions".
The problem with this pose was often that what was "responsible" was determined by the client, egged on by their agency if high billings were promised, rather than from any more socially concerned perspective. If the communications were "legal" – by far the acid test – and if they could, if necessary, be somehow defended as "decent, honest and truthful", then that was enough.

It was, of course, the tobacco industry, a major provider of funds to the IAA, that was behind the IAA's "free to advertise products which are legal" principle.

Unwavering support

It's no secret that some advertising agencies, unwaveringly supported by the IAA, have conspired with tobacco clients for decades to find ways of continuing to promote cigarette brands, even though media channels are increasingly blocked to them.
If you doubt that they continue to do this, even in a world where corporate social responsibility (CSR) plays an important part in business decision-making, just watch a Formula One Grand Prix.

At Media Week’s Media 360 conference in April, all of us on the "From Social Problem to Your Problem" panel – and many in the audience – argued that communications agencies should have a role to play far further "upstream" of a potential problem or issue than is currently the case.
What if, instead of being presented with an issue that is causing reputational damage to a client or a sector and then being briefed to help minimise the damage, for example by producing information style advertising, the agency had actually helped identify the potential problem in the first place?

In my more than 10 years with different Shell companies around the world, as a client of a wide range of communications agencies of all types, I rarely met any employees of these agencies who were anything less than smart and articulate. I say this neither to ingratiate myself with these agencies in my post-Shell life as a brand consultant, nor to repay any debts, but to suggest to the communications world – and especially to their clients – that in these agencies there is an underutilised well of talent to be exploited. Too often, the role of an advertising agency or a design house or a media buyer is seen far too narrowly as "merely" a provider of these professional services. While agency and client may sometimes comfort one another with talk of "strategic marketing" and work together on the production of cerebral "communications plans", all too often these plans are heavy on the communications components and woefully weak on the real business strategy of the client.

That communications planning, often de-coupled from a client's business plan, is regrettable in many areas, but particularly so when a client is in or approaching the squally rapids of reputation risk.All too often, an "issue" emerges and a media world hungry for stories will run with it. Yet we find that the client or the industry group is totally unprepared and incapable of responding quickly or coherently to the challenge. When, 10 years ago, Shell was in the headlines daily because of its plan to dump a redundant oil platform, Brent Spar, in the ocean, we were wholly ill-equipped to handle the furore this plan had stirred up.

Reputational risk

While it is true that Shell was culpable in not seeing the reputational risk of the Brent Spar disposal plan – and this was to lead to much soul searching – it is also true that Shell's raft of communications agencies were nowhere in the loop.
When the various elements of communications – corporate advertising, PR, direct marketing, etc – were eventually deployed, it was in a firefighting exercise to improve Shell's damaged reputation among key stakeholder groups. But what if instead of problem solvers, the various communications agencies had been sufficiently immersed in Shell's business that they had actually helped anticipate the problem before it happened?
Most communications professionals I have worked with over the years have told me that it is essential that an agency fully understands a client's business before they start to prepare creative, or a media plan, or a DM programme. But how many of these professionals have really taken this to its logical conclusion and demanded that the client more thoroughly brief them on the client's business – including a briefing on what I call the business "stress points"?
A business "stress point" is defined as a social, environmental, economic, commercial, legislative or other trend that can potentially impinge upon the client's business.
The key word here is "trend", because it suggests that most changes do not come out of the blue but that they can be anticipated – if the necessary processes are in place to do this.
Brent Spar, seen in isolation, was about the right way to dispose of a big lump of metal. In fact, what it was about was the boundaries of CSR which were not, in this case, determined by the law or by technology, but by public perceptions.
Shell's plans were perfectly legal and most experts said that the proposed solution was technically the best. But in the public's mind, the proposal was environmental vandalism– therefore it was. "Perceptions are reality because people believe them to be true".
The current issue of child obesity is another case that illustrates the need for an agency to be directly involved in the issue identification process at the beginning. Children have not all of a sudden become fat – what has happened is that childhood obesity has suddenly emerged as an issue and fast-food firms, among others, have conveniently been the media's Aunt Sally.
The industry has responded to the challenge and advertising, etc, has played a part in promoting, for example, the new healthier eating options at the fast-food outlets. But this all seems very reactive with the businesses and their marketing agencies only acting because of the threat to their reputations as good citizens.

I would argue that this is an issue which could have been, and should have been, anticipated well in advance and that communications agencies could have played an important role in helping clients identify the social trends that were possibly going to lead to child obesity being an issue.
This would have required the role of the agencies to be redefined in such a way that they not only produced professional communications plans, but that they contributed to (or even facilitated) client sessions which worked on analysing business risks.
The possibility of child obesity emerging as an issue was surely identifiable many years ago and an agency could not only have helped a client identify this business "stress point", but help them develop a business and communications plan to minimise the risk. In this case, in fact, an early realisation of the potential problem could have been turned into a business opportunity. To be the first food provider to offer and promote the "healthy eating" option could have led to a potential profit stream, as well as being promotable as socially responsible and thereby enhancing the brand's reputation.

Clearly, a move to a world in which clients accept that there is merit in having their communications agencies role much less narrowly defined, and to accept them as being much more involved in their business, needs the agencies themselves to demonstrate that they can genuinely add value. This requires the agencies to develop and promote competencies in such areas as CSR and to inculcate these competencies into all of their processes. It also requires that client/agency partnerships are much more open and enduring than is sometimes the case.
However, there is no reason why the very large and multinational communications conglomerates, in particular, should not see part of their role as being to provide challenges to their clients in such a way that future social, and other, changes which could be potential business risks, and/or opportunities, are anticipated much earlier. This should lead to fewer surprises and genuine opportunities for companies and brands to differentiate themselves from their competitors.

Finally, it is also self-evidently essential that the IAA, and some others in the communications world, move away from their out-of-date and facile positioning that they will "fight for consumers' freedom to exercise their right to choose". This was always over simplistic, and shamelessly and self-interestedly protecting their income streams and it brought the industry into disrepute. In the future, the prizes will go not just to the brands and the agencies which communicate most creatively or cost effectively, but also to those that understand the "climate of concern" within which business is now conducted – and to those who spot a social trend before it potentially overwhelms them.

Paddy Briggs is managing partner at consultancy BrandAware. He previously worked for Shell for 37 years, including 15 in brand management

Article in "Market Leader"

The story of Shell- how a great brand fell from grace
(Unedited version)

Reproduced with permission of Market Leader, the strategic marketing journal for business leaders. To subscribe visit www.warc.com/bookstore © Copyright WARC and The Marketing Society.”

In his seminal book on brand and design “Corporate Identity” (published in 1989) Wally Olins describes three different forms of corporate structure:; the “endorsed”, in which the corporation has a group of activities and companies which it endorses with the group name and identity (e.g. General Motors) ; the “branded” where a company operates through a series of brands which may be unrelated to each other or to the corporation (e.g. Unilever) and the “monolithic”, in which a corporation uses one name and visual identity throughout . For his example of a “monolithic” structure Olins chose Shell. “More than 90 percent of Shell’s business throughout the world bears the Shell name” he wrote, “…the reputation of Shell is symbolised to a quite extraordinary extent by its name and visual imagery”. Research around this time showed not only that Shell was highly respected but also that the Shell logo was the most recognised commercial symbol in the world. Shell was the brand leader in the oil industry and also, by some measures, the largest business of all types in the world in the Fortune 500 lists. Heady days indeed! Where did it all go wrong?

In the late 1980s I was working for Shell in Hong Kong, and increasingly in China, where we were making every effort to maximise the benefits of the unique strength of the Shell identity that Wally Olins had so accurately described. By striving to offer the highest levels of customer satisfaction in all of our many consumer businesses we were also consciously trying to ensure that the corporate reputation of Shell was enhanced and valued. When senior Shell executives visited the Territory for discussions on a multitude of large scale China investment projects their task was hugely aided by the fact that the Shell brand was already known and respected in Hong Kong. Around the world there were well over one hundred similar country-based Shell companies pursuing a similar strategy.

The norm in the oil industry is vertical integration - an oil company manages the full hydrocarbon stream from exploration for oil all the way to the point when petrol is put in the tank of a customer’s car. Until fairly recently this operation was generally conducted under one brand name and this has always been the case for Shell. In recent years mega-mergers in the sector have clouded the issue somewhat and some of the companies have created, often temporarily, a more multi-branded structure. BP dropped the “Amoco” from their corporate name as soon as they could (although they have kept the brand equity rich “Castrol” name) and Total equally swiftly discarded the “FinaElf” from their title. As well as the obvious external benefits of having a single name there are internal benefits as well. As Olins described it “A single name [“Shell”] and visual identity became significant as a rallying point for staff…employees…could identify with the whole enterprise”.

Given the huge commercial benefits that can accrue from having a brand name (and visual identity system) as familiar as Shell’s you would think that this value would be fully understood throughout the company and that the organisation structure would be designed to maximise brand value for the benefit of all of its diverse businesses. It would also be reasonable to assume that all of the most important actions of the company and its key employees would be at least in part driven by an ambition further to enhance brand equity and to protect corporate reputation. I was soon to discover that in Shell this was not necessarily the case. Looking back fourteen years from today, Shell’s then position looks like a golden era and it is true that few of us at the time thought that the pride that we had in our then strength presaged a calamitous fall.

In 1990 I was called back from Hong Kong to head up a project, “Retail Visual Identity” (RVI), to redesign Shell’s global petrol station network. From the start I assumed that the RVI project, if we were successful, would contribute far more than “just” the enhancement of Shell’s competitive position in the Retail sector. Shell’s petrol stations were the most public face of Shell. We were present in this sector in 120 countries world-wide and we had more than 45,000 outlets. We were not just the biggest petrol retailer but the biggest branded retailer in any sector (McDonald’s, at the time, had around 15,000 restaurants). Extensive consumer research had shown that the Shell brand had extraordinary strength and that we had an enviable reputational advantage - but it also indicated that some consumers felt our visual identity was beginning to look a bit tired.

By the autumn of 1990 a number of things about RVI were beginning to become clear. The average cost of re-imaging a petrol station was assessed at around $30,000 which meant that the overall cost of the project was well over a billion dollars. It was also clear to the project team from looking at what Shell’s competitors, particularly BP, had achieved that it would be necessary to complete the exercise as quickly as possible – within three years at the outside. The senior Shell executive responsible for seeking approval for this funding was David Varney[1] – the head of the global marketing Division within which I worked. Varney’s presentation to Shell’s Committee of Managing Directors (CMD) was masterly. Eschewing any return on investment calculations (which would have been largely fictitious anyway) he told the Managing Directors that Shell had to re-image its networks because we lagged behind the competition and that, whilst we would do all we could to minimise costs, there was really no alternative but to proceed. It was a typically robust message from Varney and one that a perhaps slightly bewildered CMD accepted.

The sense of elation that we had that we were rolling was soon to be tempered however. It became rapidly clear that the project was seen only as a marketing project. In other words that RVI was narrowly seen as being about the repositioning of the “brand” in Retail - it was not seen as being part of a more complete plan to enhance Shell’s corporate “reputation”. This seemed to many of us a non sequitur – Wally Olins had shown that for monolithic brands there could be no distinction made between the brand in the market place and the overall reputation of the company. By ensuring that Shell’s 45,000 petrol stations gave a far higher level of customer satisfaction we thought that we would make a major contribution to the enhancement of the overall reputation of the Group.

For Shell’s top management the RVI project was just about the re-imaging of our petrol station networks. The crucial consequence of this doubtful logic was that Shell companies (“Operating Companies”) around the world would be expected not only to fund the implementation of RVI themselves but to do so narrowly out of their Retail budget and earnings. So RVI, rather than being a project with momentum and with a strong central commitment and funding, became vulnerable to the vicissitudes of local company priorities. The imperative to effect the changes within three years disappeared and for many years most parts of the world had networks combining sparkling new RVI sites with outdated and in many case poorly maintained sites for which the re-imaging funds could not be found. In effect around the world there were two Shells – and at the top in the Group there was little or no interest in addressing this problem.

That Shell operates at times in a sort of parallel universe where the normal logic of businesses in the real world is suspended, and singularly Shell behaviour patterns emerge, became increasingly apparent to me at this time. The long drawn out and inconsistent implementation of RVI showed that, whilst any branded retailer (including those in the petroleum sector like BP) would see that there was an urgent need to implement a new brand identity as quickly as possible in Shell there was no such imperative. Similarly whilst any global brand would want to drive implementation of a repositioning exercise centrally, Shell was happy to leave the exercise to local decision making. And finally whilst a brand repositioning exercise of this type is a vital and significant strategic marketing project ,and a reputation building corporate identity project as well, demanding central funding and a firm bias for action Shell was prepared to let it drift and was unwilling to allocate any central funds. A strategic project, driven by the sort of “must do” logic so eloquently articulated by David Varney, cannot flourish in a world where ever more demanding performance indictors are put in place and which requires ever shorter returns from any investment.

Through most of its history Shell had been an immensely self-confident brand. This confidence had huge benefits in that, for example, when a new marketing opportunity occurred (e.g. a market entry) there was an expectation that by transferring experience from similar existing operations a successful presence could be built. And the self-confidence also led to a patient acceptance that to establish a profitable business in a new market would take time. In the 1990s this self-confidence began to be eroded and there was a growing reluctance to take risks. This corporate nervousness also led to a period of introspection and to the almost daily search for external gurus to advise on problems - real or imaginary. A bias for the over quantification of every problem crept into the culture leading to over elaborate studies, delayed decisions and missed opportunities.

Those of us working in brand management viewed these trends with alarm. We knew the truth of Lord Leverhulme’s remark “I know half my advertising is wasted, but I don’t know which half!" And we also knew that strong brands stay strong because there is an understanding that they need continuous investment. Whilst any brand manager will strive not to waste any of his communications budget he also knows that advertising is more an art than a science. With the obsessive bias for quantification in Shell, and the ever shorter term measurement periods, advertising budgets were vulnerable and duly attacked. We also viewed with concern the absolute failure of the organisation to recognise that brand investment (RVI, advertising etc.) enhanced Shell’s corporate reputation if it was done well. Historically the tag line “You can be sure of Shell”, whilst mainly associated with products and services, also created a reference frame within which all of Shell’s diverse business was carried out. In this period of the mid 1990s there was a complete unwillingness to recognise this reality – above all to see that brand and reputation are two sides of the same coin – even that they are synonymous. There was no organisational recognition that the management of reputation, and the soon to become a necessity to develop a Corporate Social Responsibility (CSR) policy, were inherent parts of brand management.

It was in 1995 that two events brought the whole reputation management issue into sharp relief in Shell. 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. In Nigeria 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.

In 1995/6 Shell suddenly burst into a frenzy of activity designed to restore the perceived damage to its reputation resulting from Brent Spar and Nigeria. A raft of processes and initiatives was launched which was designed to find out the views of key “stakeholders” about Shell - and programmes were subsequently initiated to communicate a CSR message. This activity was undertaken by a team which was organisationally completely separate from those responsible for the management of the Shell brand. There was no integration of the CSR (etc.) work with Marketing and no understanding that this was necessary. Crucially the CSR team were almost all professional “buy-ins”. They were skilled practitioners in subjects like Sustainable Development and CSR – but few of them had any practical experience of the Energy industry and they were almost all new to Shell. They worked in London, remote from Shell’s local operations around the world, and few of them made any visits to local Shell companies. There was a complete disconnect between the management of the brand and the management of reputation. Throughout the Group quite different people were involved in the marketing communications activity, which promoted brands, and the new corporate identity initiatives, which were designed to enhance Shell’s reputation. The marketing communications budgets were severely cut whilst the comparatively well-funded “corporate” advertising and other “reputation” initiatives grew in significance - but with few links being made to the brand communications work.

Running in parallel with these changes in respect of the presentation of the external face of Shell, internally there was an emphasis throughout the organisation on behavioural 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) but most of the changes centred on a drive for greater efficiencies and lower costs. The old Shell structure was torn apart and the new “businesses” that were created cut across the old lines of geographic control and the country and its “operating company” became wholly subordinate to these vertically structured global businesses. The cost control imperative led not only to the decimation of brand communications budgets but also to swingeing reductions in levels of marketing staff in Operating Companies and to a greater regionalisation or centralisation of decision making. We were getting further and further away from our customers and no longer “thinking globally and acting locally” - the corporate behaviour that had historically created Shell’s global brand strength.

Whilst all of these developments were damaging to the long term health of the Shell brand, and the failure to institute a proper dialogue between marketers and those managing the reputation enhancement initiatives was counter-productive, what none of us could have imagined was that the much hyped “New Shell” would be remembered not so much for these errors but for catastrophic failures of behaviour. In early 2004 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.

If there had been a more confident and integrated approach to brand management (in keeping with the reality that Shell is a “Monolithic” brand corporation) and if there had been a better funded and consistent brand management exercise over the years could this disaster have been avoided? If those working on the corporate reputation initiatives had been more steeped in Shell, and if they had better understood where the business stress points were, could they have much earlier seen a potential problem? Certainly if there had been a real understanding and commitment that behaviour throughout the organisation had to match the rhetoric of the corporate CSR communications then the charge of hypocrisy would have been avoided. The crucial mistake was the lack of co-ordination of all the many aspects of the management of Shell’s public face and the lack of proper checks and balances to pick up the warning signs of dysfunctional behaviour. As many as a hundred people (perhaps more) must have known that Shell was fabricating facts about its reserves. Did none of them see the potential brand damage that this would cause? A truly brand aware company would have identified the risks much earlier.

Finally many global corporations have a director at board level who takes charge of all aspects of that corporation’s brand and reputation. Shell had no such position. By contrast John Browne CEO of BP was advised by one of his communications agencies to appoint a Board level individual as brand and reputation guardian. “Who should it be” he asked. “You” was the reply. Browne accepted this recommendation and BP’s brand has never looked back. BP’s reputation, their share price and the morale of their staff has never been higher. The lesson for Shell is clear – but is it too late? We shall see.

[1] Varney spent almost 30 years at Shell before moving in 1997 to become chief executive of energy company BG. Varney joined MMO2 in 2001 to oversee its demerger from BT, and his other roles include chairman of Business in the Community since January 2002 and council member of the Confederation of British Industry.

How to avoid brand attacks..

From the "Financial Times" Special report on Responsible Business

"The best thing is to try to avoid brand attacks in the first place. According to Paddy Briggs, a former brand and reputation specialist at Royal Dutch/Shell, behaviour is more important than how effectively a company promotes its brand and values.

'If you behave well, the likelihood is your brand will be strong. If you behave badly, and communicate that you are behaving well, not only will you bring your brand into disrepute, you might actually go to jail' says Mr. Briggs"

PR Professionals should avoid the spin and help the client to tell the truth!!

It was Alex Carey, quoted in "The Public Relations Industry's Secret War on Activists", who said "The 20th century has been characterized by three developments of great political importance: the growth of democracy, the growth of corporate power, and the growth of corporate propaganda as a means of protecting corporate power against democracy."

Four years ago "PR Week" magazine reported the results of a survey which asked 1,700 PR executives about the ethics in their industry. The results showed that 25 percent admitted they lied on the job and 39 percent said they had exaggerated the truth. Anyone who has worked in PR, Advertising or corporate communications knows the value of being selective in what you say. A stout defence is always that your message is not untruthful – although, of course, it may well be only a part of a greater truth. As Gerald Ratner found to tell the unvarnished truth about your products or services may be very dangerous!

In April 2004 an Email emerged in which a Shell Managing Director wrote to his Chairman saying "I am becoming sick and tired about lying about the extent of our [oil and gas] reserves and the downward revisions that need to be done because of far too aggressive/optimistic bookings." Both executives (along with some others) left Shell in disgrace and they are now being pursued by various regulatory authorities on both sides of the Atlantic. To all of us with a stake in Shell this was a shameful event – not least because of the revelation that the obfuscation over reserves was not just incompetence, but came from systemic mendacity.

It may be that we now live in a world where we expect to be lied to. We were authoritively told that Saddam’s Iraq had weapons that threatened us. It wasn’t true. We have lauded western-style democracy because we believed that the system placed limits on the behaviour of governments - Guantanamo Bay and Abu Ghraib have shown that no such limits exist. And in the corporate world we have been told that modern corporations have a sense of social responsibility (CSR) which stops them from acting like the bad old capitalists of old. But is that really true? My experience with Shell, and my study of other current corporate cause celebres, suggests that the “wicked” Henry Ford or Andrew Carnegie or Andrew Mellon probably had more deeply embedded moral values than many of today’s industry leaders.

What do you make of the statement by the CEO of Imperial Tobacco in an interview in “The Guardian” that “… the biological mechanisms between smoking and the cause of diseases are still unknown?” He suggests in this remark that he knows better than the World Health Organisation (and all other medical bodies around the world) for whom the links between smoking and cancer and heart disease are beyond doubt. He suggests it because his own self interest – and the business of his company - requires that the matter be seen as doubtful even though the reality is that the true facts have been known for a long time.

In Shell I was part of a process which formulated and distributed the Group’s “Business Principles” which included the statement that "Shell companies do not make payments to political parties, organizations or their representatives or take any part in party politics."Shortly after the publication of these principles I was in Houston where I was told that Shell in the United States ignored this rule and made donations to both major parties. And notwithstanding Shell’s problems over truthfulness this year this hypocrisy has continued. The US Centre for Responsive Politics has reported that in 2002 Shell managed to end up on the losing side by giving more to the Democrats than it did the (winning) Republicans.

Shell’s hypocrisy over political payments is, of course, sadly consistent with its mendacity over other things and yet this is a corporation which seemingly embraced CSR and promoted itself as a model of disclosure. Another example is the commitment to Human Rights in the “Business Principles”. Shell says that it to expresses “support for fundamental human rights in line with the legitimate role of business”. However Amnesty International has stated that Shell is “…implicated in environmental and human rights abuses in the Niger Delta area [of Nigeria]” and when I worked for Shell in the Middle East I was specifically instructed by the President of Shell in Saudi Arabia only to allow distribution of the “Business Principles” if the Human Rights commitment was removed.

At the extreme of corporate dysfunctionality there are corporations like Enron and professional advisers like Arthur Anderson whose behaviour was undisputedly illegal as well as amoral. Shell is in the next rank and we must await the regulatory authorities reports before making a complete judgment on the alleged venality of Shell’s executives. But it is not unreasonable to conclude that greed and pride were the deadly sins that drove Shell’s executives to do what they did. They saw their personal rewards being under threat because of poor (reserve replacement) performance and they saw their status and post Shell earning potential being put at risk from exposure of the truth.

Whilst few would argue that corporate deceitfulness of the scale that we are witnessing today is entirely new (from the Industrial Revolution onwards some businesses have operated without due regard for some of their stakeholders) what is new is the modern regulatory climate and the need not just to be seen to be behaving properly but actually to do so. When the behaviour does not match the rhetoric it not only brings the corporation into difficltulies but it brings the whole profession of PR into disrepute. We have thick skins and like politicians and the media we are used to charges of spin and of being in the propaganda business. I believe that we can be and should be part of the solution not part of the problem. This requires us not just to respond to PR briefs but to question their legitimacy. No PR person or advertising executive should be briefed to peddle untruths – but it is up to us to challenge the substance of briefs and to refuse to get caught up in the dark world of protecting companies or their executives by systematically lying about them.

THE CHANGING FACE OF SHELL

THE CHANGING FACE OF SHELL

An insider’s view of the remarkable world of a corporate giant and how it sought to change the way the world perceived.

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.[1]

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.[2] 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[3] and the Exxon Valdez[4] 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

[1] 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.

[2] 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."

[3] In the early hours of December 3, 1984, gas leaked from a tank of methyl isocyanate (MIC) at a plant in Bhopal, India, owned and operated by Union Carbide India Limited (UCIL). 3,800 persons died

[4] 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.

Article published in PR Week 3rd September 2004

Shell and Saatchi - and the failure of the attempt to build an “inspiring identity”

In 1997 the Royal/Dutch Shell Group called in advertising legend Lord (Maurice) Saatchi to help it improve its image. Saatchi produced a number of adman’s slogans - but amongst all the hyperbole he said one very wise thing. “No communication”, said Saatchi “can work effectively unless backed by real action”. The years which followed Saatchi’s brief involvement with Shell were characterised by a plethora of communications initiatives – but also by actions at the top which have mortally wounded its reputation. The rhetoric and the reality were poles apart.

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 alone in neither fully anticipating these changes nor in developing a strategy to cope with them. Shell has always been essentially unideological – which is why when it was persuaded of the need to create a set of quasi-ideological values and “Business Principles” it struggled. An organisation dominated by technocrats (for whom the processing of a series of inputs in a structured way always leads to entirely predictable outputs) was suddenly confronted by new “stakeholders”. The NGOs were active and the media relished stories about the insensitivity or amorality of big business. It became clear that companies operating in the Energy sector were going to have to get their act together if they were to protect their reputations.

Shell was initially slow to move. The Group’s technological imperative was so powerful that there was a presumption that decision-making would lead always to the “best” technical/environmental solution. And there was also a strong belief in Shell that, because it had operated in more than one hundred countries for well over one hundred years, it was therefore a culturally understanding and caring organisation. 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 around the same time, in Nigeria, the political activist Ken Saro-Wiwa implicated Shell during his “treason” trial by saying “…the ecological war that [Shell] has waged … against the Ogoni people will … be punished.” When Saro-Wiwa was executed some of the world-wide condemnation of the act was aimed at Shell who by association was implicated.

In 1996/7, in response to “Brent Spar” and “Nigeria”, the then Group Chairman Cor Herkstroter became obsessed with the need to protect Shell from the type of vitriolic criticism that it was then receiving. It was at this time that Maurice Saatchi became involved in the project. With his unique ability to get through to the very top of organisations Saatchi had befriended Herkstroter and persuaded him that Shell needed more value based communications.

Saatchi told Shell that what it needed to do was to define what its “Core Purpose” as a corporation was and, under his guidance, Shell’s senior management was convinced that it should define its corporate raison d’être as being “To help people build a better world”. Shell staff were told that this “Core Purpose” would be a “foundation for all our activities and communications”. By the end of 1997 this was launched externally along with a declaration that it was Shell’s belief “…that the future is a better place”. Saatchi said at the time:

"The strongest identities are built on simple truths. It is true that the future is a better place. History proves this. The condition of mankind has continually improved, and …it is also true that Shell invests more in the future than any other company. Together, these two truths provide Shell with an inspiring identity, one which is emotional but underpinned with logic."

To some of us these developments were a striking revelation of how lacking in knowledge the then senior management was of some of the basic rules of PR and corporate communications. That they had been seduced by Lord Saatchi into accepting the “Core Purpose” (which, we believed, was at best incomprehensible and irrelevant and at worst would hold Shell up to ridicule) was astounding. Whilst there was a need for a moral and behavioural underpinning for our business surely it was not credible to claim that Shell’s principal purpose was anything other than the pursuit of growth, reliable future profit streams and the need to offer shareholders good returns. To do this with due regard for all stakeholders was desirable and admirable and necessary. But to claim that our core purpose was to “Help people build a better world” made us sound like the United Nations – not like an energy company.

To manage the reputation enhancement process many professionals were externally recruited to produce both the multi media communications material and a shelf-bending series of manuals for employees. Whilst some of the worst excesses of the Saatchi recommended hyperbole were eventually toned down Shell was soon to launch a series of advertisements and other communications which were highly deceptive. For example by the 1990s Shell was dipping 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 and other communications launched in the reputation campaign focused on this area despite the reality that “Renewables” was a very small business indeed.

A raft of other communications and PR initiatives was also launched - including the publication of the “Shell Report” which itemised how Shell said that it contributed to sustainable development. Shell introduced a positioning that it had a “triple bottom line” which included the need to take account of the “social” and the “environmental” aspects of business as well as the “economic” consequences. There was also the publication of a seemingly unequivocal commitment to Human Rights - although where such a commitment might be frowned upon (e.g. in Saudi Arabia) it was not promoted at all.

The intellectual rigour with which the reputation management systems and processes were developed was exemplary and a huge effort was put into this attempt to secure the moral high ground - but other forces were at work that would ultimately make such an ambition unattainable. Shell managers’ primary challenges were not concerned with Shell’s reputation but with the more prosaic need to achieve short term business targets. Although the communications rhetoric said differently the reality was that Shell’s actual behaviour, particularly in the era of Phil Watts’s chairmanship, was as single-mindedly commercial as ever. This became suddenly and shockingly clear 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 Watts and the resultant crisis was far, far greater than anything that had occurred in the 1990s. Ironically Lord Saatchi had warned that communications need to be backed up by real action – but that warning was ignored when the going got tough. And all of those carefully documented reputation management processes and procedures stayed on their shelves as Shell lurched into cover-ups and confusion at the top.

The “reserves” issue has shown beyond doubt that there was a complete disconnect between the reputation enhancement and communications activity, (on the one hand) and the reality of top management behaviour (on the other). The reputation of Shell has been destroyed by hypocrisy, mendacity and deceit and whether we will ever be able to be “sure of Shell” again is very doubtful indeed. Paddy@Brandaware.co.uk

Shell's new recipe for Marketing leadership

Shell’s new recipe for Marketing leadership

One of the best loved learning methods of Business Schools is to use case studies to illustrate good or bad practice that students can draw lessons from. These cases are either real (sometimes with the names changed to protect the guilty) or fictitious (but with a good dash of reality thrown in). If you wanted to write a case study to put forward a story of a badly wounded brand today you could do worse than to prepare one about the troubled oil giant Shell. Over the last few months Shell has rarely been out of the headlines as further revelations have emerged about its failed decision-making and its deceit at the very top. Three of Shell’s most senior executives (including the chairman) have been fired or pushed aside and the trauma that has followed has inevitably affected managers at all levels and in all of Shell’s businesses. But it is to those responsible for the Shell brand and reputation that we would expect to turn to find the emergence of a strategy which will lead to a recovery of Shell’s once strong position in the petroleum sector.

To most consumers Shell is, of course, best known as one of the great petrol station brands – the largest operator world-wide in this sector and with a reputation based not only on its omnipresence (in more than 120 countries) but its innovation. For example the partnership with Ferrari has conferred technological distinction on the brand which has been well exploited by the development and marketing of its award winning “Shell Optimax” differentiated petrol offer. Given this recent background you would assume that the recovery from Shell’s current difficulties would be brand led – building on the historic underlying brand strength to re-establish Shell’s reputation for leadership and for managerial competence.

Shell’s marketing organisation is located within a management structure called “Oil Products” which covers all of its “downstream” business (“downstream” means that part of the business which refines crude oil into useful products and distributes and markets them to consumers). The head of the “Oil Products” business is a Dutchman Rob Routs who was previously head of Shell’s United States business and who oversaw the unscrambling of the disastrous Joint Venture with Texaco in America. Marketers in Shell and outside would think that that experience would have taught Routs of the key added value that the Shell brand can give – if properly managed. It is all the more surprising, then, that Routs’ first significant action and communication since taking over the leadership of Shell’s marketing businesses is all about organisation and process – and that the Shell brand does not even get a mention in it!

On 17th May all of Shell’s “Oil Products” staff received a communication of more than 1000 words from Rob Routs which not only failed to mention the Shell brand but also ignored the fact that Shell has recently experienced a period in the public eye during which its reputation had been badly tarnished. Many observers would feel that the reputation damage has been a PR disaster of such enormous magnitude that the principal focus of Shell’s marketing businesses for some time to come should be to rebuild the brand. But what Routs has launched under the descriptor “OP-One”, and which purports to be a new “strategic plan for Oil Products”, is not built at all on this reality. The driver for this new plan is not a realisation that the Shell brand is mortally wounded, but a regret about being “out-performed by ExxonMobil and Total in 2003 on earnings per barrel” and a concern that the overall return on capital employed of Shell has “languished well below shareholder expectations” and that the organisation is “complex and costly”. The key metric here is to do not with customer satisfaction, even less with brand strength, but with shareholder perceptions. Ironically it was this focus which led to Shell’s recent difficulties in the first place. The valuation of Oil reserves, and the failure to disclose early that there had been an over-estimate of these reserves, was largely attributable to a wish to be seen by shareholders (or rather by their proxy representatives the financial analysts) as performing well (even though the reality was different).

Shell’s new strategy seems once again to give the shareholder stakeholder pre-eminence over the many other stakeholders that Shell’s marketing businesses serve. The customer only gets a mention in respect of the perceived need for “processes and policies to make interaction with our customers simpler, more consistent and more effective” and for the creation of an “organisational model focused on servicing our customers through customer-friendly processes and systems”. The need to provide greater customer satisfactions in respect of better products and the improvement of the purchasing experience (e.g. at petrol stations) is not covered. And, as we have seen, the overall imperative which most marketers would expect to see - the need to restore confidence in the Shell brand and to release again its underlying strength - gets no mention at all!

The fall of Sir Philip Watts

The fall of Shell’s Sir Philip Watts -
The reasons why

To understand the true significance of the resignation of Shell’s top man Sir Philip Watts it is necessary to appreciate that in an era when Chief Executives of world scale businesses are vulnerable (and many have been fired) no Shell Chairman has ever before been removed early from his post. The reason for this is that Shell does not conform to the conventional model of a business that is followed by virtually all of its competitors and by most other businesses. Such a model would have a classic hierarchical structure with a single Head Office and Board of Directors. Shell has two Head Offices (or "Central Offices" as they are called in Shellspeak) in London and The Hague and two Boards of Directors. This is because the Group is technically two separate holding companies in alliance rather than being a single corporate entity. Companies' legislation requires that these two companies and boards have jurisdiction over the business and that they are accountable to shareholders. The reality in Shell, however, is that there is no real direction from these boards and although they comprise the same people as the senior officers of the Group, they are little more than wielders of legally required rubber stamps. This also reduces the role of the non-executive directors considerably compared with more conventional businesses. The Board meetings of the "Royal Dutch" and of "Shell Transport and Trading" are little more than ceremonial affairs - the real direction of Shell takes place elsewhere.

At the very top of Shell is the "Committee of Managing Directors" or "CMD". Although the collection of individual directors that made up the boards of the two parent companies actually have little responsibility in these boards for running, Shell some of the same directors (the executive "Managing Directors"), have almost untrammelled power when they are gathered together as the CMD. The CMD has been referred to as the "Praesidium" of Shell and whilst this is a rather Soviet sounding term it is accurate. On a day to day basis the CMD takes the key decisions which determine the Group's direction. In that respect it resembles the board of Directors of a conventional business - but without the checks and balances that come automatically from being directly accountable to shareholders or from having non-executive directors actively involved in decision making. Appointment to the CMD has always, before the departure of Watts, been a job for life - no Managing Director has ever been sacked for incompetence or pushed aside in a board room coup.

The Chairman of the CMD is the most powerful man in Shell and historically the appointment has alternated between a Dutchman (who is also Chairman of the Royal Dutch) and a Brit (who is also Chairman of Shell Transport and Trading). The CMD Chairman before Watts was Mark Moody-Stuart, a popular and successful leader who not only inspired great loyalty but who was (crucially) well respected by financial analysts and large shareholder groups. There was much speculation in Shell in the years before Moody-Stuart’s retirement as to who would succeed him - but most expected that it would be a Dutchman who would take over in line with precedent. The favourite was Martin van den Bergh an elegant, well connected and urbane figure with all the right credentials. He had, however, two disadvantages. He was approaching 60 years of age when Moody-Stuart retired and Shell has always followed a strict retire at sixty policy. This could have been relaxed but it was clear that for some there was also the problem that van den Bergh was rather in the same mould as Moody-Stuart – smooth and patrician. And that was how Watts came from way out of left field into the reckoning.

Nobody would ever accuse Phil Watts of being smooth and patrician. Where Moody-Stuart and Martin van den Bergh were products of elite schools and universities Watts was from a far more humble background. He was a hard-nosed technocrat with few social graces and with a style at odds with those (be they Dutch or British) who preceded him as Shell Chairman. In the (as it turned out) misplaced belief that Shell needed a period of a more brutal management style (Watts’s hallmark) he got the job. His failure is attributable to three main factors. Firstly the Dutch (who own 60% of the Group) were less than delighted when an Englishman followed an Englishman and their support for Watts was going to have to be earned by him - he never in Shell succeeded in this task. Second much of the role of Chairman is external and Watts never cut the right figure in the wider business world – in particular he was universally derided by the financial analysts. Third (and crucially) Watts had few Shell friends who would loyally fight his internal battles for him. There were the usual acolytes who made themselves useful to him in their own interests - but few of these proved loyal when the chips were down. Watts had trampled over too many others in his rise to the top to expect that the battalions of middle managers in the Group would fight to the death in his support. He became an increasingly isolated and lonely figure and in the end this affected his judgement – as the debacle over the revaluation of Shell’s reserves, which in the end brought about his downfall, showed.

Phil Watts was perhaps the most notable modern example of the Peter Principle (the theory that employees within an organisation will advance to their highest level of competence and then be promoted to and remain at a level at which they are incompetent) and the ructions following his fall will hang around Shell for a long time.

Shell’s shocking reserve

To understand the current brouhaha over Shell’s announcement of its decision to slash its estimates of proven oil reserves by 20% (which knocked 7% or $7.8Billion off its market value and has seen a clamour in the media for the resignation of Shell’s chairman Sir Philip Watts) you need to be aware of the Shell Group’s corporate culture.

One of the criticisms often levelled at the multinational oil majors (and it is certainly true of Shell) is that they desperately seek certainties to help them in their decision making. It is ironic that in an industry which at its heart has to wrestle daily with uncertainty (in the operational search for oil and gas) when it comes to looking at investment proposals they like to have the confidence that prospective capital programmes will produce adequate earning powers and clear their predetermined “hurdle rates”. Shell has sometimes been accused of being risk averse and of leaving earnings uninvested rather than allocating them to projects where uncertainties exist - and it is true that a bias towards prudent governance lies of the heart of Shell’s culture. This is characterised by a preference, in recent years, for share “buy backs” rather than capital investments or acquisitions but also by an almost Calvinistic seeking for truth and assurance rather than speculation and risk.

The announcement of the reduction in Shell’s reserves was, so Shell claims, driven primarily by its wish to comply with United States Securities and Exchange Commission (USSEC) rules rather than because the physical reality of their hydrocarbon reserves has changed. Indeed Shell’s media statement says “The recategorisation of proved reserves does not materially change the estimated total volume of hydrocarbons in place, nor the volumes that are expected ultimately to be recovered. It is anticipated that most of these reserves will be re-booked in the proved category over time as field developments mature”. In other words “We don’t really think that we have less oil and gas than we used to say we had - we just think that we have to say so to comply with USSEC rules”. Lewis Carroll would have been happy with this – it’s pure “Alice in Wonderland”!

To understand why the whole subject is so arcane and unfathomable to the layman we need to recognize what oil and gas “reserves” are – and what they are not. The proven reserves of any oil or gas field are those which can be recovered in the future under today’s economic and operating conditions. As production from a field progresses a flow of data allows a continuous re-assessment of recoverable reserves to be made. This often leads to a situation in which the declarations of the proven reserves of oil in a field trend upwards over time, in spite of the on-going extraction of oil in the production process. Historically oil companies have been extremely conservative in talking about reserves and in almost all cases the amount of hydrocarbons produced from a field or a region far exceed original estimates. This is partly because the science of forecasting is uncertain but also because, over time, both the technological and the commercial circumstances change. Technological innovation allows more oil or gas to be extracted than originally thought and also a higher world oil price may make some fields economic when they were not at a lower price. At the micro level (i.e. in respect of particular concessions) companies have been know to play down the reserve estimates deliberately to put off their competitors from bidding for adjoining concessions close to the field.

So to estimate reserves at any one time with absolute accuracy you need wholly reliable geological data (which is hard to obtain); knowledge of not just current but future technologies (which are by definition unpredictable)and confidence about economic and political changes over the lifetime of a field (often twenty years or more) which you certainly cannot have. This is not to say that you should not try to make forecasts and it is reasonable that reserve levels are seen as one of the key indicators of an oil company’s health. But the search for reserves as the principal driver of an oil company’s daily behaviour can be hazardous if it takes the eye off the ball of managing existing assets and activities profitably. In managing what you have at any one time you are largely dealing with certainty. In focussing on the pursuit of reserves to the exclusion of much else you are much more in the realms of fantasy.

Shell’s announcement is a direct consequence of their current bias towards openness and disclosure. Wounded by the criticism they received in the 1990s over the Brent Spar disposal and over their activities in Nigeria (amongst other things) Shell instituted a comprehensive programme of public consultation and greater disclosure. As Sir Philip Watts said in a speech to KPMG Global Energy Conference in Houston last year
“In Shell we believe that being trusted is essential both for securing our future and for opening new opportunities, in a world that is increasingly demanding and uncertain. We will continue working very hard to earn that trust.” The announcement over reserves can be seen at least partly in the context of this commitment. It can be contrasted with ExxonMobil’s statement that “We have never had to do anything like this [reclassifying reserves] …in the past, and we would not expect to have to do anything like this in the future.” Now you can believe that the reason for ExxonMobil saying that they are different is because their reserves estimating process is better than that of Shell however this is unlikely to be the case. The reality is that ExxonMobil is more ready to acknowledge the uncertainties associated with reserves estimation and that their management, better than Shell’s, realises that to push this issue to the front of the discussions about their company’s competence and performance would be a self destructive thing to do for no material benefit (other than, perhaps, spuriously enhancing their reputation for honesty).

The Saatchi way with words...

The Saatchi way with words

The universal rejoicing amongst Conservatives when Michael Howard assumed the leadership was almost immediately tempered, for some, when he announced that Maurice Saatchi was to be a joint Chairman of the Party. The fears that the arrival of Lord Saatchi, that most brilliant but flawed of communicators, would lead to a predilection for presentation over substance have all too soon been born out by the publication of the clearly Saatchi inspired “personal credo and core beliefs” issued by Michael Howard.

Students of the extraordinary story of how the two Saatchi brothers created and then destroyed the Saatchi and Saatchi advertising empire are referred to two authoritative works on the subject - Kevin Goldman’s “Conflicting Accounts” and Ivan Fallon’s earlier “The Brothers”. It is difficult to imagine how anyone who has read these books would want either of the Saatchis anywhere near any organisation which purports to be ruled by principle or moral values - but the Tories are not the first to succumb to Maurice Saatchi’s persuasive power.

In the 1990s I was working for the international oil company Shell at a time when there was growing internal concern about how the company was perceived around the world. There was criticism on many fronts of Shell’s apparently uncaring approach to business – not least to the environment with the Brent Spar disposal saga in the headlines. At the same time there was fierce criticism of Shell’s policies in Nigeria prompted by the then Nigerian’s regime’s execution of Ken Saro-Wiwa and by suggestions that Shell had been in some way an accomplice in shoring up that offensive regime. Many of us working in the company at the time thought that the way forward was to institute a properly funded and factual communications campaign (including corporate advertising) which would redress some of the criticism. We knew that (although some of this criticism was justified) Shell, in the main, ran its business in a proper and morally defensible way and that we should say so. But there seemed then little appetite amongst the technocrats who ran the Group for such a campaign and initially nothing happened.

In the autumn of 1997 I was working in the Middle East when I was asked, along with others in the advertising and communications business in Shell, to attend a meeting at which a new communications initiative would be revealed to us. None of those attending this meeting had been in any way involved in this initiative despite the fact that we were part of the relatively small group of communications professionals in Shell around the world. At the meeting we were presented as a fait accompli the basics of a corporate campaign that would be launched internationally early in 1998. This campaign theme was that Shell had a “Core purpose” and that this purpose was to “Help people build a better world”. The presented rational was that history teaches us that things get better over time and so “the future is a better place” and because of this Shell invests – the then Shell capital budget was more then any other company (not just oil company) in the world. This theme was supported by a three minute film featuring a baby (the “future”) against a film montage which depicted the changes of the twentieth century. As this presentation unfolded it became clear that not only had none of us who were Shell communications managers around the world been involved but also that Shell’s global advertising agency J. Walter Thompson (JWT) was also out of the loop. The film and the assorted ragbag of pretentious, boastful and implausible slogans and claims had been developed at the very top of Shell under its head Cor Herkstroter, a sensitive and rather Calvinist Dutchman, aided and abetted by Maurice Saatchi!

After his removal from Saatchi and Saatchi, Maurice had wasted little time in founding a new advertising agency called M&C Saatchi - and it was this agency which had found its way through to Herkstroter and the top management of Shell. Where Herkstroter met Maurice Saatchi (newly ennobled by John Major as “Lord Saatchi of Staplefield”) is not known – they would hardly normally move in the same circles. What is clear, however, is that Saatchi swiftly got himself into a position of influence which allowed him to bypass the established Shell communications structure (and JWT the established advertising agency) and get an assignment to develop a communications position for the Shell brand. This was the “core purpose” positioning referred to above and which was supported by the “baby” film.

Fortunately when Shell’s communications professionals saw the Saatchi campaign proposals a storm of protest gathered force not only because of its preposterous content but also because it had been put together completely separated from Shell’s other advertising and communications initiatives. Although it took a while the campaign was eventually dispensed with – as were M&C Saatchi - and Maurice Saatchi had no further involvement with Shell.

The learning point from the Shell story is that the new joint Chairman of the Conservative Party is one of the most skilled salesmen of the modern era. He and his brother built the world’s largest advertising agency based on their undoubted ability to sell to and for their clients. Their fall from these heights can be traced back to 1987 when the Saatchis decided that they wanted to buy a bank and launched an initiative to acquire the Midland Bank. Suddenly they were out of their depth and potentially in a business that they did not know. They failed in their then wish to be bankers, but in failing they seriously wounded their advertising agency whose shares collapsed. The Saatchis never really recovered form this debacle. The Shell story shows that for Maurice Saatchi the message is everything – even if that message lacks credibility or substance. To suggest that Shell’s core purpose was to “help people build a better world” was as facile as it was patently untrue. But Lord Saatchi was such a persuasive advocate of this positioning that he not only persuaded the top management of Shell but got them in principle to agree to spend hundreds of millions of dollars to promulgate this message.

When I read the Saatchi inspired list of “beliefs” that he has clearly convinced Michael Howard to sign up to, I saw that this list was absolutely consistent with the style of messaging that Saatchi had wanted to force on Shell. If in Shell we had followed Saatchi’s recommendations we would have been a laughing stock - fortunately we just avoided this. Unfortunately for him the Leader of the Conservative Party has fallen into the trap that Shell avoided and he will no doubt spend months deep in the mire of these superficial, anodyne and bland statements that will be rightly derided as all gloss and no substance. No doubt following months of derision Mr. Howard will see that he can do without the shallow “ad speak” that Saatchi has persuaded him to espouse and he might then be forced to go back to the basics of policies rather than the gloss of words.

Of course the war in Iraq is all about oil - Article published in the "Khaleej Times" March 2003

Of course the war in Iraq is all about oil

When President Bush or Prime Minister Blair moralises about the justification for their war on Iraq it is always “freeing the Iraqi people from tyranny” which features strongly in their rhetoric. A pre-emptive strike on a sovereign power is justified, in the minds of these aggressors, by the fact not only that Iraq poses an alleged threat outside its borders but also that there is a moral duty to remove a despot because of what he inflicts on his own people. The poverty of this argument is revealed by the fact that very few of the rest of the world’s largest countries support the action - and that most of the Arab world is staunchly against the war. The moral argument is hard to sustain because whilst Saddam Hussein is unquestionably an evil tyrant if this were grounds alone for military action then there are many other countries in the world where action would also be justified. In Africa, Asia, South America and Central America you do not have to look hard to find despotic regimes which bring misery to their peoples. Yet there is no military campaign underway on moral grounds by America and Britain against these tyrannies. So what is this difference? It is, of course, all about oil.
According to Sheikh Yamani, the former Saudi oil minister, reported in the British newspaper the “Daily Telegraph”, the US is examining ways of privatising the Iraqi oilfields once the conflict is over. "We know oil is very important and already the Americans have started to dispose of Iraqi oil [by offering it to others]” says Yamani." “It is said that Iraqi oil will be kept in custody for the Iraqi nation but they have even started studies of how to privatise the oil industry in Iraq. What does that tell you? The majority of people everywhere say this is a war which is about oil," he concludes.
Iraq, with more than 100bn barrels of proven reserves, is the second largest oil nation after Saudi Arabia. The exploitation of these reserves since the first Gulf war has been limited by sanctions – only production related to the UN “food for oil” programme has been allowed. But an Iraq under western domination – the certain outcome of the War – will bring American and British oil companies to the party like bees around a honey pot. The Telegraph reports that “BP and Shell have … had informal discussions with the [British] Government about Iraqi oil during "routine" meetings”. And Sir Philip Watts, the chief executive of Shell, is reported as saying that his company wants a "level playing field" when opportunities arise. In the US there is probably not even any need for routine meetings – from the President down the US administration is dominated by ex Oil men and they know the score (that the prize at stake for ExxonMobil or ChevronTexaco is those low production cost and huge Iraqi oil fields). It is not hyperbole to say that Western control of Iraqi oil would be a major blow for the unity of OPEC and would have a major impact on world oil supply, demand and price. The opposition of all OPEC members to the American/British military action is in part a recognition of this fact.
Over the past decade all the multinational oil companies have maintained low key, but focused contacts with oil men in Iraq. Although sanctions have prevented them from having any significant interest in current production they have nevertheless maintained good relations at a technical and commercial level. In Shell a full time team monitored Iraq and regular visits were made by Shell executives to Baghdad. There was nothing illegal or (in my view) immoral about these contacts - although Shell was keen that they were not publicised in any way. The internal sensitivity about Shell’s involvement in Iraq (perfectly proper though it was) was illustrated by the fact that, for a time, in all meetings (etc.) Iraq could not even be referred to in Shell by name and had to be called “East Jordan”! There is no doubt that Shell was doing all it could in those years to position itself so that it could take full advantage when sanctions were removed. And there is also little doubt that other British and European oil companies were doing the same (although it was a rather more difficult for the American companies to follow their example because of US legislation).
When Sheikh Yamani refers to “privatisation” he knows that Shell, BP and the American oil giants will be queuing up to be privatisation partners. No doubt there will be window dressing formulae found to present the post war opening up of Iraqi oil production and exports as being for the benefit of the Iraqi people. But you can be sure that (as always) to the victor will go the spoils and that the smiles on the faces of the oil men in The Hague, London and Houston will be as wide as the smiles on the faces of President Bush and his fellow oil men in the US administration.