Royal Dutch/Shell-Governance Issues *

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.

Issues: » Conduct an in-depth study on the twin-board governance structure of Royal Dutch/Shell. » Examine how the twin-board governance structure of Shell resulted in lower accountability and transparency. » Study the circumstances that necessitated organizational restructuring at Shell. » Examine the solution of merging Royal Dutch/Shell Group of Companies under a single parent company. » Analyze the pros and cons of the proposed solution.

Questions for Discussion:

1. Critically examine Royal Dutch/Shell's twin-board governance structure. Comment on the unique features of this governance structure and explain how it enabled the company to effectively control its global operations?
2. According to analysts, Shell's twin-board governance structure was one of the reasons that led 'oil reserves' scandal. In the light of this, examine the drawbacks of the twin-board governance structure. Comment on the circumstances that necessitated the organizational restructuring of Shell?
3. Study the merger proposal of Royal Dutch/Shell Group of Companies under a single parent company. Do you think the merger is only solution to Shell's governance problems? What alternate methods do you suggest to tackle these problems? Explain.

Key words:
Royal Dutch/Shell Oil Reserves Controversy Corporate Governance Management Structure Twin-Board Structure Three-Way Matrix Structure Organizational Restructuring Accountability Management Control Merger Proposal

*Note : This case is a simplified version of a longer case study, and is intended for learners for whom English is a foreign language. The longer version of this case study (BSTR155) is available at: http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy2/BSTR155.htm