Governance Problems at Royal Dutch/Shell
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Case Details:
Case Code : BSTR155 Case Length : 17 Pages Period : 2000 - 2005 Organization : Royal Dutch | Shell Pub Date : 2005 Teaching Note :Not Available Countries : UK, Netherlands Themes: Corporate Governance
Industry : Petroleum and Petrochemicals
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"This is the end of 60:40; we become one company with one
share. There is one set of directors, one chief executive, one person who has to
take full accountability."1
- Jeroen Van der Veer, Chairman of the Royal Dutch/Shell
Group's board of managers.
'Oil Reserves' Scandal
On January 09, 2004, following an internal review, the management of Royal
Dutch/Shell Group (Shell), announced that the company's financial statements had
shown inflated oil reserves in the earlier years. Shell, the third largest oil
exploration and production company in the world, further stated that it would
downgrade nearly four billion (bn) barrels2 of its 'proven'3 oil and gas reserves
to the 'probable'4 category. This accounted for nearly one-fifth of the total
'proven'oil reserves of Shell, the largest ever reserves re-categorization5 for
any oil company in the world. Soon after the announcement, Shell's stock price
nose-dived (Refer Exhibit I for Shell's stock price before and after the oil
reserves scandal).
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The Securities and Exchange Commission (SEC)6 started an investigation into the
overstatement of oil reserves by Shell. In addition, British financial
regulators led by the Financial Services Authority also launched an
investigation. Recognizing the need to restore investor confidence and the
credibility of the company, Shell also appointed Davis, Polk & Wardwell7
to act as an independent counsel to investigate the problem.
Governance Problems at Royal Dutch/Shell
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