Governance Problems at Royal Dutch/Shell

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.

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...