We have made significant progress in changing our culture and organization to ensure that we can deliver our strategy. The unification of the parent companies under Royal Dutch Shell plc in 2005 has provided us with a clearer, simpler, more efficient and accountable form of governance.
The chief executive now reports to a single board comprising 10 non-executive directors and five executive directors and a key advantage of this single, smaller board is that it provides a very clear and direct line of accountability to shareholders. Royal Dutch Shell now has a single headquarters in The Hague (the Netherlands). The centralization of a number of activities in the headquarters is helping to reduce duplication and helping us to operate in a more streamlined and efficient way.
The structural changes are also helping to reinforce our work to simplify and standardize many of our business processes. In particular, the integration of the oil products and chemicals businesses into one down-stream organization has so far been very successful in creating a more dynamic, responsive and effective organization. We have seen particular benefits at sites which contain both refineries and chemicals manu facturing plants.
By sharing services and integrating their activities we can operate much more efficiently. It also means we have been able to share and adopt best practice more quickly and so improve operational performance.

On the top floor of London’s towering Shell Centre, a cavernous boardroom looms over the Houses of Parliament, filled with high-backed chairs and rows of angled microphones. For decades, British and Dutch directors from two separate companies have held eight ‘conferences’ a year, alternating between there and the Netherlands, to decide on the business of Royal Dutch/Shell Group. But if shareholders today approve the most radical restructuring in its history, the London room will fall into disuse. Instead, board members will assemble each time in the more intimate surroundings of a gabled building topped by a clock tower in The Hague.
After nearly a century of quirky cohabitation, shareholders of Royal Dutch Petroleum and Shell Transport and Trading will today be asked to approve the formal marriage of the two, which together make up the world’s biggest publicly traded oil company after Exxon-Mobil and BP.
The union will put the relationship on a new footing and fundamentally alter the way the company is governed. Shell’s eccentric corporate governance structure – long a source of befuddlement to outsiders – will be scrapped in favour of a modern, ‘Anglo-Saxon-style’ system designed to bring it into line with Exxon and BP, its more successful rivals.
Executives say the shift represents a dramatic transformation of the company’s conservative and consensus-driven culture – changes they say are badly needed if it is to compete in a rapidly changing oil industry. But critics ask why it took them so long to accept the need for change and why Shell had to be forced into it by shareholders following a scandal last year in which the group was forced to slash what it had recorded as proved reserves of oil and gas no fewer than five times.
That reduced the level of reserves by one-third, led to a boardroom purge and brought $150m in fines imposed by US and British regulators.
Investors question whether the merger will do enough to alter the ponderous way in which the group operates.
‘We changed a lot of the culture of this company’, insists Jeroen Van der Veer, appointed as Shell’s first-ever chief executive following the reserves scandal and the decision to streamline the group.
A soft-spoken Dutchman with a kindly manner, Mr Van der Veer – still eager to show that he and the other executives have taken a firm grip following one of the worst crises in its history – adds:
‘We were very much a “bottom-up” company.
Now there is certainly more direction from the top. I try to give very high clarity on where to go.’
He makes it clear that the direction the group is headed will include takeovers. Shell had missed out on the wave of mega-mergers in the late 1990s that saw Exxon merge with Mobil and BP buy Amoco. The failure to participate was prompted largely by a prediction that oil prices would remain low – at about $10 a barrel instead of the $60 seen today. But Shell’s dual structure also meant it would have been hard for the group to use its stock as currency to finance takeovers, as its rivals were doing.
With today’s high oil price, the cost of any deals is much higher. But Mr Van der Veer says the company must be ready for the next wave of consolidation in the industry. ‘If you study – and I do that fairly regularly – the last 100 years of the oil industry, it is one long story of consolidation’, he says. ‘So you [had] better [be] prepared. You must have the tools in your toolkit.’
The necessary tools were absent when the reserves crisis hit. Shell seemed paralysed. It took some measures to improve the way in which it booked reserves and addressed other compliance issues.
But investors were unhappy about the speed at which it was moving after Mr Van der Veer and his new team took over in March last year. Advisers intervened on behalf of large institutional investors to try to press their views about the need for a thorough overhaul of the company’s structure.
Shareholders wanted an end to the company’s dualboard system which, they maintained, hamstrung the company with a cumbersome decision-making process and obstructed accountability.......

Questions

1. How would you characterise, in cultural terms, the nature of Shell when it was a ‘cohabitation’ of Royal Dutch Petroleum and Shell Transport and Trading?

2. What changes in the culture of Shell are the ‘marriage’ of the two companies expected to bring?

3. What were the reasons for the strategic decision to merge the two companies?

4. How did the reserves crisis precipitate the changes? If necessary, refer to Concept 8.2 .

5. What do you consider to have been the key managerial and cultural factors involved in the merger process?

6. What evidence can you find in the text to suggest the possible emergence of a ‘third culture’
within the new company?