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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Introduction Contd...
The internal review report released by Shell on April 19, 2004, stated that the
top managers at Shell knew about the inflated reserves for years and had been
arguing about whether and how to lie about it to the company's shareholders. The
controversy led to the exit of top managerial personnel and a fall in the
company's credit ratings8. Apart from shattering investor confidence, the
reputation of the company was also badly hit. Analysts were of the opinion that
apart from lack of standard policies with regard to reporting and categorization
of oil reserves; and absence of third party audits of oil reserves to ensure
transparency, one major reason for the crisis was Shell's organizational
structure.
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They found that the bi-national Dutch/English ownership structure of Shell with
two boards and a Committee of Managing Directors had resulted in lower
accountability. Absence of clearly defined roles and responsibilities of the
top management made misrepresentation easier. A few analysts believed that
Shell would benefit greatly by changing its organizational structure so as
to have a single board.
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Background Note
The Royal Dutch/Shell Group was formed in 1907 through the merger of the
assets and operations of the Netherlands-based Royal Dutch Petroleum
Company (RD) and the British-based Shell Transport and Trading Company (STT).
The history of Shell dates back to 1833 when Marcus Samuel opened a shop
in London, selling sea-shells. This business quickly developed into a
thriving trading company which was later managed by his son, Marcus
Samuel Jr. His business visits to the Far East made him realize the
potential for supplying kerosene to be used for lighting and cooking,
from the developing Russian oilfields, to the large markets in China and
the Far East... |
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