A spokesman for Royal Dutch/Shell Group said Tuesday the boards of the two companies are considering a unified board with one CEO, but are ruling nothing out as they revamp internal accountability systems. Shell began a major review of its twin organizations after it recategorized downward 23% of its oil and natural gas reserves over a five-month period.

For months, shareholders have called for major changes. Some of its largest shareholders also have filed lawsuits regarding its governance practices (see Daily GPI, July 30). “Both boards accept now that the status quo is not an option,” said a source quoted by Reuters. “They know that the absolute minimum they are going to get away with is a unified board.”

Jeroen van der Veer, chairman of the managing directors and the dual companies’ top executive, is among those pursuing major changes. He took over after the long-time CEO, Philip Watts, resigned (see Daily GPI, March 4).

Van der Veer heads the steering group considering the governance changes within the two businesses. He also sits as a non-executive on the board of Unilever, the European-based home products group. Unilever, which was set up similarily to Royal Dutch/Shell, recently decided to unify its board structure, and its new structure — and van der Veer’s participation in it — may be a factor in how the oil major eventually solves its governace problems.

“You have to look immediately at how it works from a legal and tax point of view, which has to be studied,” van der Veer said. Best practices are viewed differently by different countries, he said, and one country’s idea of good governance may not be the same in another locale. However, he is not ruling out a unified board or some governance method that would ensure increased accountability.

Under one of the unification plans, executive and non-executive directors of each unit also would be made directors of the other unit. Royal Dutch owns 60% of the joint corporation; Shell Group owns the other 40%. The Shell unit is the one responsible for the company’s exploration and production (E&P). Currently, executives from each operating group are picked from the boards of both units.

With a more unified structure, analysts have suggested that Shell probably would be able to make bolder strategic decisions. When Watts was overseeing the E&P unit, the company lost out in some of its major takeover attempts, including a highly publicized move to buy Denver-based Barrett Resources, as well as Australia’s Woodside Petroleum (see Daily GPI, May 8, 2001).

Besides the governance issue, van der Veer also is working to improve Shell’s oil and gas production, and acquisitions have not been ruled out.

“The bread and butter of the company is organic growth,” he said. “If you spend $10 billion a year in upstream development over five years, then that’s $50 billion, and that’s a sizeable acquisition in itself.” He also is aware that the oil giant could itself become a takeover target unless it successfully rebuilds.

“If you can address all the issues successfully and build a very strong company, maybe it is possible from time to time to do acquisitions, but if you get it hopelessly wrong, then people start sniffing around,” he said.

To improve accountability, Shell already has revamped some of its organization this year. The Shell Group has made the role of chairman a non-executive position for the first time, and the Royal Dutch unit also abolished “priority shares,” which allowed directors to have more power over new board appointments. Also, NM Rothschild, a restructuring firm, and U.S.-based Citigroup were appointed by Shell as bank advisers for its strategic review in mid-July. A strategy update is scheduled to be released on Sept. 22, and a final report is due in November.

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