Happy Birthday "SITME"

One of the more satisfying initiatives that I was involved with in the latter part of my Shell career was the launch and management of the magazine “Shell in the Middle East”, popularly known internally as “SITME”. The intention of the magazine was to promote Shell in the Middle East and we put together a substantial mailing list of recipients across the region including not just the top decision makers but also those in influential executive positions in the public and private sector. The magazine was published in separate English and Arabic editions and it had a clear editorial philosophy. This philosophy was to let our partners, customers and other external stakeholders speak for us in the articles of the magazine – not to use it as just as an opportunity to boast about ourselves! The logic was that in an increasingly “Show me” world we would be more believable if we ensured that it was those who knew us who spoke about us. This seemed to work well and the magazine, under the skilled editorship of Bobby Schuck and his wife Sue (both highly experienced and skilled journalists) the magazine went from strength to strength – it has just celebrated its tenth anniversary and 40th edition.

SITME was deliberately different not only from other more overtly PR style magazines elsewhere in Shell but also from anything that the Middle East region had ever seen before (or since). The dead hand of corporatism was kept away from SITME and I and later Managing Editors were able to pursue a style and agenda that was distinctive and appropriately designed for its task. I hope that SITME will continue to flourish in a Shell world that is increasingly dirigiste and centralised and that its uniqueness will continue to be valued. Happy Birthday SITME!

More on "Clearing the Air"

“Clearing the Air”

Further thoughts on Shell’s misleading advertising

My recent article criticising Shells’ “Clearing the Air” GTL advertising campaign has generated a (mostly) healthy debate here and there. I hope that those who have criticised my piece are now satisfied (a) That there are no inaccuracies in it (b) That I am certainly not anti GTL or anti any other development which will mean improvements to our well-being and to the environment in the future. But as someone who has been active in the world of advertising and communications for more than twenty years I believe that it is legitimate that I pass judgment on advertising which is as ill-thought-through and as misleading as this campaign.

To add to what I have already said about “Clearing the Air” let me quote and comment on the copy of the TV commercial (TVC) currently running in the UK. The copy runs as follows:

“As the air in the world’s cities becomes more polluted are we running out of options? To help solve problems like these we need creative thinkers with different ideas. Like starting with cleaner Natural Gas not Oil to create a gas to liquids fuel. Find out how one company [Shell] is helping to reduce city emissions by up to 40% on diesel vehicles.”

There is also an on screen caption at the end of the TVC which says:

In cars tested to May 2007 the typical range was 26% to 40%.

Let us just dissect this copy and how why it is misleading. The intention is to suggest strongly that the reason for the development of GTL technology by Shell was to “…help solve problems” like the fact that “the air in the world’s cities becomes more polluted”. The reason for the development of GTL technology was to produce middle distillate products from Gas in those (very) special situations where it was felt that conventional Gas reserves exploitation could be augmented by the conversion of some of the Gas to liquids – and where such conversion could be economic. The only commercial scale plant in operation at present is the 14,700 barrels per day facility in Bintulu Malaysia – this is equivalent to less than 3% of Malaysia’s total oil consumption. Whilst it is true that if the GTL product is consumed in Malaysia then it could perhaps have a miniscule effect on air pollution - but 97% of Malaysia’s growing oil consumption will be of conventional oil products from oil refineries. Malaysia’s annual growth in oil consumption far exceeds the annual production of the Bintulu plant.

In a few years time the much larger Qatar GTL plant will come on stream and this will produce 140,000 barrels per day. This will be roughly equivalent to Qatar’s total oil consumption in 2010 so it is reasonable to assume that much of the product will be consumed in Qatar – although some will have to be traded (no gasoline will come from the GTL plant so this local demand will continue to have to be ex-oil refinery). The traders will no doubt try to secure a price premium for the environmentally friendlier NGL middle distillate compared with conventional gas oil. If we look at this at a Middle East level then in 2010 the region is expected to consume 12.2 million barrels per day of oil in that year so the Qatar plant, if it is on stream by then, could provide just 1% of regional oil consumption if it is all sold in the region (including in Qatar). 99% of the Middle East regions’ oil consumption will be of ex-refinery products.

I mention these figures just to illustrate how misleading Shell’s advertising is. The claim is that Shell’s GTL “…is helping to reduce city emissions by up to 40% on diesel vehicles.” At a micro level this is no doubt true. Any one vehicle does perhaps indeed produce 26% to 40% less emissions on GTL compared with conventional diesel. The point is that there are hardly any vehicles on the roads anywhere in the world doing this and this will remain the case for the very long term indeed! Even in Qatar the beneficial effect will be small and across the Middle East region as a whole (if that is where the product is sold) it will be negligible.

GTL is a good thing and it would be churlish to deny that over the very long term it will have a place in the world’s oil consumption mix. But the “Clearing the Air” advertising wishes to suggest that Shell is at present “helping to reduce city emissions by up to 40%” with GTL - this is simply not true! Even in Malaysia where the only producing plant is operating the production is so small as to have no measurable effect.

Advertising has to be “Legal, decent, honest and truthful”. “Clearing the Air” fails this test – Shell should withdraw the campaign.


© Paddy Briggs February 2008

"Clearing the Air" Who is Shell kidding?

If corporations, especially energy giants like Shell and BP, ever wonder why they are vilified by environmentalists and accused of “Greenwash” one objective viewing of the latest Shell film “Cleaning the Air” should tell them why. This highly professionally made paean to the virtues and responsibility of Shell shows the company seemingly single-handedly trying to solve the problem of city air pollution is a misleading farrago of half-truths and lies. Let’s get out of the way first the overtly “romantic” undertone of the film as handsome young twenty-something male Shell scientist Theo eyes up and then chats up a gorgeous young sceptical female colleague whom he eventually convinces (business-wise anyway) by delivering synthetic diesel fuel for some taxis at the 2004 Athens Olympics. I suppose that the intention here was to show that Shell employs human-beings with all the foibles and fantasises that we all have. The misty images and stolen glances of this embryonic romance, brought to earth (or maybe not) by the revelation that the young woman has a daughter, is as facile as it is irrelevant. If I want romantic escapism I’ll watch a Richard Curtis film thanks.

But it is the false premise of the film, not its soppy story line, which most offends. Theo we are told has a job which requires him to “tackle the problem of city air pollution”. What nonsense! Nobody in Shell has such a job – it’s not what a multinational energy company is for. Tackling cities air pollution is the responsibility of city political leaders or national governments - even supra national bodies like the EU, but not oil corporations whose sole raison d’être is to deliver value to their shareholders. If a consequence of developing Gas To Liquids (GTL) programmes is that gradually the air in cities will become cleaner than that’s good news for all. But Shell’s driver in its GTL programme is not environmental it is commercial. If there is money to be made in GTL then Shell will be in it – if not, not. Period!

The mendacity of the film “Cleaning the Air” is the clever proposition of the premise that Shell is in the GTL business because it cares about pollution. Aside from the convoluted logic which allows any anonymous corporation to have feelings at all there is no evidence that Shell has ever or will ever take a major business decisions for purely environmental reasons – and it is preposterous to imply that the main driver of the GTL business is environmental. The stakes are too high and the costs too massive for there to be anything other than a cool business driver behind Shell’s GTL programmes. That’s how it is and that’s how it should be - for GTL to fly there has to be a hard-nosed evaluation of costs against benefits. So in the Qatar project (140,000 barrels per day of GTL products) the project planners will have satisfied themselves that it makes economic sense to convert a small proportion of the State’s huge gas resources into middle-distillate – principally, I suspect, for local consumption as gas oil and diesel fuel. Little if any of this synthetic distillate will find its way outside of Qatar and there will be no measurable benefit on city air pollution. I don’t recall the small city of Doha being particularly polluted anyway - although the fact that a by-product of the plant’s production of GTL fuel is that it will be a bit less so is to be commended – I suppose!

The facts are that GTL is only an option where there are massive gas resources and where the conventional uses of gas are limited or non existent. Gas is mainly used for electricity generation or space heating in the developed and (mainly) northern hemisphere world. It makes no commercial sense to convert any or Europe’s gas to liquids, for example, when there is a growing conventional demand for all the gas that Europe produces. The same applies in North America. It is true, I guess, that is possible that a Government in a European country could offer subsidies to encourage automotive GTL use rather than refinery fuel. But it’s not very likely is it – certainly in the short to medium term?

The 2004 Athens Olympics “GTL in taxis” exercise was no doubt useful to show some people that it is possible to covert gas to synthetic diesel and to run diesel cars on the liquid. But it was not a commercial venture it was a PR stunt. How many cars in the Greek capital today run on GTL fuel I wonder?

Of course much of advertising is designed to accentuate the positives and eliminate the negatives in products, services or businesses. Most of us have a fairly sceptical reaction to advertisers’ messages and a live filter to stop us being fooled. But “Cleaning the Air” is a pretty mucky example of the corporate communications advertising genre. It suggests, implies, and hints at things that are simply not true. There is no likelihood of GTL being a significant factor in any of the world’s most polluted cities for the foreseeable future. That Shell has the technology to produce GTL is commendable and there are some very clever people involved. That Shell has solved the horrific problems it encountered in its small Malaysian plant is excellent as well. But as one authorative source, “Chemlink”[1], has said

“It is clear that the commercial success of GTL technology has not yet been fully established, and returns from GTL projects will depend on projections of market prices for petroleum products and presumed price premiums for the environmental advantages of GTL-produced fuels.”

Price premiums will come only if governments specifically offer consumers and businesses advantages if they choose synthetic fuel over normal refinery fuel. Such a development is a long way away and except in very special circumstances it may never happen. So for Shell to develop a whole advertising campaign around something that is at best tiny in its impact for the foreseeable future is disingenuous in the extreme.

© Paddy Briggs February 2008



[1] http://www.chemlink.com.au/

Response to article in The Guardian by Jeremy Leggett

Response to article in The Guardian

http://www.guardian.co.uk/commentisfree/story/0,,2252581,00.html


Jeremy Leggett makes some excellent points in this article and he is quite right to draw attention to the continual failure of Shell and other oil multinationals to invest in exploration and production. Shell’s continued affection for buybacks and BP’s recent massive hike in dividend payments show that it is the stockholder stakeholder who is the most favoured recipient of largesse. Cash “given back” to shareholders is, of course, cash denied to capital investment or to other potential beneficiaries such as employees, pensioners or the community at large.

This is not a temporary phenomenon - there has been a strategic shift in the industry that is irreversible. The power which was once in the hands of Exxon, Shell, BP and the others has shifted almost entirely to the National Oil Companies (NOCs). Remember that the growth of the oil industry was characterised by a corporation like Shell having skills and resources that the countries with the hydrocarbon resources lacked. So Aramco, Nigerian National Petroleum Corporation (NNPC), Petroleum Development Oman and the rest were established on the basis that the western oil company brought the technical expertise and the funding and the NOC partner was essentially a sleeping partner who simply banked their share of the income streams. Those days are long gone and whilst there will still be some areas where the multinational is the prime mover the shift to the NOC is almost complete everywhere. In Nigeria Shell is expected to lend NNPC the funds to cover the State's share of the budget of SPDC, the joint venture E&P company and this may shore up Shell’s position in that country in the short term. But Nigeria is the exception and with oil prices at $90 a barrel most NOCs have income galore to make them largely independent of the multinational giants.

So the model for the future is the oil-poor world continuing to grow economically but needing oil and gas imports to fund that growth – the United States the largest and most obvious example. The western oil companies will continue to exploit resources in their western homelands – increasingly non-conventional resources such as the Canadian oil sands. But their traditional role as explorers and producers in the rest of the world will swiftly decline (as it already has substantially) because the NOCs frankly don’t need their help any more. In many cases the NOCs already have as much expertise as the multinational companies that they used to rely on. Where that expertise in a particular technical area is missing then the NOC can buy it in from (for example) a Schlumberger rather than being forced into a partnership with an oil company. Existing partnerships, such as PDO, may well continue for a while but once the new generation of leaders in Oman begins to take power it is not conceivable that they will continue to tolerate a situation under which a substantial proportion of their revenue streams from oil and gas go not to their own people but to western companies - primarily Shell.

Jeremy Leggett is one of the pessimists who argue that oil production is close to peaking and that as a result the western world’s over-dominance on hydrocarbons will imperil their economic future. However when he says that the National “…oil and gas producers are going to start keeping what remains for themselves in an effort to feed their own economies” he is being disingenuous. Whilst some of the major resource holders do indeed have large populations and large economies (North America and Russia in particular) in the main reserves are concentrated in countries with small populations relative to their hydrocarbon wealth - Saudi Arabia, Kuwait, the United Arab Emirates, Libya, and Qatar in particular (these five countries have 40% of the world’s proven oil reserves between them). In addition other major resource holders such as Iran, Iraq, Venezuela and Nigeria are likely to remain substantial net exporters for a very long time as their economies are comparatively undeveloped and not very energy intense.
I would draw rather different conclusions than Mr Leggett from his analysis. I agree that the multinational oil companies’ days are numbered and suggest that they will have to institute further consolidations and mergers to survive at all. They are also highly vulnerable to the more sophisticated of the NOCs who might envy the multinationals’ downstream strengths and try and acquire these refining and marketing assets. There are also political attractions for (in particular) Russia to use their financial muscle to swoop on Shell or BP – what pleasure that would give Mr Putin! However the main changes in the next couple of decades are likely to be a growing strength of the OPEC producers and their diversification (using oil revenues) into other business areas around the globe. The most entrepreneurial of the oil rich states (with the UAE in the lead) are well underway with their strategy of using their financial (oil driven) strength to acquire a range of non oil assets in the west.

There is a case to be made that the principal challenge for the west for the foreseeable future will not be how to cope with “peak oil” but how to cope with the shift in control from the old world in which the multinational oil companies played a significant part to the new world where both the control of hydrocarbon assets and, increasingly, other core businesses is in the hands of a small number of increasingly powerful new players – especially in the Middle East and North Africa. That will be a political challenge for the nest US President – perhaps his (or her) principal one.


© Paddy Briggs February 2008

The perils of mediocrity

“Thrusting mediocrity rises to the surface in almost every sphere”

This is a quote from Tariq Ali who was writing about characters in Anthony Powell’s “Dance to the Music of Time” - but it struck me immediately as being very true of Shell today.

When I left Shell after 37 years back in 2002 there were a number of colleagues much younger than me who I rated and respected and who I thought were the future of the oil giant. Almost without exception they have left the corporation over the last few years. To illustrate the point I will pick out two of them but, to spare their blushes, I will keep their names anonymous!

Michael

Michael is twelve years younger than me but before he was fifty he had already run four big Shell businesses – three as Chief Executive overseas and one global business. Michael is seriously bright, well-educated (MBA etc.) and creative and original. He performed exceptionally well – all of the businesses he ran delivered good results. He left because of his growing contempt for Shell’s senior management who he saw as greedy, short-sighted, conniving, unprincipled and not very competent. Michael now runs a FTSE 100 level company in the UK. In a few years he could have been running Shell – but he isn’t mediocre enough!

Charles

Charles is almost a generation younger than Michael but, like him, very clever and ambitious. When I first got to know him he was in his twenties and already MD of a Shell subsidiary in the Middle East. I worked with him when he was in this job and admired his originality, hard work, loyalty to his staff and superb relations with stakeholders in a difficult environment. He was pitched in at the deep end in this job and did exceptionally well. I thought Charles to be one of the highest potential young people I had seen in my time in Shell. But, like Michael, Charles become disillusioned, and for largely the same reasons. In addition he did not feel that his career was being thoughtfully managed and as a high flyer, and still only in his thirties, he felt that the prospects outside were better and he too left. Like Michael he was not mediocre enough to stay.

The point about both these stories is that Shell should have bent over backwards to look after two very able people and they didn’t. And they should have realised that the changing culture of the company, which so alienated Michael and Charles, would be likely to alienate others as well. I hear that it has - and I know of at least ten other examples of good people who have left prematurely because they couldn’t stand it any more. Very sad.


© Paddy Briggs February 2008

Running out of oil ?

We'll begin to run out of oil in 7 years, says Shell

See: http://www.express.co.uk/posts/view/32789/We-ll-begin-to-run-out-of-oil-within-7-years

Plus ça change! When I was in The Netherlands in the early 1980s I sat on the Energy commission of the Ministry of Economics as Shell’s representative. There was much debate at the time over the high levels of profits that Shell was making from its (part) ownership of the Groningen gas reserves. Part of Shell’s defence of these profits was that the reserves were finite, that much investment had been made upfront, and that, therefore, it was legitimate for the company to get a good level of financial return. The key variable in this argument was the extent of the reserves. Obviously Shell’s argument to be allowed to secure high levels of return on capital was boosted if the reserves were estimated at a lower level - the higher the actual reserves then the longer they would last and the longer that Shell’s profit streams would last as well. Shell’s reservoir engineers and others assessed the Groningen reserves at a particular level and published their estimates. Shortly after this the then Professor of Energy Studies at Erasmus University in Rotterdam, Peter Odell, went public saying that Shell and other oil majors consistently underestimated hydrocarbon reserves. His argument, as I recall it, was that insufficient attention was given by Shell to future scientific and technology advances that would allow difficult reserves to be tapped or would turn uneconomic reserves into viable ones.

Given Shell’s more recent propensity to over-estimate rather than under-estimate reserves the Groningen story is somewhat ironic! However the substantive point of Odell’s argument remains valid and he was certainly proved right over Groningen where Shell’s estimates of the early 1980s have proved to be huge under-estimates. Odell knew that it was in Shell’s interests to preach a pessimistic credo about Groningen – and it is in Shell’s interests to continue to be pessimistic about reserves at a global level. Why? The main reason is the same as it was back in the 1980s – the wish on the part of the Oil majors to avoid the imposition of windfall profits taxes. The three largest oil companies (Exxon, Shell and BP) made nearly $60billion in profits over the last year between them (Shell $18.2billion). With oil continuing to be priced at around $90 these levels of profits are pretty much assured for the foreseeable future. Shell argues that it is up to governments to support diversification away from traditional energy and is looking for subsidies to develop its Renewables activities - again this argument is reinforced with a doom and gloom scenario over reserves in relation to increased demand. Similarly Shell has a huge potential profit stream from the development of its oil sands projects – especially in Canada. These projects are controversial for environmental reasons but permissions to proceed can be expected to be easier to obtain if legislators are worried about future energy supply security.

History teaches us that man has an almost infinite capacity to innovate – not least where hydrocarbon production is concerned. High oil prices are a driver of innovation and this, when combined with the certainty of increased global oil demand and the near-certainty that energy use throughout the 21st century will continue to be dominated by hydrocarbons means that we can expect the spur for innovation to be high and the technology effects on production to be considerable, if unpredictable. But to suggest that “We’ll begin to run out of oil within 7 years” as the Shell-inspired Daily Express headline suggests is nonsense and alarmist. Calculated self-interest is at play here and nobody should be fooled by it.

© Paddy Briggs January 2008

Making it green and keep them clean

Comment on article in The Guardian:

http://www.guardian.co.uk/media/2008/jan/21/marketingandpr


This is a timely article, and of course the ASA was right to castigate Shell for its particular lie about CO2 and flowers. But really this was just a trivial little porky pie in the context of the mendacity of much of the oil giant’s corporate adverting in recent times. Shell is not alone in this of course, but there is a special offence given when the facts of the company’s business – facts which are open for all to see – are glossed over and instead we are subject to a barrage of greenwash on a daily basis.

Having worked for Shell for 37 years I know what the business imperatives are – and I wouldn’t have stayed so long if I didn’t think that these imperatives were perfectly honourable. It shouldn’t need saying but here is a précis of what those imperatives are. Around 99% of Shell’s efforts are focused on the search for, and the discovery, harvesting, transporting, processing and marketing of oil and gas - hydrocarbons from that diminishing stock of geological formations under the ground. That’s what Shell does, what drives their profits and what they are, in the main, very good at. It is fantasy to suggest that that there is any other strategy than the continuation of this business – this is the business! Now Shell likes to operate cost-effectively so there is a bias to ensure that waste is reduced as much as possible – but only if it makes economic sense – not because there is a spurious corporate conscience. So flaring (for example) is reduced primarily because it is waste of assets. But where the costs of reducing flaring exceed the benefits then it doesn’t happen – unless legislation says that it must. Technically Shell could have eliminated flaring in Nigeria years ago – but the cost/benefit analysis didn’t give the right numbers. So they dragged their feet.

Let’s look at processing – for example in refineries. The imperative to reduce waste is an economic one – efficient refineries are those which do not waste fuel. So reducing the amount of energy needed to refine a tonne of crude oil is primarily an economic issue. Shell does avoid waste because it believes that it is environmentally irresponsible not to do so. It does so because the bottom line benefits.

Finally the old chestnut of “Renewables”. I and others have argued for a while that Shell is only in non-traditional energy such as solar and wind for the PR benefits that accrue. There is some simplistic communications strategy going on that says that if your advertising focuses (say) 80% on something that is in reality less than 1% of your business the public will be fooled. But as David Ogilvy once said the public is not a fool – she is your wife!

Not all bad news

Whilst much of Shell’s advertising is like the CO2 flower example direly misleading there is hope. The “Eureka campaign” (see: http://www.shell.com/home/PlainPageServlet?FC=/aboutshell-en/html/iwgen/shell_real/shell_solutions/films/app_view_film.html) I thought was excellent because it told the truth.

Shell should stop posing as some sort of environmentally virtuous benefactor to the world and concentrate (as it did in “Eureka”) in telling the truth about what it does. Then it might be more believed on other things as well.

© Paddy Briggs January 2008

The phoney hype from Shell on Scenarios

The phoney hype from Shell on Scenarios

And so another Shell CEO is to be feted at Davos as he presents the oil giant’s latest “scenarios” – the hype being , of course, that these scenarios shows the company’s intellectual edge in planning and decision-making. Having been involved in Scenario planning from time to time during my Shell career I can see this phoney exercise for what it is – pompous and self-aggrandising PR which has little or no benefit to any of Shell stakeholders.

Here is what the Wikipedia entry on Shell’s use of Scenario planning says:

“Observers of Shell's use of scenario planning have suggested that few if any significant long term business advantages accrued to Shell from the use of scenario methodology. Whilst the intellectual robustness of Shell's long term scenarios was seldom in doubt their actual practical use was seen as being minimal by many senior Shell executives. A Shell insider has commented "The scenario team were bright and their work was of a very high intellectual level. However neither the high level "Group scenarios" nor the country level scenarios produced with operating companies really made much difference when key decisions were being taken". The use of scenarios was audited … in the early 1980s and they found that the decision making processes following the scenarios were the primary cause of the lack of strategic implementation, rather than the scenarios themselves.”

In my experience this is a very accurate description of what really went on and I have no reason to assume that it is any different today. I worked as part of a small team in Rotterdam on long term scenarios for The Netherlands in the early 1980s. It was very interesting work, intellectually stimulating and directed by very clever people. Over a year or so we created three scenarios (internally consistent possible futures) for The Netherlands each of which addressed economic, social and energy developments over 20 years. The scenarios were launched with much panache, placed firmly in the public domain – and then quietly forgotten. The principle that when considering a major strategic decision you test that decision against possible futures was as far as I know never followed. Later in the decade I was in Hong Kong and contributed to a similar scenario process for China. Grappling with uncertainty (and the future of China was very uncertain at that time) scenarios were supposed to give us the edge – especially when it came to strategic investments. But once again although the scenario work was robust and intellectually meretricious there was no actual use made of the scenarios at all.

One clear illustration of how decision making in Shell was and is always expedient, self-interested and often hugely over-cautious (as the Wikipedia entry rightly says) is with regard to Russia. Scenarios for Russia in its post USSR mode were certainly under preparation in the late 1980s/early 1990s and although I was not involved I would be surprised if one of the scenarios was not a “Resurgent Russia” story. Under this scenario Russia would pick itself up from its low ebb in 1990/1991 and, driven by high oil prices, recover economically, socially and politically. Under “Resurgent Russia” there would be a strong and popular leader, some watering down of the commitment to parliamentary democracy and a more dirigiste and nationalist approach to financial planning and management. Let’s assume that such a scenario existed at the time of the original Sakhalin negotiations – carried out at a time of extreme weakness on the Russian side in the early 1990s. Had scenario planning meant anything then surely the possibility of the resurgence of Russia would have been taken account of in the negotiations? Surely in those circumstances a deal with Russia which was more equitable to them would have been struck – rather than the unequal contract that so strongly favoured Shell and which President Putin later tore into pieces as Russia became stronger and more confident?

The invitation to Jeroen van der Veer to speak to world leaders at Davos will no doubt give him a warm glow that he, and Shell, are legitimate movers in the refined air of the “World Economic Forum”. And there will no doubt be approval of the new scenarios as I am sure that they will be as intellectually solid and stimulating as ever. But if pressed (as he should be) to give one example of how these scenarios are actually to be used in Shell strategic decision-making he will struggle. Because there is no evidence at all that Scenario planning has made a hapeworth of difference to Shell’s actions or performance over the years. Like so much of the public face of Shell the rhetoric is a long way from the reality.

© Paddy Briggs January 2008

Employees as valuable assets in building your brand

I attended the memorial service today of David - an old colleague and boss of mine who joined Shell way back in 1952 and who had been retired a couple of decades. He was a wonderful man - individualistic, cantankerous, intelligent, rude, caring, creative, trusting and above all humane. The church was full and there were many of his old colleagues present to pay their tributes. As I watched them, and thought about David, I wondered what he and they would make of the spiteful, greedy, selfish, ignorant bunch that run the show today. Perhaps David would have shrugged his shoulders and said something about bygones…and maybe he would have been right! But he would certainly have been disillusioned and disappointed by the Shell hypocrisy that on one hand says that it will:

“respect the human rights of our employees and provide them with good and safe working conditions, and competitive terms and conditions of employment...promote the development and best use of [their] talents …create an inclusive work environment where every employee has an equal opportunity to develop his or her skills and talents… encourage the involvement of employees in the planning and direction of their work… provide them with channels to report concerns.” (Shell Group Business Principles or SGBP)

whilst on the other hand laying them off in vast numbers in homage to the great God of “outsourcing”.

I have told a personal “outsourcing” story from my last years in Shell elsewhere before - but it is worth repeating again to throw light on the current imperatives.

Seven years ago I was working for Shell in Dubai where there was a small and successful downstream (marketing) operation. This was a fairly conventional business involving the marketing of a wide range of petroleum products to a variety of different customers across the United Arab Emirates. A key element of this business was, and always had been, the operation of a product distribution/transportation activity involving oil depots, vehicles and drivers. For more than thirty years this business had been built up as a professional, cost-effective and customer focused operation. It also had an admirable safety record (in a high risk area) and the staff of thirty or so tanker drivers were a loyal, skilled and motivated team. In the late 1990s Shell’s Central offices sent a new Distribution man to the region and, operating out of Oman, he visited Dubai charged with the responsibility of “outsourcing” the transportation operation. When challenged by me and others in the management team in Dubai as to why this was necessary he said that it was now “company policy” to outsource this business (i.e. to sack the drivers and sell the vehicles). A number of us were incensed by the insensitivity of this and we demonstrated that not only would no cost savings occur but that we would be needlessly disposing of the services of a team of loyal and skilled drivers each of whom was proud of his personal safe driving record and a motivated member of the local Shell family.

Well the battle raged on for a while with the argument that to go arm lengths in an area as safety sensitive as dangerous fluids distribution was bad practice – especially as no possible cost savings would result. Furthermore to dispense with the services of the drivers many of whom had up to thirty years service hardly sat well with the SGBP! But this was ideology at its most sinister. The man from Oman had on his “scorecard” the target of outsourcing in Dubai. If he succeeded his remuneration would benefit – as well, of course, as showing that he was a loyal implementer of the new edict. He didn’t care one jot about the employees or their futures – all he cared about was showing himself off in a good light. Well we did fight on but in the end we lost. The drivers were sacked and the operation was outsourced. The irony of this story is that there was no financial benefit to Shell at all from the decision. Outsourcing (in this instance) wasn’t cheaper – it was simply the application of a dogma!

Back to my late friend David. He worked in Shell in an era (as did I mostly) when the commitment to employees wasn’t just words but reality. That was why so many of us, including David, were “one company” men and women. It wasn’t perfect and it had its frustrations and disappointments – but it was rarely if ever malign or uncaring. A business like Shell is about people – and when people are treated as disposable commodities then the values of the corporation disappear and the rot sets in. And today, sadly, Shell is rotten at the core.

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

Article from "Market Leader" Autumn 2006

Managing brands in the oil industry - the case for demerger
(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.”

The recent call by the respected financial advisor JP Morgan Cazenove for oil giant BP to split itself into two separate corporations, upstream (exploration and production) and downstream (marketing), will have struck a chord with many marketers in the international oil industry, as well as with the financial sector. In this article ex Shell Brand executive Paddy Briggs explains some of the background to the issue and outlines what the marketing and especially brand advantages of such split for BP, Shell and the other oil majors would be.

Marketing drives production…

Experienced marketers know that there are often tensions in companies between those in the factories who produce, and those in the marketplace who sell. But in the best customer-driven companies these tensions are usually resolved by managers making a judgement about what is in the best long-term interest of the brand, and therefore of the consumer. All of the world's great brands do, of course, have to source or produce their products and services - but the manufacturing process is always subservient to the market and must always deliver products that the consumer wants to buy at a price that they can afford. The world's great brands have reached their prominence by having a customer obsessive mindset throughout their organisations - and especially at the top.

…but not in the oil industry.

Consider, for a moment, an oil industry multinational such as BP or Shell. The success of these energy companies over the past seventy-five years has been primarily built on their technological competence and innovations in the "upstream" and on their willingness to invest heavily in the search for new hydrocarbon assets. This imperative undoubtedly still drives the business today - it is the main source of the companies' profit streams and it is where, by far, the largest proportion of the companies' investments are made. Unsurprisingly most of the members of the senior management teams of these corporations have been chosen from amongst their successful practitioners in the upstream.

But most multinational oil companies are also world-scale branded marketing businesses - they are, then, a curious amalgam of a global, branded consumer business (on the one hand) and a high technology raw material extraction, production and processing business (on the other) - and there is only the very loosest connection (and no interdependency) between these two segments. Shell or BP’s consumer business (most visibly their petrol station networks) is not in any way dependent on their production business for its products, which can be (and are) obtained from any available supply source. Whilst there may be “value added” along the supply chain from production to consumption this is incidental – there is no need to have a vertically integrated structure in order to realise that value - each segment is independent.

The call to split up BP.

Cazenove's suggestion that BP be split into two quite separate businesses and corporations will have probably been welcomed by BP's marketers - for in all oil Majors managers in the “downstream" struggle daily with the reality that marketing is the poor relation of exploration and production. The consumer end of the business is always subordinate to the upstream search for, and production of, Crude Oil and Gas. Consumer-driven marketing and production-driven geology, engineering and technology are quite different disciplines - and there is little evidence that those with talents for the latter field can also be competent in the former. But whilst the upstream is their main focus of attention, and their main source of profitability, companies like BP, Shell and ExxonMobil also have substantial marketing assets, strong marketing brands and millions of customers. Shell is the world’s leading branded retailer (in any product category) with around 45,000 petrol stations in around 100 countries (compare this with McDonalds 30,000 restaurants). But in my experience matters related to this huge business occupied little of the time of the company's senior management and were rarely agenda items at board meetings.

Successful marketing requires focus on a single skill.

Historically the big players in the oil industry created vertically integrated businesses with marketing, as the final link in the chain. In the past marketing was a core competence to such an extent that many of the most memorable advertising campaigns in both the inter-war year and the post war decades were from the oil industry. Mention "You can be sure of Shell" or "Esso Blue" to a British baby-boomer and he or she will sing you the jingles that went with the campaigns. In the years before the first oil crisis of 1973 we were all "going well with Shell" and believed that the "Esso sign meant happy motoring". In Britain one of the reasons for this marketing success was the existence of a company, now long forgotten, called "Shell-Mex and BP Ltd." - a joint venture between Shell and BP to market products under these two brand names in the British Isles which was, for a time, one of Britain’s largest companies. Shell-Mex and BP was "only" a marketing company and it did not even run refineries. The company’s products came mostly from its parent companies which then substantially left it alone to build its business. Because it was exclusively a “single skill” marketing business Shell-Mex and BP’s board of directors, and all of its managers and employees, concentrated principally on brand management and on the customer. It was also a very innovative company creating the concept of self-service at petrol stations and the domestic central heating market amongst many other customer-led products and services.

Yielding lost value

The likelihood that dedicated marketing companies would more successfully manage consumer brands in the oil industry was no doubt part of Cazenove's thinking in their suggestion for an upstream/downstream split for BP. Cazenove has suggested that such a demerger could "yield £35bn of lost value to shareholders" - an astonishing sum but no doubt they have done the math. Certainly the downstream businesses of the Oil Majors are huge concerns with assets, revenues and an international scope that would make them world class businesses on their own. The most compelling reason for a demerger is, however, not just that the resultant downstream businesses would be substantial but that the management of them would be 100% focused on the brand and on the customer. Take the most visible asset that a BP or a Shell has - their worldwide networks of petrol stations. In some markets tentative steps have been taken in recent years to use these assets to market a wider range of goods and services (notably convenience stores). Imagine how much extra impetus would be given if this retailing, rather than being seen primarily as the thing that you do at the end of the integrated oil chain, was the primary focus of the business.

Extracting maximum brand value

The brand implications of a upstream/downstream split for Shell or BP would have to be carefully considered but coincidentally each of these corporations has an obvious strategic brand solution readily available.

For Shell the Shell brand and logo and visual identity system could be allocated to the new downstream marketing business. The existing petrol station networks and product brands would pass to the new corporation as its most valuable tangible and intangible assets. The upstream business could be re-branded "Royal Dutch" - the traditional name of the Dutch part of the Shell Group and a name that is already familiar. (At this year's first Annual General Meeting of "Royal Dutch Shell plc" the "Royal Dutch" part of the corporate name was very prominent - along with its "crown" symbol. A ready-made corporate brand for the new upstream company is already substantially in place.)

For BP there is also an attractive and fairly easy to implement solution to the brand issue in the event of a split. The BP name and logo could be allocated to the upstream company and the downstream business could be re-branded "Castrol" - exploiting the high brand value and excellent reputation of this famous lubricant brand which is now part of the BP family. There is no reason why the Castrol name could not be "extended" also to brand petrol stations and other marketing assets and products.

In both companies the refineries would remain separate from the marketing business and could form a third independent business. As we have seen there is no need for oil marketing companies, however large, to also own and operate production facilities.

Reputation management

Another advantage of a split as suggested is that virtually all of the reputation damage that oil companies have received in recent years has come from their upstream not from their downstream activities - but damage any part of an integrated oil company and you potentially also harm the consumer brand. The petrol station is the most visible manifestation of an oil company and can become the focal point for protesters. Demerge the consumer brand from the upstream business and not only to you remove the risk of this type of brand damage you also put all of your reputation management and communication efforts for that branded downstream business into areas that are close to the consumer. For example the oil companies’ failures to communicate the rationale for petrol price increases over the years have been directly attributable to their lack of internal focus on developing effective communications with the consumer stakeholder.

More than twenty years ago Tom Peters[1] wrote “The most successful [companies] of all are those diversified around a single skill”. If ever a business need to concentrate on the “single skill” of marketing to maximise its business potential it is the oil industry – with the added benefit, of course, that the explorers and the drillers and the refiners could also focus 100% on what they do best. Shell (or rather "Royal Dutch") might even improve its oil reserves, as well as maximising the potential of its brand, if it took the step to demerge!

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[1] “In Search of Excellence” , Peters and Waterman, Harper Row, 1982