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 case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Excerpts
The Twin-Board Structure
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The uniqueness of Shell's organizational structure was that, from 1907, the
company remained a joint venture, run by a twin board of directors, rather than
a single corporation.
The 60:40 joint venture partnership and separate identity
of the partners remained intact for nearly a century.
When the 'oil
reserves' controversy broke out, analysts wondered whether the
company had become a victim of its own illustrious and unparalleled history as
the most complex organization in the corporate world with authority divided
between The Hague, London and Houston.
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Due to such division of corporate authority, analysts also
called Shell one of the world's three most international organizations, the
other two being the Roman Catholic Church and the United Nations Organization...
The Drawbacks
Analysts commented that Shell lived in a world of its own with "a history of
cumbersome bureaucracy, opaque governance and prickliness to outsiders. "Many analysts found the functioning of twin-board structure very complex to
understand.
Even investors felt that the system was obscure, lacking clarity
and transparency. Far-flung and decentralized operations managed by a
complex reporting system made financial disclosures a tough task and led to
manipulations...
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The Restructuring
The reserves scandal compelled Shell to conduct a comprehensive internal
review into its governance structure. After much deliberation, the
management came to the conclusion that the only way to win back investor
confidence, ensure greater transparency and avoid accounting failures in
future was to overhaul its corporate governance system.
The two boards unanimously agreed to propose to their shareholders the
unification of the Royal Dutch/Shell Group of Companies under a single
parent company. |
It was decided to abolish the twin-board structure by
creating a single management body with greater powers and responsibility...
Excerpts Contd... >>
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