Abstract

In January 2004, Royal Dutch/Shell (Shell), the third largest oil exploration and production company in the world, announced that its financial statements had shown inflated oil reserves in the earlier years, and that it would downgrade nearly four billion barrels of its 'proven'oil and gas reserves. This announcement created a furor among the investors and industry analysts who blamed the complex and opaque twin-board governance structure for the company's problems. Experts believed that this structure lacked accountability and facilitated financial manipulations. The case study examines in detail the twin board governance structure of Shell and the loopholes in such structure. In order to restore investor confidence, Shell announced a merger of the Royal Dutch/Shell Group of Companies under a single parent company in October 2004. The case highlights the key proposals and examines the pros and cons of this merger plan.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Study of the twin-board governance structure of Royal Dutch/Shell
• its effect on accountability
• The circumstances that necessitated organizational restructuring at Shell.

Keywords

Royal Dutch/Shell, Oil reserves controversy, Corporate governance, Management structure, Twin-board structure, Three-way matrix structure, Organizational restructuring, Accountability, Management control, Merger proposal