It is a black and white matter - the hideous use of reverse type.

This is the front page of today's "Jewish Chronicle". I'm not asking you to read it, or try to, because of its content. I'm showing it to comment on the still insidious and hideous practice of the use of "reverse type". "Reverse Type" is when a publication (including online) decides to print in white on black rather than black on white. The great AdMan David Ogilvy wisely said "If the New York Times could be made more readable by printing in reverse type they'd do it" - or words to that effect.

So why do some publications still do this decades after Ogilvy settled the matter? Ignorance mainly. A new generation of designers is around who think that they need to grab attention by being smart. Of course the "Jewish Chronicle" is not all white on black. But here they think they have a big story and big questions for Labour leadership candidate Jeremy Corbyn. Perhaps they do. How especially odd that they do this not by making the text more readable (by increasing the font size for example) but by making it less!

Another common use of reverse type is in theatre programmes. It's trendy - I assume. Even more bizarre! In a theatre you are often reading your programme in dim light. Combine that with trying to decifer text in reverse type! 

For once this is a black and white matter!

BG acquisition offers Shell opportunity for major strategy change

As a Shell "lifer" - more than forty years if you include my time as a Director of the Pension  Fund - I cannot recall a bigger strategic shift than the acquisition of BG. It offers the Corporarion a unique opportunity to do what Tom Peters called "stick to its knitting" - to concentrate on what it's really good at.

BG is an "Upstream" company. It only does exploration and production of oil and gas. And that is what Royal Dutch Shell (RDS) is good at too. To the man or woman in the street it is the Shell emblem standing over a Shell petrol station for which it is best known. But over the years this part of the business - never, in truth, that important to the heavies at the top - has declined in importance. The "Downstream" - the refining and marketing of oil, gas and chemicals - is pretty much cast adrift from the Upstream. The engineers, geologists and accountants in the highest echelons of Shell never really understood it anyway! There are no longer any economies of scale from being involved in oil from wellhead to petrol pump, if there ever were. 

In the last period of my Shell career the start of a major centralisation of business occurred. The power of the national "Operating companies" (OpCos) was severely curtailed. Most of these were marketing companies and there was a presumption, based on profound ignorance, that they could be managed centrally in the way that the Upstream increasingly was.  Those arguing the indisputable truism that "All Markets Are Local" we're not listened to and numbers on the ground in the OpCos were drastically reduced and their autonomy was destroyed.

The Downstream was an uncomfortable mix of Refining - an asset rich highly technical business - and Marketing which if done well has to be customer driven. Once, perhaps, to market oil oil products you did need to refine them. That hasn't applied for a long time. Shell no longer has any refineries in the UK but still has a significant marketing business. The same applies to many Shell operations around the world.

Over the last decade or more Shell has pulled out of the Downstream in many countries - in some cases franchising the brand to a separate business Independently managed and neither Shell owned nor controlled. This reduces assets employed, whilst maintaining a visible brand presence. There is nothing wrong in principle with this model - MacDonalds and other fast food businesses do it - but it has to be tightly controlled. Especially the brand. I very much doubt that the Board of RDS spends any time on these matters - the huge Upstrean business occupies most of their time. And when it comes to investment the priorities are also overwhelmingly Upstream.

The purchase of BG merges a significant Upstream operation into RDS's already huge one. All of top management's attention in the next few years will be on making this work. In these circumstances the Downstream would be an uneccesarily distraction. There is an overwhelmingly strong case for splitting the Downstram away as a totally separate stand-alone company which would focus entirely on marketing the brand to customers around the world. Oil Trading and Chemicals would also be part of this new Shell company. It would be separately traded as a FTSE company and entirely disconnected from the Upstream of RDS. The new company would take the "Shell" brand while the Upstream would be renamed "Royal Dutch". Easy !

I would guess that there are a few people in BG who know all about demerger. Remember the old British Gas was a vertically integrated company, like Shell, doing everything from exploration to selling Gas to the end consumer. It was split into two back in 1997 when the brand name "British Gas" went to the UK marketing company (owned by Centrica) with the Upstream business being renamed BG. Shell has the opportunity to do the same now and there are sound reasons for doing so. 

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You may not like it but tax avoidance is good business.

The tax Division in Shell was pretty big when I worked there. I suspect it's much bigger now. Multinationals by definition operate globally - in Shell's case in just about every country in the world. I have two Shell pensions. One relates to my UK service, the other to my years of service overseas. That latter pension is from a Pension Fund based in Bermuda - this location, which is perfectly legal of course, is purely for tax reasons. The Fund benefits from an advantageous tax regime in the British Overseas territory, and so indirectly do I. I pay tax on my overseas pension of course, but I get a small tax exemption to reflect the fact that the pension is in effect deferred salary from a time when my employment was not UK tax liable.

The Pension example is one of thousands illustrating that big Corporations have to be tax efficient, and have the ability to be so. That ability comes from that big Tax Division whose brief is, of course, to minimise Shell's tax obligations. Some profits are deliberately made in low tax locations rather than high tax. Some businesses are deliberately located in low tax countries rather than high tax. And so on. Sometimes it's much cheaper to do business in one place rather than another and Shell, and the rest, have an obligation to respond to this. Who is the obligation to? Well the owners of the Corporation of course - including institutional investors. Why pay tax if you don't have to?

Those that levy tax certainly have their work cut out to apply the law when in the big Companies there are top tax lawyers trying to beat the system! The search for tax loopholes which lead to the avoidance of tax liability is part art and part science. It's clever stuff, but there is nothing illegal about it. It's up to the authorities to close the loopholes not to businesses to pay taxes when they are not obliged to. Labour leader Ed Millibsnd said this about the Boos of Boots:

"I don't think people in Britain are going to take kindly to being lectured by someone who is avoiding his taxes..."

Aside from the personalisation (it's the Company not the individual) I'm afraid Ed just doesn't get it. Ever day thousands of British businesses and their advisers and lawyers are working hard to avoid paying taxes. They are not evading them (which would be unlawful) but avoiding them (which is good business). It is utterly naive to imply that companies should voluntarily pay taxes when they don't have to. 

Shell and the National Gallery–welcome to a Moral Maze

 

I went to the superb exhibition “Rembrandt: The Late Works” at the National Gallery yesterday. The exhibition is sponsored by Shell - quite strongly as it happens. There are a couple of prominent Shell promotional displays and the Shell emblem is visible all over, though not within the actual gallery where the works are to be seen. This suggests that the Shell sponsorship was financially quite large, even that the event, in straightened times for the Arts, might not have gone ahead without it.

A couple of days earlier those opposed to the National Gallery’s involvement with Shell mounted a protest in Trafalgar Square. There had also been protests also when the exhibition opened in October (see photo above). In a democracy we have to allow peaceful protests by individuals or groups opposed to things they consider wrong. The protestors against Shell are quite within their rights and the things they complain about - from oil spills and gas flaring in the Niger Delta to tar sands projects in Canada are legitimate areas of concern. In the minds of many  Shell is an extremely unethical choice of sponsor for the National Gallery. But there is a moral maze here.

During the latter part of my Shell career I was responsible for a number of Shell sponsorships and the related PR activity in the Middle East. It was my job, but I did it willingly in the main. The overriding objective was to associate Shell with events and activities that conferred value or prestige on the brand. The reverse was also often true. Shell’s sponsorship of something often added some legitimacy to an event. But this was in a region where an Oil Major such as Shell is broadly well thought of anyway! Here in Britain that is far from necessarily the case.

In the case of the National Gallery Shell’s involvement is far from gratuitous. There is actually a connection with Shell and the restoration of masterworks which is as interesting as it is surprising. Shell’s case for being involved, in the official programme, is persuasive. I am not buying the official line completely - the altruistic element of Shell’s involvement is only one reason and so is the technical and scientific case. For Shell the major benefit is prestige and the boost to their less than lilywhite reputation that the sponsorship seeks to create.

But what of the protestors? Their goal is to use the high visibility of the exhibition to publicise their causes and to give a focus to their campaign to persuade Arts bodies like the National Gallery not be financially supported by the likes of Shell. (There is a similar campaign in respect of BP and the Tate Gallery) . This is very polarising. Despite my Shell career and status as an (active) pensioner) I am a critic of the Corporation in some of what it does and how it does it. But I am also a supporter the Arts and if exhibitions like the Rembrandt would only be possible with money from Shell or BP then I can see the case to be made in their favour. Especially if the rationale for involvement is more than tenuous - as does seem to be the case for Shell and the National Gallery. I personally remain open-minded on the subject. It is a moral maze and I’m sure that I’m not the only one struggling top find my way around !

The changing world of Oil and Energy. Interesting times!

There is an almost perfect correlation between Multinational Oil company profits and the price of Crude Oil. The higher the latter, the higher the former. Changes within the business operations, cost reduction exercises and other reorganisations and the like, can affect financial performance on the margins. And instituting such changes can give Directors the feeling that they are “doing something” to justify their windfall level remuneration. But, in truth, it’s the traded value of Crude which really drives the dosh. So falling prices are bad for Shell, Exxn and the rest of them Arguably, however, they are good for the rest of us.

There are those who argue that the higher the oil price the stronger the drive for diversification will be. Renewables become more relatively viable if Crude prices are high. But Shell, having established Wind, Solar, Forestry and other unconventional energy businesses got out of most of them despite the rise in Oil prices. Even the (highly questionable) Governments’ subsidies for renewable energy were insufficient to keep Shell in the game. And falling prices make it unlikely that they will return.

One of the drivers of falling prices is the gradual increase in production – especially in the United States – of hydrocarbons (mostly Gas) from Shale. Fracking is changing the face of the energy scene, and not just in America. The US could become self-sufficient in Energy as a consequence, an extraordinary turnaround. The energy business is a classic example of where price is a direct consequence of the interplay of supply and demand. As supply of oil and gas from new non OPEC production such as shale increases the price falls. For the first time for a while the Sheikhs and their friends are not telling us how much we’ll pay for our gasoline!

The prediction of oil price trends is a dodgy old game and one major shock can lead to panic and price rises. That said there is reason to be bearish on oil for at least the medium term. There is an uncomfortable dilemma ahead for the Oil Majors. Unconventional oil and gas production – be it via fracking or by moving into environmentally questionable areas like the Arctic – is expensive. And yet if the reliance on Middle East and other traditional producers is to be reduced then this has to happen. But the bean counters are going to be worried about project viability if the Crude price keeps falling. My guess is that the hurdle rate for investment approval slips negative in many cases at $80 a barrel or less.

Consolidation of the energy sector may be the way forward. Rumours of BP and Shell dusting off the merger files sound logical to me. BP is far from out of the mire of the Browne and Hayward years yet. But come the dawn, and if the lawyers confirm that all the lawsuits are behind them, then a Shell/BP merger seems more likely than not. The opportunity to build a great Europe-based Energy multinational around the strong(ish) foundations of RDS and BP would be attractive – not least to the European Union. The nightmare alternative, by which either or both fall into the hands of Russian, or Chinese or Arab predators is not! 

“Follow the money” is never bad advice. And along with “Who benefits” I’d recommend it at this time. The next few years will see major changes, some surprising, to the global energy scene. The power is shifting. Interesting times. The prizes are high! Who will win? We’ll see.

Once you could be Sure of Shell…

Most of my 37 year Shell career was spent in the “Downstream” but from time to time I had contact with the Upstream operations and in my final assignment in the Middle East I was very close to Upstream issues. Both Shell’s exploration and production activities (the Upstream) and their refining and marketing business (the Downstream) had the Shell emblem (the “Pecten”) flying over them – but that was about the only thing they had in common!

EP is a top down business. The experts in The Hague, mostly products of the best geology and technology Universities, built unrivalled expertise in the tasks of finding and exploiting hydrocarbon assets. They were also pretty good at building the necessary alliances with partners that virtually all upstream operations require. Their world was the world of oil reservoirs, horizontal drilling, fracking and all the other thousand and one technologies and techniques that made the business work.

Refining and Marketing – or at least the marketing bit of it – is bottom up. The millions of motorists, commercial buyers, airlines, shipping companies, domestic consumers etc. etc. who have needs for one or more petroleum products represent the “Market”. The refining bit once had some synergy with the marketing operation (and indeed with the Upstream) in that to sell products you needed to create them in the first place – by cracking Crude Oil into its useful component parts. But over the years the need for an Oil Major to run refineries disappeared. The marketers could buy from independent refineries and the EP people could sell to them either directly or through traders. The benefits of an “integrated” oil well to petrol tank operation went away. Oil Production, Oil Refining and Oil Marketing became three distinct and very different businesses many years ago. There were no economies of scale from being involved all the way along the chain.

In the late 1980s I was working in Shell Hong Kong. This was a medium-sized and highly profitable marketing business. We sold the full range of oil products to customers in the Territory and, increasingly, in China. The Shell brand was strong and we were market leader – indeed in many sectors we had the Boston Consulting Group’s ideal situation where our market share was at least twice that of our nearest competitor! It was a Cash Cow. We invested heavily in the Shell brand through advertising and service – and it worked. It was a heady time for all of us – a company that could be customer-driven with no distractions. Then a change occurred. A new Chief Executive was appointed – a geologist who had been part of the team which had discovered North Sea Oil in the late 1960s and early 1970s. An Upstream man through and through. He knew nothing about Marketing and cared less. It was an odd appointment driven solely by Shell’s ambition to participate in major projects in the Upstream (and Refining) in China. The new CEO’s task was to get alongside the authorities and prospective partners in China and open doors and forge alliances.

The learning experience for me and others in Hong Kong was that to the powers at be at the very top of Shell, Marketing was a foreign subject about which they knew nothing. The idea of sending a non-Marketer to head up a highly successful marketing business was mad, unless you realised that was the way the high-priced help thought. Their Shell was the Shell of Oil Wells and Gas plants not the Shell of petrol stations and ordinary customers. In reality, of course, Shell was both and there were skilled professionals in all the disciplines around the world. But as you moved up the hierarchy interest in marketing declined and at the very top it was rarely a substantive item on the agenda. It was in the 1990s that I realised that to protect its marketing business and to focus absolutely on its huge Upstream business Shell needed to split the two. I wasn’t alone in seeing two distinct corporations emerging. “Royal Dutch”, which would be run from The Hague and which would take over all the Upstream. And “Shell Marketing” which would be run from London and would run all of Shell’s Marketing operations in 130 or so countries around the globe. In fact the main emphasis of “Shell Marketing” would be to delegate to local operating units (as in Hong Kong) on the indisputable grounds that “all markets are local”.

The logic of a split along these lines was strong and it meets virtually every criteria preached by the Business Schools. Why pretend that just because two utterly different businesses both have the Shell emblem flying over them they are the same, require the same skills and could be driven by the same imperatives? It just wasn’t true. But as we all know this was not the reorganisation that Shell pursued. Instead, and in response to the Reserves scandal, it created “Royal Dutch Shell” and moved its governance primarily to The Hague. A Company that clearly was not integrated along the supply chain any more, nor needed to be, stayed in its historical configuration. Decisions about Marketing strategy were taken ultimately by non-marketers for whom, like my once CEO in Hong Kong, marketing was an unknown world. When this happens only Dollars can be the common denominator. So aggressive cost cutting was forced on the marketers. Strange global organisations were created with business heads being arbitrarily located in offices miles, often thousands of miles, for some of their markets. The local operating units, like Shell Hong Kong, lost their autonomy and freedom to act. Investment in the brand declined as did any expenditure which could be described as “discretionary”. The myth that “Refining” and “Marketing” had any synergy was perpetuated and country exits were predicated on Refinery closures with the marketing infrastructure and brand strength not being valued. Market withdrawals gathered pace including in Markets which in which in my time I spent a lot of time – Spain, Australia, Italy, Greece – possibly Canada among many, many others.

The new RDS structure had been contemptuous of local markets. Hardly surprisingly performance in these neglected markets declined which then in too many cases was to lead to market withdrawal. Will Shell have any Marketing operations in ten, even five years time. Maybe not. Could it have been different? Unquestionably if the Upstream/Downstream split many of us supported had been followed. A Board of Directors which primarily focuses on the customer is what the really great brands have in common – ask McDonald’s or Coca Cola. A brand which acknowledges that all markets are local will succeed where one that tries to take local decisions at the centre will fail. A brand which invest in its strength and promotes its benefits will grow whereas one that fails to invest will wither on the vine. If you want to kill an organism then starve it.

When I retired I was presented with a small silver Shell emblem which I still wear with pride from time to time. It once stood for excellence in marketing and was one of the world’s most familiar brand symbols. Now it’s a bit of a collectors item symbolising a world that has long gone…

Not just Fred the Shred RBS - one victim, many villains

The failure of RBS was like "Murder on the Orient Express" - multiple villains - Fred the Shred wasn't the only one. One of the villains (rarely mentioned) was David Cameron. His speech in 2005 (the one wot got him the job) accused Gordon Brown of being the "regulator in chief" - a popular and common line for the Conservative to take throughout the Blair/Brown years. It was dangerously wrong. Brown was "Light Touch" for three reasons:

(1) The failure to regulate led to huge financial sector profitability which led to huge tax liabilities which funded huge increases in public expenditure. 

(2) By default because regulation was split three ways - The FSA, the Bank of England, the Treasury. This led not to "over-regulation" but to culpably failed regulation.

(3) Political pragmatism. Brown could shrug off Cameron and the other Tory accusers because their "over-regulation" jibe at entry wasn't true. New Labour was the lightest-touch administration in post war history. 

Book Review: “Making it Happen–Fred Goodwin, RBS and the men who blew up the British economy” by Iain Martin

“It wasn't just Fred!”

Iain Martin's "Making it Happen - Fred Goodwin, RBS and the men who blew up the British economy" is a fine piece of investigative journalism and a beautifully written and very readable account of this sorry tale of corporate misgovernance. Whilst Goodwin is the main villain - rightly - there is nevertheless a sense of "Murder on the Orient Express" to the story. In Agatha Christie's detective story, you will recall, the denouement was that ALL of the suspects were guilty! The fall of RBS was the same. Fred the Shred brought down RBS, but he didn't achieve this without the connivance, neglect, self-interested actions, greed and incompetence of many others. Martin points the finger at Fred, of course, and provides the evidence. But others do not escape - there were many guilty men in this affair.

Fred Goodwin was born in 1958. This means that at the time of Margaret Thatcher's "Big Bang" in 1986 he was in his late twenties and ideally positioned to be one of Thatcher's children. He was making his way as a junior accountant at the time with Touch Roche. Less than ten years later he was Chief Executive of the Clydesdale Bank appointed by its Australian owners, Iain Martin says, because of his "ferociously logical approach to problem solving and the capacity to learn quickly". So Fred was not a banker and had no practical hands-on experience in a Bank at all. In a way, in the post Big Bang world, this was an advantage. Banks, especially maybe Scottish banks, were pretty conservative institutions and if they were to take advantage of the new financial freedoms they would need to change. On the other hand Fred Goodwin had none of the detailed understanding of bank processes and daily priorities that a career banker would have had. When growth in the good times is needed the Goodwins, gung-Ho and oozing self-confidence are what you need. But when things start to get difficult you want such people as far away from the levers of power as possible.

In the mid 1980s the Royal Bank of Scotland was dull, unambitious and pretty moribund - a "tired bit-part player" Iain Martin calls it. It was a takeover target for one on the far larger English banks. Lloyds had had a go as had Standard Chartered. It was at this time that the fervent Scottish Nationalist George Mathewson joined RBS - he was soon to become CEO. He formed an alliance with fellow Scot George Younger, the Chairman, and together they decided to do everything that was necessary to make RBS successful as an unashamedly nationalistic Scottish bank. A major step was the acquisition, in 1988, of Citizens Bank in the US. Mathewson and Younger succeeded in their ambition to transform the Royal Bank and by 1997, the year of Labour's return to power after thirteen years, Mathewson was hunting around for a successor. A year later Fred Goodwin, on the back of his success at Clydesdale, was hired. This was to be twist or stick time for the Royal Bank. True the Bank was out of the doldrums but to move onwards and upwards a step change was necessary. After a battle with their rival Scottish Bank "Bank of Scotland" RBS acquired the much bigger, but rather tired and complacent NatWest. Fred Goodwin led this successful coup and was rewarded with the CEO job when Mathewson moved upstairs as Chairman shortly after the NatWest takeover.

The early years of the new millennium were to be bonanza time for the financial services industry. Tony Blair left Gordon Brown to run not just the Treasury but much of domestic policy as well. The growth of the banks was extraordinary. Interest rates set by the Bank of England were low. Lending was growing exponentially. Fred Goodwin strove to make RBS a leader in all this. Its size, with NatWest being integrated, made it a player on an international scale. And Citizens gave them a solid foothold in the rapidly growing American financial services sector. Most importantly financial regulation in the UK was not just "light touch" but confused and often non-existent. Iain Martin is excellent on how regulation fell somewhere between the Bank of England, the understaffed Financial Services Authority (FSA) and the Treasury. The key, of course, for Brown was to interfere as little as possible. He had a cunning plan which was that credit-fired growth would make the Financial Services sector so profitable that the taxes on the profits they paid would fund an expansion in spending on public services. Socialism (sort of) would be paid for by uber-capitalism.

It is instructive to look back and see not just how disastrous this regulation lacuna was but how Britain's opposition got it 100% wrong. Typical was David Cameron's speech to the Conservative Party conference in 2005 (the speech which got him the leader's job a couple of months later). Cameron said

"Everyone knows that business need deregulation to compete with China and India. Who is standing in the way? The great regulator and controller, Gordon Brown."

In fact the opposite was the truth. Far from regulating and controlling Brown (a disastrous Chancellor Iain Martin calls him) stood back and let Fred Goodwin and his like get on with it! For a while it worked. In his "Mansion House" speech in June 2007 Brown said the Government would ensure Britain stayed a "world leader in stability... by ensuring [her] macroeconomic framework remains a world benchmark". That was "delusional drivel" says Martin!

The uber-capitalism was alive and well in Fred Goodwin's RBS. Soon the now "Sir Fred" began to act like a "Master of the Universe". There were private jets. Fleets of Mercedes specially painted in RBS Blue. Sponsorship of a Formula one team, of the Rugby 6 Nations and all the usual trappings of power and privilege. "Compensation packages" for the head honchos escalated exponentially as well. Bankers' bonuses were born and reborn. A grand new headquarters building near Edinburgh Airport was planned on an 80 acre site and in 2005 it was completed and opened by the Queen.
Banking can be divided between the traditional retail and commercial segment, with its branches and its domestic and business customers (the Royal Bank's home territory for two hundred years), and "Investment Banking" the (comparatively) new kid on the block. The latter grew massively across the world in the 1970s and after - especially in Britain post big bank. It is in Investment Banking that the big numbers apply. The scale of the trades, the complexity, the innovation and - of course - the rewards given to the successful practitioners. In RBS's US investment banking subsidiary Greenwich Capital many employees had salary and bonuses in the high millions of dollars per annum! This company moved in a big way into collaterised debt obligations (CDOs) which, in theory, provided reliable income streams from repackaged mortgage securitisations. Iain Martin describes all of this in an illuminating chapter "Safe as houses". Mortgagees pay their monthly amounts and these find their way via CDOs to RBS, or its subsidiary. What could go wrong? Especially as Greenwich was at the upper end of the category with its AAA or "Super senior" portfolios. "RBS does not do sub prime" said Sir Fred. Well actually they did, and he didn't know. Probably.

Let's reflect for a moment on this world of around 2004/5. Gordon Brown opened American Investment Banker Lehman Brothers' massive new offices in Canary Wharf on 5th April 2004 and made a laudatory speech commending their "greatness" and "innovation". There would, he frequently said at that time, be no return to "Boom and Bust". Credit is the driver of business and the source of income to banks. Credit is what makes buying a property possible for private individuals. The banks make money on the spread - the difference between what they pay for money and what they can sell it for. And they made a lot. Interest rates are the key tool. Alan Greenspan, chairman of the Federal Reserve in the US would use interest rates to keep the financial economy booming along reducing rates (for example) if the Stock Market wobbled. Eddie George at the (newly responsible for interest rates and inflation) Bank of England did the same, as did his successor Mervyn King. The increased liquidity from this would keep people spending, and borrowing, and lending. By the mid 2000s Bank balance sheets, leveraged to the hilt, were approaching five times the size of the UK economy (GDP). In 1970, before the Big Bang and the "Loadsamoney" era, they had been at 38%. The Royal Bank of Scotland was sailing along on this boom, its profits growing every year and its business portfolio widening, especially in the Investment Banking sectors. It had a touch of the Lehmans, a lot of the Northern Rocks (home loans) and many, many other fingers in financial services pies from Insurance to Leasing. It was diversified in business and geography. But Sir Fred wanted more, much more. His eyes fell on the Dutch Bank ABN Amro.

The synergies between ABN Amro and RBS were questionable to say the least. It was a big bank, with international interests, but a far from coherent structure. Iain Martin describes it as a "conglomeration of various inefficient units patched together". It was an unappetising mix of the good, the bad and the decidedly dodgy. There were bits Fred Goodwin definitely wanted and bits he certainly didn't. Part of the problem was that he wasn't sure of which bits fell in which category! When he heard in late 2006 that Barclays was interested it became a battle and Fred engaged in earnest as it was announced that Barclays was in formal talks the following Spring. He wanted to be bigger than Barclays it was, astonishing as it may seem, as simple as that! Goodwin put together a consortium which comprised RBS, Fortis the Belgian Bank and Santander from Spain. By June there was a deal which was, Iain Martin emphasises, approved by every one of the RBS Board. Iain Martin lists all 17 of them to make sure that we get the message that this wasn't just Fred Goodwin being cavalier! Meanwhile there was bad news from the US. In February HSBC said it was providing for $10 Billion of losses relating to the American mortgage market. It soon became apparent that the RBS American subsidiary was deep into this mess as well. "...the CDO machine at Greenwich was disintegrating". In The UK by September 2007 Northern Rock was in trouble. Around the world financial markets were in turmoil and financial institutions were under threat. The extent of that threat was unknown but no prudent Bank would surely go for a grandiose acquisition at this time. Surely?

RBS's takeover of ABN Amro was completed in October 2007. Iain Martin's "It was obvious... that RBS had completed the purchase of ABN Amro at an extremely difficult moment" is a masterpiece of understatement! The Royal Bank's balance sheet had doubled overnight! At £1.9 trillion it was "bigger by at least £400bn than the output of the entire British economy"! Well the rest of the RBS story really follows on inevitably form the position it found itself in after the Dutch acquisition and given the global financial circumstances gathering pace. Only a £12bn Rights issue in April 2008 stopped the bank from going under as money haemorrhaged away in the US and elsewhere. This was temporary relief. In September Lehman Brothers went bankrupt to be followed by a raft of other financial institutions on both sides of the Atlantic. The game was up. A month later RBS had to rescued by the British Government - eventually to the extent of £45bn. £750 from every man, woman and child in Britain (or £9,000 from every Scot!).

As I said at the beginning of this review although Fred Goodwin was the main villain of the piece in this sorry story it is fairer to call it a collective misjudgement. Unlike with Enron (and Arthur Anderson) eight years earlier nobody went to jail because, extraordinary though it may seem, no laws were actually broken. That there was fiduciary incompetence and irresponsibility on a massive scale by Fred and others is not in doubt. But they didn't break the law! The only conclusion from this is that the Law was an ass! Gordon Brown was proud of his light touch regulation but that it was so light touch that nobody was legally guilty in the RBS story is surely a scandal in itself. Brown failed. The Bank of England failed. The Financial Services Authority failed. Britain's political leaders on both sides of the House failed abysmally. The media failed. Accountants and Auditors failed. Risk managers failed. All the highly paid employees of RBS failed as did those charged with monitoring and guiding them. That they did not, as in "Murder on the Orient Express" wilfully slay their victim is by the by. The effect was the same. The Bank was dead and bereft of life due to the negligence, greed and incompetence of many. It wasn't just Fred.


“Making it Happen: Fred Goodwin, RBS and the Men Who Blew up the British Economy” by Iain Martin
350pp, Simon & Schuster,  £20.

What is a Premium service?

The Transport Minister Norman Lamb justified the rising cost of commuter rail travel by saying that customers are paying for a "Premium Service". I don't think that Mr Lamb understands the concept of what "Premium" means - so let me help him.

Products and Services can be segmented by the "extras" over and above the functional commodity that they offer. Let's take a couple of examples. When I go to the theatre I can decide to pay as little as possible for my ticket and watch the performance from the Gallery. Or I can decide to pay more and watch it from the Stalls. The performance I see is completely unaffected by my personal choice. It is my call whether I pay a "premium" for a better view and a more comfortable seat. Similarly with Air travel. If I'm flying on a particular airline's scheduled flight from London to New York I probably have three ticket options. "Economy" ( or "Coach), Business Class (or "Club") or First Class. The latter two classes offer benefits over and above the basic deal in Economy. But in all three classes the plane arrives at the same time at JFK!. It's my call whether I pay more for the "Premium" advantages of the higher two classes.

In both of these examples (and one could add thousands of product or service related offers which make the same point) the basic offer is functional, affordable and (in the horrible cliche) they "do what they say on the tin". With commuter rail travel the same does not apply. True there are some longer journey commuter lines where First Class is available as a premium offer. But the vast majority of commuter rail travel is single class with no alternative to the standard available - even for those who can afford it. There is nothing "Premium" about the service at all. Indeed arguably many commuter rail lines offer the bare minimum. Crowded trains where standing is the norm. Unreliable performance with delays and breakdowns common. The prices may be "Premium" - but the service certainly isn't !

Open letter to Shell CEO Peter Voser in respect of the Bahrain Grand Prix

Dear Mr Voser

 

Bahrain Grand Prix
I write this open letter as a private individual, a former long-term employee, a shareholder and a Pensioner of Royal Dutch Shell. I call on Shell to take the following action in respect of the 2012 Bahrain Grand Prix:

 

1. To instruct Ferrari to remove all Shell branding from their competing cars (and other items) for the duration of this year's Grand Prix event.
2. To rescind invitations to customers and other third parties in respect of Corporate Hospitality in the "Formula One Club" and elsewhere at the event.
3. To withdraw all staff from the event other than those required to fulfil Shell's contractual obligations to Ferrari.
4. To remove or otherwise cover up any Shell branding and advertising at the Bahrain Grand Prix circuit.

 

 

Rationale

 

1. Royal Dutch Shell has made a commitment to Human Rights in the past and has communicated in public its support for the UNIVERSAL DECLARATION OF HUMAN RIGHTS of the United Nations.
2. A recent comprehensive report by Amnesty International documented the continued and flagrant abuses of Human Rights in the Kingdom of Bahrain and by its Government.
3. The leaders of Formula one, and the teams, have decided to go ahead with the 2012 Bahrain Grand Prix despite the fact that the Kingdom of Bahrain oppresses its citizens and denies them the Human Rights to which under the UN Charter they are entitled.
4. Royal Dutch Shell (Shell) has contractual obligations to Ferrari which it must honour. However there is no reason why Shell should not take the action I have outlined above in order to protect its reputation and to show its concern about the going ahead of an event which has been strongly condemned by all who take the UN Declaration seriously

I hope that you will feel able to take the action I have asked for.


Paddy Briggs

 

  

Corporate Social Responsibility - what it really means

 

The calamity of BP's Deepwater Horizon disaster continues to put corporate reputation as a subject very much in the spotlight and, hardly surprisingly, many commentators contrast BP's past attempts to claim the moral highground on environmental matters with the stark reality of what happened in the Gulf of Mexico. The idea that corporations should be "socially responsible" whilst fashionable is not new - and it remains an extremely controversial concept. Let me try and delve into what Corporate Social Responsibility (CSR) really means - and explain that all too often CSR has been just a tool of a company's reputation management/Public Relations activities rather than something that sets strict behavioural norms. In all too many cases CSR reports are selective, partial and glossy window-dressing - leading to charges of "Greenwash" - rather than true reflections of a corporation's actual non-financial (Health, Safety, Environment etc.) performance.

It is no exaggeration to say that that over the past two hundred years or so virtually everything that we value - even take for granted - about our way of life has happened because of the operation of regulated free markets. I put the adjective "regulated" in this statement not to over-emphasise the need for laws, rules and controls but to suggest that whilst the principal driver of progress and change has been the action of entrepreneurs and entrepreneurial corporations a measure of regulation has always been necessary. If the first half of the nineteenth century was the age of untrammelled industrial growth the 150 years since then has been no less spectacular - but there has been, as there needed to be, increasing legal restraint on corporate behaviour.

There has always been the same dynamic underway between free-enterprise companies and regulators - mainly governments. The companies from Standard Oil through Philip Morris to Microsoft always argue that any regulation of their freedoms will inhibit their business to the disadvantage of their customers and, most important of all, their shareholders. They harp back, in sprit if not always in rhetoric, to Adam Smith who said:

"Every individual endeavours to employ his capital so that its produce may be of the greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain... [but] by pursuing his own interest he frequently promotes that of the society more effectually than he really intends to promote it". Adam Smith in "the Wealth of Nations". 1776

The argument of Smith was that the pursuit of self-interest is inevitable and desirable and that an unintended consequence is that society is thereby "effectually" promoted. This theory is a bit like "trickle-down economics" - let us entrepreneurs get on with running businesses and benefits will cascade to all - even the worthy poor. Well not long after Smith his theory was tested as the nineteenth century Industrial revolution took hold in Europe and the United States. Before the century was out a raft of legislation was enacted to restrain industry as it became abundantly clear that whilst industrialisation brought many benefits it brought horrendous unintended consequences as well - from child labour to exploitation of workers to unsafe working conditions and monopoly power - and more. The break-up of the monopolistic Standard Oil in 1911 was amongst the most dramatic of instances where Government saw the need to restrain business in the public interest - but there are hundreds of other examples. It is no exaggeration to say that each successive wave of legislation was resisted by business - and that companies often claimed that self-regulation would be sufficient and that laws were unnecessary. In more modern times we have seen the tobacco industry fighting tooth and nail not to have to restrain the promotion of their brands and products - and we have seen self-interested bodies like the International Advertising Association (IAA) supporting them. To this day the IAA says, in respect of tobacco advertising, that they "…believe in the right to truthfully and responsibly advertise legal products to appropriate audiences and oppose efforts to restrict such advertising." The "Mad Men" live on!

The reason for this lengthy preamble on the history of regulation is to put the modern-day CSR debate into a historical context. There has always been a battle between legislators and businesses and one of the business defences has always been "Trust us - what we do is in the public interest and we accept the responsibility to police ourselves". However that most free-market of all economists, Milton Friedman, poured scorn on the idea that companies could or should be self-regulating over and above their legal obligations. Here is what Friedman said in 1962:

"The doctrine of "social responsibility" [is a] fundamentally subversive doctrine in a free society … in such a society there is one and only one social responsibility of business – to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." Milton Friedman in "Capitalism and Freedom" 1962

Whatever else he might have been Friedman was no hypocrite and he abhorred obfuscation and window-dressing. Whilst he would no doubt have had no problem with the idea of lobbying to influence legislators he would have resisted any "voluntary codes" and overblown statements of "Business Principles". What, for example, would he have thought of this statement in the 1999 Annual Report of a major American corporation "Our philosophy is not to stand in the way of our employees, so we don't insist on hierarchical approval. We do, however, keep a keen eye on how prudent they are and rigorously evaluate and control the risk involved in each of our activities"? Whilst Friedman might have applauded the broad sentiment he would not of course have condoned any illegal behaviour and lack of internal controls. When the true story of Enron (for this is from their Report) emerged then Friedman's general position was vindicated. Enron did not stay "within the rules of the game" and broke the law in almost everything that they did. Whatever self-policing there was (and most of it was in reality non-existent) failed abysmally.

Enron lied about most things so it is not surprising that they lied about their internal controls. But much less venal companies fall into a similar trap in some of their rhetoric - not least in their so-called commitment to the principles of Sustainable Development. Here, for example, is what Mark Moody-Stuart said on the subject when he was head of Shell: “[Sustainability] is a three-legged stool balanced between economic, environment and social considerations”. This type of rhetoric has been common amongst those who believe that companies' commitments to CSR really are meaningful - it is par for the course. Milton Friedman would have been horrified at the underlying premise of the "three-legged stool" - that there is a precise equivalence between a company's economic driver and its social and environmental behaviours. Note that there has to be equivalence if the metaphor is to work. If one leg is longer than the others are then the stool is unbalanced and falls over! In reality, as we see time and time again, the economic driver is far, far more important than any incidental social and environmental obligations that a company may propound. The line of questioning that BP CEO Tony Hayward faced recently in the U.S. Congress was substantially about whether cost and profit issues (Economic) had outweighed Environmental considerations in BP's decision making regarding Deepwater Horizon.

So history teaches us that we should be deeply sceptical about any corporation's claim to self-regulation or allusion to "Principles" over and above their legal obligations. Not least because the directors of corporations have a statutory and fiduciary duty always to act in the interest of shareholders - and shareholders interests are monetary above all. A shareholder wants stock prices to perform well and dividends to be good - and that's about it! And the Directors want the same thing - their bonuses, stock options and performance-related remuneration rely on it! So the more self-righteous and superior Companies seem to be in their CSR statements the more sceptical we should be! Some companies make their position on social responsibility matters crystal clear and with a pleasing lack of hype. The often-vilified Ryanair is one. In their "Code of Ethics" they say:

"Ryanair is committed to conducting business in an ethical fashion that complies with all laws and regulations in the countries in which Ryanair operates. As employees and representatives of Ryanair, we must consider how our actions affect the integrity and credibility of the Company as a whole"

Contrast this frankness (Friedman would have been proud of Ryanair!) with the page after page of "Business Principles" bombast and self-congratulatory hype in the Annual Report of British American Tobacco which includes the following two "core beliefs" (there are a dozen or so more of these platitudes):

· We believe our businesses should uphold high standards of behaviour and integrity.

· We believe that high standards of corporate social responsibility should be promoted within the tobacco industry.

This from a corporation that actively seeks to promote its brands and noxious products wherever it can - especially in the developing world! If ever there was an oxymoronic statement it is the idea of "corporate social responsibility …within the tobacco industry". Mad Men again!

Multinational corporations sometimes claim that their commitments to Corporate Social Responsibility are such that they always apply their own global standards of behaviour - which means that that will override local standards where those local standards are lower. BP, for example, says "We’re proud to set universal standards of behaviour across our entire operation…developing our own set of rigorous guidelines - [which are] often more rigorous than local laws and regulations". Intellectually, of course the logic of this is inescapable. If your CSR commitment is absolute then even if you don't legally need to apply your standards you will do so anyway - because that is what you believe in. Sadly, however, this is all too often a chimera. As The Guardian's environment correspondent John Vidal put it recently in respect of BP's Gulf of Mexico problems "If this accident had occurred in a developing country, say off the west coast of Africa or Indonesia, BP could probably have avoided all publicity and escaped starting a clean-up for many months." Vidal is right. Similarly if Shell had been treating an oil field in the U.S. or Europe in the way that it has its assets in the Niger Delta, where 2,000 major spillage sites have never been cleaned up, then the political and media fallout would be similar to what BP is now struggling with in the United States.

So what does Corporate Social Responsibility really mean? It is not about putting a favourable gloss on a company's activities and drawing a veil over its less salubrious actions. It is not about being a generous donor to charities, however commendable that may be - you cannot buy yourself a good reputation by making donations to good causes. It is not about a re-branding or stakeholder engagement programme - however useful such things may be from time to time. What it is about is first and foremost obeying the law - and then, if you believe it is necessary and in the interests of shareholders, going the extra mile in respect of your health, safety, environment and community relations behaviour (etc.). It means respecting all your stakeholders - especially including those, like suppliers of goods and services and often employees and sub-contractors, over whom you may have the whip hand. These commitments have to be codified, managed, funded and rigorously and consistently applied. In my view there are few if any big companies and perhaps no multinational corporations that have such a commitment and act with such integrity - although some of course are better than others. Which is why it is only by regulation at a national and international level that society at large can be protected - history teaches us nothing less!

News International's brand new opportunity

News International (NI), the UK newspaper arm of Rupert Murdoch’s News Corp, has been in serious trouble with one of its brands. However unlike, say, BP it is a sub-brand, “The News of the World”,  which has turned toxic not the corporate “mother brand” and whilst there is fallout on NI, and even to a small extent on News Corp itself, the Murdoch empire has really only suffered collateral damage.

Corporations of the size of News Corp are used to managing a proliferation of brands in different markets. News Corp has literally hundreds of separate brands across its diverse media businesses and its senior executives understand well that brands have strengths and weaknesses and that, as in the case of the “News of the World”, they can be damaged. They have decided that the damage to the News of the World is beyond repair and so they are closing the title. Such drastic action is quite rare but even the most skilled brand practitioners have to bite the bullet sometimes.   Coca Cola, for example, had a brand disaster with Disani a bottled water brand in the UK a few years ago. They withdrew it rather than try and repair it. The “News of the World” is a much older and formerly a very strong brand entity but the phone hacking and police bribery stories were such that the brand was judged by NI executives to be beyond repair – they were no doubt right.

News International's main revenue generators have been “The Sun” and the “News of the World” and these titles’  income streams have cross-subsidised the loss-making “The Times” and “The Sunday Times”.  Indeed without the ad revenues of the tabloids NIs whole business model collapses. The shareholders of News Corp have every right to expect that NI will seek to minimise the effect on the bottom line of the “News of the World” closure – and there is only one way to do this. The Sunday tabloid, with a circulation of 2.6million, has to be replaced urgently and a sound advertising driven business has rapidly to be built up.

A definition of a strong brand is one that generates income over and above is basic utility or commodity value. When it became apparent that the “News of the World” could no longer do this there was no choice for NI but to withdraw the brand. But the business infrastructure of the newspaper remains intact. The editors,  journalists, reporters and support staff are in place. The advertising sales teams have not been disbanded. These employees can be switched instantly to a new title and that is what will happen. Out of the ashes of the “News of the World” a new NI Sunday tabloid will emerge.

Which brings us back to the brand. A sign of a strong brand is when it is used in the vernacular one step removed from its actual business. So just as we once talked of the “Pepsi Generation” so the idea of the “Sun reader” is fixed in the awareness of marketers and commentators. Whilst this descriptor may be used by some in a derogatory way in fact the Sun readers are very valuable indeed. There are 7.5 million of them, spread fairly evenly across the age ranges and with 88% of them in the CDE social class groups. They have a very high collective purchasing power and they are firmly in the sights of the FMCG marketers – like the supermarket chains.  And it is this huge group which NI will want to attract to their new Sunday tabloid – and how better to do this than to give it the Sun’s brand name?

The launch of a “Sunday Sun” or, more likely, a “Sun on Sunday” could happen immediately – indeed it is not too far fetched for the switch from the News of the World brand to the Sun brand could happen on consecutive Sundays. This might politically be a step too far for NI, although I wouldn’t put it past them. But whether the Sunday Sun title appears immediately or whether there is a short hiatus doesn't really matter – it will happen. And for a marketer it is a dream project to launch the Sun’s Sunday sister. The promotional and advertising budgets can be guaranteed. Cross promotions from the weekday title will be straightforward to arrange – expect coupons which when saved during the week will give a free copy of the Sunday to loyal readers at launch.

The Sunday version of the Sun will have a huge head start over any other new title – this is because the brand values of the Daily will simply be transferred to the Sunday. You don't need to explain to a “Sun reader” what a “Sun on Sunday” means – it all in the name.

It’s the brand stupid

When the news broke, on Twitter inevitably, that the “News of the World” was to close there was a mighty gnashing of teeth and no little wailing form the journalist community. Job losses. Innocent victims. That sort of thing. But actually it’s no big deal. Here’s why.

When a brand is damaged beyond repair, but there is a market position to defend, then rebranding is the obvious choice. At the moment BP is rebranding many of its gas stations in the US “Amoco” and the reasons for that are obvious. For News International its the same. They have a very strong brand in “The Sun” which has a circulation of 3million –nearly one million ahead of its next competitor. Their fatally wounded “News of the World” brand is similarly strong in circulation terms 2.7m and a lead of over 800,000. There is no way that NI is going to give up that inco0me stream – and they don't need to.

The introduction of a “Sunday Sun” (or “Sun on Sunday” ) has huge benefits. The toxic News of the World brand is shed. The Sun brand can extend seamlessly into a seven day operation. There will be some economic savings. And online they can concentrate on one Sun branded website for all their communications.

One can expect that those Sun readers who don't currently buy the NOW will be heavily incentivised to switch their Sunday paper to The Sunday Sun. Or in some cases to buy a Sunday paper where currently they don't. Cross promotions will be the order of the day – NI has the financial resources to really build the Sunday Sun as a successful sub-brand of the generic Sun brand.

The people who should worry about  Mr Murdoch’s clever coup are the publishers of NI’s competitors! A seven day Sun will be formidable.  

Shell's latest corporate advertisement

LET'S DELIVER ENERGY
FOR A CHANGING WORLD.
LET'S GO

Today's consumers are smarter than ever about energy. Naturally they want it to heat, cool and light their homes, get them to work, and power their mobile phones. But they are also keen to help build an energy system that sustains the lives of future generations. They want their energy to come from cleaner sources. They want to get the most out of every drop. And they want to see positive results now.

At Shell, we're listening. Consumers' raised expectations inspire us to come up with ever more innovative products and services.

Take the quest for cleaner air in our cities. We have created a fuel oil, which can cut soot emissions from factories by up to 75%. That should help people breathe a little easier.

Customers at our service stations want to play their part, too. They want fuels that are more efficient. We've responded with new blends that help drivers save fuel with every fill-up. And we're working with transport companies, combining the latest fuels and lubricants with satellite technology to reduce fuel consumption.

Low-carbon biofuels are another way to meet rising expectations. They can help reduce emissions from road transport right now. We're already the world's largest distributor of biofuels and are pursuing plans for large-scale production.


We're also working with technical partners to develop future biofuels from non-food sources, like crop residue and even algae.

Of course, our customers' horizons stretch beyond transport to more responsible living, whether through cleaner electricity or more energy-efficient homes and offices.

That's why we are boosting production of cleaner-burning natural gas, which emits less than half the carbon dioxide of coal when used to generate electricity. And why we are investing in vital technology to capture emissions from power plants and other industrial sites and store it safely underground.

Despite all this change, one thing remains the same. After more than a century, our customers still expect reliable and affordable energy every day. With global energy demand set to double by mid-century, that will be a challenge. But together with our partners we will continue unlocking energy from hard-to-reach places like frozen Siberia and delivering it to customers around the world.

At Shell, we're grateful to have millions of customers asking for better energy. They demand as much of us as we ask of ourselves.

Commentary
In its latest corporate advertisement (above), expensively placed in some influential publications like "The Economist", Shell claims to be "listening". We have heard this claim before of course and we should treat it with some scepticism - Shell pulled its online feedback forum "Tell Shell" some years ago - presumably because of the virulence of the criticism on it. But no matter - let's take this latest request for feedback at face value and offer some.

The dark arts of advertising are notoriously " economical with the actualite" - but I would guess that nobody really minds a bit of hype and "accentuating the positive" - where would copywriting be without the need to put a brand's products or services in the most favourable light? But there are limits - the need to be "Legal, decent, honest and truthful" is required of any advertiser and the rules say that your ads shouldn't mislead, lie or even tell half-truths.

So in the context of the need to be at least credible in your ads, and at best transparently truthful, how should we judge Shell's latest offering? Remember we are talking big bucks here - not principally to the ad agency for preparing the ad and writing the copy but definitely to the media for running it. A few hundred thousand dollars at least - and possibly much more. Has Shell's budget been wisely spent?

The first paragraph claims that "Today's consumers are smarter than ever about energy". It goes on to say that these consumers are "also keen to help build an energy system that sustains the lives of future generations". How many consumers (that's you and me folks) speak in anything like these terms? I don't know what an "energy system" is - and I worked in the industry for nearly forty years. I doubt that my neighbours would have a clue what it is either. Presumably somebody can define the term "energy system" - but there's little point in using such opaque language in an ad - even in "The Economist"!

So that first paragraph is at best patronising and trite and at worst gobbledegook. But the second paragraph is far worse. The claim is that "Consumers' raised expectations inspire us to come up with ever more innovative products and services". The conceit of this statement is breathtaking. It purports to suggest (a) That Shell is innovative and (b) That innovation is consumer led. Now lets be charitable and agree that Shell can indeed be innovative. Virtually all of this innovation comes from the upstream - and impressive some of it is as well. But there is no way that this highly technological activity can be seen as consumer driven. Then in the following paragraph we get mention of a low soot fuel oil for factories. In Britain, which is where this ad appears, a tiny minority of factories burn fuel oil - most of them switched to cheaper and more environmentally friendly natural gas years ago. Not too many people will be breathing any easier as a result of this innovation!

So what about the "service stations" (paragraph 4) - a curious and old-fashioned term by the way. They mean petrol stations I think. Here we are told that customers want "fuels that are more efficient". Well yes - but not if they have to pay through the nose for them. The "new blends" that are referred to (presumably like V-Power) cost a premium, which negates any efficiency savings. Most motorists want cheap petrol - and there's not much of a promise about this in the ad. If V-Power and its like really saved money through efficiency don't you think that Shell would give us the data to prove the case?

The statements about "Low carbon biofuels" (paragraph 5 and 6) are another utterly misleading bit of hype. It is no doubt true that Shell is a big player in these products - but there is nothing much new about them. The Brazilians have run some of their cars on biofuels for a generation or more but in the UK they are virtually non-existent - and will remain so unless governments create a tax regime which make them viable. Some chance!

The seventh paragraph about "customers' horizons" is just poor copywriting and is virtually meaningless. It's an unsubstantiated claim - hardly surprising as it is hollow and patronising. It leads on to the next paragraph where the implicit claim is that Shell's driver for the expansion of its Gas sector is in some way environmental and that it is driven by these "customer horizons". The real reason for Shell's drive to boost its production of natural gas is because this sector is growing and is profitable - good business in other words. Yes it is cleaner than coal - but Shell has no influence at all on utilities' decisions to build Power stations that run on Gas rather than coal. True Shell can supply the gas, at a price, if the utility makes that decision but the determiners of the decision are primarily governments and local authorities - they are the ones one should thank for the resultant cleaner air - not Shell!

The penultimate paragraph is platitudinous and one again trite. If you asked them my guess is that many consumers would be very disturbed about some of the side effects of Shell's ambition to "…continue unlocking energy from hard-to-reach places". The Tar Sands of Canada is just one example of where this ambition is, to say the least, controversial!

Shell is not a bad company - although it does some indefensible things at times. But it does itself no service by running advertisements which claim distinctiveness when little exists, claim to have a unique understanding of consumers without any evidence being provided and lapse into self-congratulatory and highly selective hype.

GREENWASH – The drama and the reality

“He’s a PR man. For an oil company. That’s bottom of the list!

Below TV evangelist. Just above child molester.”

Michael in “Greenwash” by David Lewis

I have just been scanning through the last seven editions of “The Economist” newspaper – and as always it’s a very good read. And in these troubled times it is arguably an essential source to inform about what really might be going on in the world. The pointers to today’s realities come from The Economist’s excellent but anonymous correspondents, the letters and especially for the advertisements – or at the moment the lack of them. The good news is that the “Greenwash” ads, which featured strongly in the newspaper until recently, have vanished! A year or so ago, and for some years before that, upmarket print media was full of mostly disingenuous corporate advertising from oil and energy companies with a common theme. In short Shell, BP, Total, Chevron and even ExxonMobil wanted to convince their “special publics” (as Shell called us) that they were public-spirited companies. In particular the message was that they had a unique contribution to make to the resolution of the world’s energy problems – global warming and all that. A common message was that the “proof” that Shell and the rest really cared was their alleged commitment to not just their traditional oil and gas businesses but also to a whole raft of non-traditional energy initiatives such as renewable forests, solar, wind, hydrogen and the like. It wasn’t just former oil company insiders like me who were sceptical of these claims – all the NGOs and most of the other proponents of Renewables saw through the chimera and christened it “Greenwash”.

The tiny “Orange Tree” theatre in the London Borough of Richmond–Upon-Thames has a justified reputation for putting on original drama – both revivals of forgotten classics and new writing. In the second category we have recently seen David Lewis’s new play “Greenwash” a satirical and very funny demolition job on the PR industry in general and the oil industry in particular – hence the title. The hero of “Greenwash” – or rather the anti-hero – is Alan a middle-aged PR consultant working for a company which sounds very like Shell! “We’re working with the realists and isolating the radicals. That’s accepted strategy! You have to divide them up! If you’re simply confrontational, you just unite them, make them more powerful!” he says talking about his company’s approach to the NGOs. It rings true. Shell, for example, would from time to time cuddle up to NGOs like “Friends of the Earth” whilst distancing themselves from Greenpeace. A divide and rule tactic which worked exactly as Alan suggests that it does.

The mantra chanted by Alan and his like is that managing opinion and reputation is all about managing perceptions. Sure you might need to modify some of the grosser excesses in your business or in your behaviour but in the main you carry on doing what you have always done and carry on doing in the way you have always done it – you just present it in a more palatable way. It’s a bit like a politician saying that they better “get the message across more clearly” – much easier than actually changing what they do. And this is where the Greenwash advertising comes in. Shell’s business, and that of all the other Oil majors, was 99% about exploiting hydrocarbon resources. That’s what they do, what they are good at and what in truth they expect always to do in the future. Shell in particular was hopeless at diversification – only the Petrochemicals sector (itself of course based on hydrocarbons) has survived as a significant business which isn’t directly oil and gas. All the rest, from Nuclear to Metals to Forestry to Agrichemicals to Power Generation have gone. Shell couldn’t (or wouldn’t) make them work. But, so went the argument, Renewables was different and Shell was prepared to put its money where its mouth was.

Take Wind Energy. Back in 2006 Graeme Sweeney, head of Shell Renewables, said that the giant offshore wind project known as the “London Array” would provide a “major breakthrough in the UK low-carbon energy mix”. Shell was part of the consortium that wanted to build the array and was awaiting a planning decision later that year. 'A positive decision would be a clear signal that a substantial contribution could be made by renewable energy if we could all drive this through to a successful conclusion” said Sweeney at the time. A year ago Shell pulled completely away from this project and more recently we have seen an announcement that Shell is pulling out of investments in all renewable technologies (wind, solar and hydro power) completely because they are “not economic”.

There was never a proper balance between rhetoric and reality. The advertising that extolled Shell’s commitment to Renewables in The Economist and in similar publications around the world was clearly designed to deflect criticism that Shell was an old-fashioned smoke-stack loving corporation whose principal business was exploiting the planet’s depleting oil and gas reserves. One TV commercial promoting Shell’s Renewables commitment even said that “One Day it may be our biggest business”. It was bullshitting Greenwash when it appeared and many of us who knew this said so at the time. But Shell was impervious to criticism and this disingenuous corporate advertising continued until quit recently. Shell’s recent virtual withdrawal from the Renewables sector shows what a shameful sham all this was.

Alex Carey quoted in "The Public Relations Industry's Secret War on Activists" said that the “20th century has been characterized by three developments of great political importance: the growth of democracy, the growth of corporate power, and the growth of corporate propaganda as a means of protecting corporate power against democracy." Multinational corporations are subject if not to democratic processes at least to judgment by the media and to revelations by honest activists who seek the truth through all of this propaganda. Despite their almost unlimited budgets and the ability they have to employ PR professionals like Alan in the play “Greenwash” to tell their lies for them eventually hubris will catch them out. Shell was arrogant enough to think that they could present their miniscule and largely irrelevant Renewables business as significant. It wasn’t - but that didn’t stop the Greenwash claiming that it was. And now that the deception has been revealed can we expect an apology and a commitment to tell the truth in the future – don’t bet on it!

Shell and the shocking bonfire of its vanities

When corporations act as dysfunctionally as all too many in the world of banking and finance have been doing over the past few years it gives the opponents of capitalism a field day. The charge, which is impossible to refute, is one of greed and incompetence and we have seen what happens when these twin venalities work together. The pursuit by directors of a level of personal wealth beyond the comprehension of most of us has been shown to have skewed their decision making and brought their businesses down.

Less in the public eye, but only marginally less venal, have been the multinational oil companies who whilst their behaviours may not have been as borderline fraudulent as some of the banks, have nevertheless been overtly deceiving us for years in a shameful way. Let’s take Royal Dutch Shell for example. Shell was worried about the public perception of its behaviour and, in particular, was concerned that its reputation was damaged in the eyes of some of its key stakeholders. This damage was caused back in the 1990s by insensitive decision-making over such issues as Brent Spar and Nigeria and in the early years of the new century by its “reserves” scandal – the revelation that senior Shell directors had been lying about the corporation’s hydrocarbon reserves. The internal analysis of this reputation problem led to the launch of a series of corporate communications initiatives - including extensive and expensive advertising. Much of this advertising was predicted on the premise that Shell was “corporately responsible” and the reasons to believe this claim was, they said, that they had some sort of unique understanding of the world of global energy.

The communications initiatives that Shell launched focused in particular on the need for energy diversity and claimed not only that renewable energies such as solar, wind and hydrogen had to be part of the mix but that Shell was committed to the Renewables sector for the long term. “One day this may be our biggest business” was the tag line of one of the TV commercials which lauded Shell’s involvement in this sector. But as we have seen recently all of this was a chimera. Those of us with personal experience of working for Shell over many years knew that Shell is the most risk averse of all the oil majors in both its diversification and its acquisition policy. In the main they stick to the knitting – and the knitting is Upstream Oil and Gas – with a bit of downstream thrown in (until, that is, they decide to walk away from marketing and refining which many us believe that they will before too long).

So why did Shell make a fool of itself and open itself up to criticism by getting involved in Renewables in the first place? Why did they get even tentatively involved in a business about which they knew nothing and into which they were clearly, from the start, not prepared to invest any serious money? The answer lies in the reputation management problem referred to earlier. If Shell wanted to be seen as “Responsible” than what better way to do this than to claim that they really cared about the global energy future to such an extent that they would be involved across the energy mix? So small scale and tentative investments were made and Renewables was even given its own status as a “Core business” for a time – along with the real core businesses like the Upstream. But from the start it was always a lie – the executives appointed to run the Renewables sector were far from being the most able around and the amount of time that the company’s really senior executives spent on this sector was minimal. Shell’s heart was never really in it.

Shell had the vanity that it could run a series of self-promoting advertising campaigns that would portray them as energy responsible, innovative and forward thinking. In truth Shell was retreating more and more to the familiar world of dirty old hydrocarbons about which they had a genuine corporate memory. Does this story mean that you can’t believe a thing that Shell tells us in its communications? Sadly I think that it does and that it will be a long time, if ever, before you can believe a word that they say again. Unless there is a proper feedback loop between behaviour and actions, on the one hand, and rhetoric, on the other Shell will not be in a position to do any credible corporate communications at all. It isn’t complicated. Do the right things responsibly. Tell the truth about what you do. Don’t claim that you are committed to things that you are not. Walk the talk and talk the walk. Too much to ask? We shall see…

The scandal of the grotesque rewards that accrue to failed executives

Enron, Lehman Brothers, Royal Bank of Scotland…Royal Dutch Shell - what have these corporations got in common? Quite a lot actually but what I was thinking of in particular is that they all have issued glossy and self-promoting documents extolling their “Corporate Social Responsibility” (CSR) – and all of them have been brought to their knees by the grotesquely dysfunctional actions of their most senior executives.

I have written before about the illusionary myth that is CSR and I suppose that the one good thing that might come out of the global financial crisis is that none us will ever again trust the disingenuous garbage that corporations choose to throw at us from time to time. The idea that, say, a tobacco giant like BAT can be socially responsible is absurd but they still peddle this nonsense even though they surely can’t expect us to believe it. Do they really believe it themselves? - I doubt it.

But of all the current areas of public disquiet about the behaviour of the top men in multinational corporations it is the obscenely high levels of remuneration that they pay themselves that comes out top. Here is how it works. The Board of Directors appoints one of their number – usually a Non Executive Director – to head up some sort of Remuneration Committee. That Committee is charged with ensuring that the Executive compensation of the CEO and his colleagues is competitive with the remuneration of executives in other corporations. If it isn’t then it is adjusted – always upwards of course! The fallacy of this whole process is for all to see – it creates a spiral of remuneration excesses. To illustrate this I looked back ten year to the late 1990s when I was a middle ranking Shell executive and Mark Moody-Stuart was the CEO. At that time Mark was paid ten times what I was paid. Fair enough you might think – he had a pretty big job. Roll forward to today and the same ratio is now fifty to one! If I was in the same job in Shell, and allowing for inflation of my salary as well, Jeroen van der Veer would be paid at least fifty times what I would be paid – probably much more than this.

But as we have seen with the case of Sir Fred Goodwin of RBS the excess doesn’t stop even when a failed CEO is unceremoniously booted out of his job. Sir Fred qualifies for a pension of £693,000 a year – an entitlement that has caused a furore in Britain, and understandably so. And back in 2002 Sir Philip Watts’ (shown in photograph) severance payment following his forced removal as Managing Director of Shell consisted of a lump sum payment of £1,057,971 and an (index linked) pension of £584,070 per annum. Goodwin and Watts and their ilk would no doubt have justified their extraordinary levels of remuneration by reference to “the market” – that spiral of excess that I described above. And perhaps they would also have said that extremely high levels of responsbility require extremely high rewards – and perhaps they do, but only if these responsibilities are discharged with competence and with honour – which in both their cases certainly did not happen.

Sorry Jeroen it just won’t do…

A friend who knew that I have been a rather vocal critic of Shell’s corporate advertising over the past few years asked me if I felt vindicated by the admissions in George Monbiot’ s recent interview with Jeroen van der Veer: Of course for Jeroen to admit:

"If we are very big in oil and gas and we are so far relatively small in alternative energies, if you then every day only make adverts about your alternative energies and not about 90% of your other activities I don't think that - then I say transparency, honesty to the market”

is a big step forward. The disingenuousness of Shell’s advertising over the years, which has concentrated on the minuscule and unimportant Renewables sector and excluded much mention at all of Shell’s core oil business, was one of my main complaints. But, as Monbiot points out in the article which accompanied the van der Veer interview, Shell continues to mislead in its advertising. The position that the company tries to establish is that it has something unique to offer the energy world and, further, that this something is primarily driven by some sort of altruistic motives. The whole campaign over the years has been and continues to be utterly misleading – as I argued here and here:and here:

It may be an old fashioned concept but when you communicate with stakeholders the first thing that you must do is tell the truth. This not only means that you must make statements that are verifiable but also that you should answer legitimate questions.

Hats off to Jeroen for agreeing to be interviewed by George Monbiot who is arguably the most vocal journalist and writer around on the subject of climate change and whose criticism of the oil industry over the years has been determined and always well researched. But sadly in the interview Jeroen at times looked like a bumbling fool (which he is not) and at other times like a corporate cover-up king - which he certainly is.

Monbiot asked Jeroen pointedly to tell him what the quantum is of Shell’s investment in Renewables. It is a reasonable question – not least because Shell has spent plenty of advertising bucks over the years assuring us that it is committed to alternative energy. But van der Veer absolutely refused to tell Monbiot what the figure is. If you go to Shell’s most recent Annual report you won’t find the answer either. If you do a word search on this huge document for the word Renewables you draw a blank – Shell which so recently trumpeted its commitment to Renewables doesn’t even use the term any more. And if you try and find how much the bits and pieces of wind, solar and the rest are worth you won’t be able to find that either. It’s all hidden away. And, as George Monbiot found out, Jeroen won’t tell you either!

As a long-time Shell employee and now a Shell Pensioner I have always been and remain a Shell loyalist. This may be hard for some to believe in that I have been vociferous in my criticisms over the years. But if you look at my extensive report on the Corrib Gas project, which is now available free as a download here, you will see that I continue to have a high regard for Shell people and in the main what they do and how they do it. What I cannot tolerate, perhaps because I spent so much of my later Shell years working in Marketing and Corporate Communications, is when Shell lies about what it does.

Shell is in a vulnerable state at the moment. A huge cost cutting exercise is in the pipeline which will probably radically change the structure and imperatives of the organisation. Certain business sectors look very vulnerable and with the oil price so low any project which requires oil at, say, $80 a barrel can expect to be mothballed. The downstream receives inadequate investment – especially in the Shell brand, and whilst is may stutter on for a while eventually Shell has to dispose of all of its assets from the refinery fence to the consumer.

As a shareholder and one who is concerned that Shell succeeds I would actually rather see a smaller, fitter, more profitable Shell which concentrates on what it is really good at – upstream oil and gas. Such a corporation would not only be more viable but it also would not need to create illusions about its business and ridiculous boasts that it is “creative”. Sticking to the knitting and transparency would be the strategy that many of us would welcome – and if in his few remaining months Jeroen can set this in motion then that would be a legacy of which this eminently decent man could be proud.

The origins of Shell's "Greenwash" were back in 1997

In this article former Shell executive Paddy Briggs explains the background to the oil company's predilection for "Greenwash

Greenwash is in the news again as the oil companies are pilloried for the disingenuous corporate advertising they propagate in a naïve effort to boost their reputations. Shell has been twice criticised by the Advertising Standards Authority and BP and others have also outraged the environmental lobby by the sheer effrontery of many of their claims. But where did it all begin? Take a look first at this video on YouTube, and then I will explain!

The purpose of advertising is to persuade – usually to convince a consumer to favour your branded goods or services over those of your competitors. And a perfectly honourable profession it is as well – or I wouldn’t have spent quite a bit of my Shell career commissioning advertising campaigns! In essence the task was to find a way of differentiating Shell products in such a way that the motorist (in particular) went to our petrol stations rather than those of Esso or Caltex or Mobil. We always tried to find a genuine edge – perhaps in respect of the product quality, or the levels of service or the range of goods or the location and extent of our network. We were required, as every advertiser is required, to ensure that what we said in our ads was legal, decent, honest and truthful. Of course there was an element of selectivity in our message. If, for example, Shell did not have the largest network in a particular country or area then we might try and ensure that we gave the best service. This is the famous Avis pitch – we might not be number one but we are trying harder because we are number two! But if you do this you better deliver - the public is not a fool and if you try and bullshit them they will soon learn to ignore or discount your future messages! So the task was to persuade by telling the truth about what we offered – not the whole truth, perhaps, but the truth nevertheless. Verifiable, defendable messages that worked.

Corporate advertising is another game. Here you are not trying to sell a product or a service but you are still trying to persuade – usually the persuasion task is to raise your profile or enhance your reputation. It’s a different game – but the same rules and principles apply. The perception of your advertising must be a perception that you are telling the truth and also, and vitally, that the message is credible and relevant to the receiver. Whereas in product advertising you are seeking a purchase following exposure to the advertising in corporate advertising you are generally seeking not a direct response but an altered attitude. “Before I was exposed to the advertising I thought that Shell was only an OIL company but now I know that they are a big GAS company as well” (for example). Consequently there is often a greater degree of information dissemination in Corporate Advertising.

The oil companies have received a lot of bad press from environmental groups and others because the plethora of corporate advertising they have been indulging in for some time seems inaccurate, nuanced and highly selective in its content and themes. The term “Greenwash” was invented to describe this advertising. Having worked for over five years on corporate communications for Shell in my last assignment in the Middle East (and off and on in other locations before this) I think that nearly all of the criticism and the charge of greenwash is justified. All too often Shell’s advertising tells highly selective stories and half truths and makes bizarre and indefensible claims about aspects of Shell’s business. There are many examples but the concentration on Shell’s Renewables business (Solar, Forestry, Wind etc) was a particular case in point. Clearly the intention of this advertising was to try and persuade that Shell is not only active in renewable energy but is a serious player. Do you remember the “Forestry ad” where a Boris Becker lookalike “Shell project engineer” “has a thing about trees” and believes that in the future “half of our energy can come from renewable sources like…sustainable forests”. The tagline of the ad was that “Damian Miller works for Shell Renewables. What was once just a small research project is now a major business. One day it could be our biggest business.” That was in 2004 - but the business featured in the ad (Forestry) was disposed of by Shell in 2005 – so it didn’t become Shell’s biggest business – or even remain a Shell business at all!

When corporate advertising is as disingenuous as the Forestry ad it brings the whole genre into disrepute. But notwithstanding this debacle Shell has continued to make claims in its corporate advertising which are at best narrowly and deceptively selective and at worst just plain lies. That is why Shell has been wrapped over the knuckles twice in recent times by the Advertising Standards Authority for it misleading claims. But what was the original stimulus for this style of advertising and why has Shell persisted with it despite the tumult of “Greenwash” criticism? To find the answer to this question we need to go back to 1997 when Shell management was battered and battle-weary from the criticism that had been thrown at them after a series of events which had seriously dented their and Shell’s reputation. There had been, in particular, the debacle over the disposal of the offshore oil production platform “Brent Spar” and the almost simultaneous crisis resultant from Shell’s activities in Nigeria. In this benighted country a corrupt and despotic government had brutally judicially murdered the Ogoni activist Ken Saro-Wiwa, and Shell was accused of indirect complicity in this repulsive act of vengeance.

As a result of Brent Spar and Nigeria Shell’s probity, and the integrity and judgment of its senior staff, were brought into question. By coincidence the new leader of the corporation at the time was a man, Cor Herkströter, who was something of an outsider (he was not an oilman at all but an accountant inherited with the takeover of Billiton). Whereas the hard-headed oilmen who had traditionally run Shell might have weathered the storm Herkströter was cut to the quick by the criticism – much of which was personal. He launched an exercise which was designed to restore Shell’s reputation – an exercise which had the ambitious task of making Shell the “World’s Most Admired Company” (this even carried the acronym “WOMAC”). Extensive research was carried out amongst “key decision makers” and one of the conclusions was that Shell needed to present its image to the outside world in a more positive light.

One day Herkströter was introduced to one of the doyennes of British advertising and the man credited with the successful marketing of Margaret Thatcher – (Lord) Maurice Saatchi. Saatchi was always one for the main chance and bypassing all the usual brand and reputation management processes and people in Shell he persuaded Herkströter that Shell need to reposition itself as a company that was indisputably a force for good in the world. The Saatchi message was that progress in the twentieth century had been attributable to the global spread of the capitalist and free enterprise system - and because Shell had been a major player in this system then Shell must have been partly, even substantially, responsible for this progress.

So when Herkströter came to a meeting of senior executives of Shell in the summer of 1997 it was the Saatchi inspired message that he was selling to them. The brief video clip posted on YouTube culminates in a three-minute film, made by Saatchi, which presented the message about progress and Shell in an emotional way. It also introduced the idea that Shell’s core purpose (no less) was to “…help build a better world”. And that its corporate identity was that “The future is a better place”. There were many in Shell, particularly those of us who had had a long career in the Group and who specialised in brand and communications, who thought that Herkströter had lost his marbles. That most of his colleagues lined up to support him in this bizarre endeavour worried us as well. In the event some of the brand and reputation management advisers in Shell were able to tone down the worst excesses of the planned campaign but much of it went ahead anyway and the effects of it still linger.

What we witnessed back in 1997 was a commercial company trying to justify its existence not by pointing to the genuine fact that it was a world leader in the perfectly respectable activities of oil and gas production (etc.) for which it was famous. Instead we were exposed to a pitch that Shell was somehow a sort of a quasi benevolent organisation whose core purpose was not to make a return for shareholders over time (the real core purpose, of course) but to “help build a better world."

The communications proposed by Saatchi, and bought lock, stock and barrel by Herkströter were toned down somewhat and as a result at the time excessive ridicule was avoided. But the vestiges of this ill-thought-through campaign remain and can still be seen in the continued attempts to present the beneficial by-products of some of Shell’s activities as the reasons for them rather than as what they really are - indirect consequences. The speech-writers, the advertisers and the other corporate advisers need to reflect in the light of this history (which if they don't know it, they should study) that if you try to present yourself as something that you are not then you will be found out. Shell has been rumbled - and they need seriously to reflect on how they present themselves to the world in the future. The time of lies and obfuscation is over.