By Paddy Briggs
Denis Healey recently said that he would prefer people to wonder why he hadn’t been Prime Minister rather than have them wondering why he had been. Jeroen van der Veer (above) was never meant to be Shell’s top man and had he not reached that position few would have wondered why. As he now retires, having held the job for five largely ineffective years, many observers will wonder why on earth he got the post in the first place. And virtually every stakeholder - employees, suppliers, customers, local communities, investors and pensioners has seen their status and well-being lessened over the five years that van der Veer has been at the helm.
When the British CEO Mark Moody-Stuart was reaching the end of his term in 2000 on reaching the mandatory Shell retirement age of 60 the assumption of all of us in the corporation at the time was that his successor would be Dutch and that Maarten van den Bergh would be the choice. However van den Burgh was only a couple of years away from retirement age himself and it seems that the then strict application of the age rule scuppered his chances. After being overlooked for the top job Van den Bergh retired early and then went on to a successful post Shell career as a director of Lloyds Bank and other blue chip companies. In 2000 the only other Dutch member of the Committee of Managing Directors (CMD) was Jeroen van der Veer and had the company then wished to maintain its historic practice of alternating Dutch and British CEO’s then van der Veer would have got the job, but they chose not to do this. Nor did they choose the rising star at the time who was the ambitious and talented Dutchman Walter van de Vijver - at the age of only 45 and not yet a Managing Director of Shell he would have to wait his turn. It is likely that the intention was that van de Wijver would be groomed to take over in around the year 2005 on the retirement of the man that was surprisingly chosen to succeed Moody-Stuart - another Englishman Phil Watts.
Watts took over in mid 2001 with van der Veer retaining his place on the CMD and van de Wijver being promoted to join him. There seemed no prospect that van der Veer could ever get the top job in Shell having been overlooked - he had few enemies but he was generally seen as being rather lightweight - hard working and diligent but without natural communications skills or creative intelligence. A safe pair of hands, but little more. Those of us in the Middle East who were reasonably regularly in contact with Jeroen over the years found him agreeable and sincere without a strong ego or arrogance - but completely lacking in charisma. For example in 1999 I originated and managed an environmental conference in Dubai called “Eco-Arabia” (see http://www.barrowandschuck.com/pdf/4-7%20eco-arabia%2005.pdf) . Van der Veer gave the keynote address at the conference in Dubai ‘Beyond 2000 - The Role of Industry in Global Sustainable Development” - his delivery was hesitant and one was not sure that he had any real understanding of or commitment to the Sustainable Development /Environmental cause even then.
The future for Jeroen van der Veer once Watts took over in 2001 looked clear - he would carry on as a Managing Director of Shell until his retirement in 2007 and no doubt help smooth the way for van de Wijver’s takeover from Watts in 2005. But in early 2004 Shell was rocked by the emergence into the public domain of the revelations that they had been systematically and knowingly overstating their hydrocarbon reserves and that Phil Watts and his head of Exploration and Production (E&P) van de Wijver were complicit in this deception. Only a couple of years after the scandal of Enron there was immense concern in the business world that another corporate giant was possibly institutionally dysfunctional.
Watts and van de Wijver were summarily dismissed by Shell in March 2004 - to be followed later by CFO Judy Boynton. In these cataclysmic times the company turned to Jeroen van der Veer to clean up the mess and he was appointed to succeed Phil Watts. There was however one potentially serious problem with van der Veer’s appointment and that was that he had, of course, been a member of the CMD since 1997 - in other words he was one of the very small number of very senior Shell executives in the years leading up to the revelation of the reserves fraud. Some at the time pointed out that van der Veer had no track record in the upstream at all - his entire career had been in manufacturing, planning, Chemicals and in corporate positions. He was not an E&P man so how could he be expected to counter the forceful and arrogant geophysicist Watts? In reality Van der Veer was guilty either way you looked at it. If he hadn’t challenged Watts and van de Wijver over reserves (one of the key indicators of the business) surely he should have done so in order to protect shareholders’ interests and the company’s reputation? And if he had been fully aware of what was going on surely he should have blown the whistle rather than waiting for the facts to dribble out via the media? Despite the reservations about van der Veer’s either complicity in the cover-up or his lack of judgment in not challenging what was going on he still got the top job in 2004. In a sense Shell had nobody else to turn to (internally at least) at that time and no doubt van der Veer’s dull but worthy record as an archetypical Shell corporate man was comfort to those who wanted the Aegean stables of Watts to be swept clean.
Van der Veer’s one significant success as Chief Executive of Shell was to institute a major change to the corporate structure of Shell and this, at least, should not be under-rated. The absurd and anachronistic system whereby Shell had two separately traded parent companies (”Royal Dutch” and “Shell Transport and Trading”) was swept away and a new unified “Royal Dutch Shell” was created with a structure much more like any other global corporation. Shell was to remain, nominally at least, “Anglo-Dutch” but it was clear that the Dutch element would be far stronger in the future. Van der Veer also instituted some change to the corporate governance processes which were designed to ensure that the dysfunctional events of the Watts years should not recur. It was clear that the principal stakeholders that van der Veer was responding to over the first year or two of his period as CEO were the institutional investors and the regulatory authorities. He essentially delegated the running of the actual businesses to his fellow executive directors Malcolm Brinded (E&P), Linda Cook (Gas and Power) and Rob Routs (Oil Products). Whilst this was probably necessary during the restructuring years 2004 and 2005 van der Veer never really subsequently took control of the business management of Shell even when the restructuring was behind him. The problem was that there was a series of decision areas where it was essential for a lead to be given to ensure that Shell did not navigate into squally waters - especially in respect of projects where there was a huge reputational risk. Shell’s management of the Sakhalin project in Russia, for example, was heavily criticised - not least as the budget escalated from less that $10billion to over $20billion. Similarly the highly sensitive Corrib Natural Gas project in Ireland became a sore in the flesh of Shell owing to the initial arrogant and incompetent management of the project in the development phases - culminating in the jailing of five protesters (the “Rossport Five”) in 2005. Both of these projects were left to Brinded and Cook to manage and, as it now is clear, the rivalry between these two did not help. Van der Veer can be criticised for distancing himself from the business - even major projects such as these and leaving it to those with very strong personal agendas. Similarly the extraordinary growth in executive remuneration, fuelled by the laisser-faire attitude of successive chairmen of the remuneration committee and culminating in the recent unprecedented rejection of Sir Peter Job’s remuneration proposals by shareholders. These events all took place on van der Veer’s watch.
I retired from Shell in 2002 so my comments on what has happened since that date are not based on personal experience but on what I have observed and what people have told me (this includes current employees and recent retirees). It is difficult to find one area, post restructuring, where van der Veer has given direction which has advanced Shell - and there are innumerable areas where he has either abrogated responsibility or just not understood the issue. I mentioned the executive remuneration scandal (for that is what it is) above. Another example of this which has not really been much in the public domain, but should have been, is how some executives of senior rank have benefited from windfall bonuses of various types (including stock options) which have little or no relation to their performances. For example Clive Mather, a Brit, was President and CEO of Shell Canada and personally walked away with around $CND 10 million (see http://en.wikipedia.org/wiki/Shell_Canada) - and this is not an isolated case.
Shell is known around the world for its marketing business - more than 40,000 petrol stations in a hundred or so countries (Retail) plus huge lubricants, aviation, marine and other businesses. It is no secret that these businesses have suffered from centralisation - especially Retail. All markets are local but under van der Veer’s leadership there has been a malignant and wholly unsuitable centralisation of these businesses. Local offices have been closed and local staffing has been drastically reduced under specious cost minimisation imperatives. My guess is that this business will be sold under Peter Voser - there has been little sign of a proper customer or brand focus in Shell for years.
One of the most abject areas of failure under van der Veer has been in respect of Corporate Advertising. Over the past few years the “Greenwash” promulgated by Shell has been widely condemned by all objective analysts for the parade of lies and half truths it is. Shell’s ill-advised and incompetently managed move into “Renewables” was always half-hearted and they conspicuously failed to invest adequately in the alternative energy business. The likelihood is that Shell only went into Wind, Solar etc to try and engender some kudos that they really are a company that cares about Sustainable Development and that they really saw a non-hydrocarbon energy future, and wanted to be part of it. This was always a lie and it is shameful that van der Veer must have approved these disingenuous campaigns.
Van der Veer’s Human Resources chief was an American, John Hofmeister, a man who had no feel for the unique culture of Shell and who managed almost singlehandedly to alienate staff at all levels - and pensioners as well. He also presided over “Corporate Affairs” - a catch all for the service functions. One Shell insider told me this about Hofmeister in relation to pensioners:
“Hoffmeister made it clear from the start he regarded pensions as a legacy cost and pensioners little more than welfare recipients (’welfare’ is a dirty word in the US implying an undeserving dependency). To be fair to him, this was a time when the Group was rebalancing its remuneration policies towards greater incentives and rewards today and less in the form of progression for seniority and deferred salary (which of course is what pensions are) … in the process paternalism became a casualty and any one advocating it became a suspect pinko…Hofmeister even said in an unguarded moment that he would never hire anyone at a job interview who asked questions about their pension but a year later, and now a member of the [pension fund], he awarded himself (sorry, negotiated) several years of back service credit; what a hypocrite!”
The Hofmeister story is in many ways typical of Shell in the van der Veer years - he gave far too much licence to some pretty nasty types in senior jobs all of whom were purseuing their own personal agendas and who ultimately failed. Linda Cook, another American, has walked away from Shell in a pique because she did not get the top job. I didn’t know her but I have yet to hear anyone say a good word about her. The suspicion is that tokenism got her the job in the first place - but it hasn’t really shattered the glass ceiling at all! The same applies to the Oil Products (Marketing and Refining) man Rob Routs. He has almost single-handedly nearly destroyed the Shell brand by under-investment, centralisation and a facile pursuit of cost reductions across the business, as I have said above. Despite the genuinely international scope and impact of Shell’s business the leadership has continued to be dominated by Europeans and Americans and van der Veer did nothing to try and identify and promote to the top anyone of a more diverse ethnicity or nationality. Even the non-executive directors are uniformly white and European/American. This is all the more serious in the light of the centralisation of decision-making under van der Veer. In the past the senior management of large national “Operating companies”, mostly comprising nationals of that country, would take key decisions locally. Now most of these decisions are taken centrally by distant executives who cannot possibly have the same sensitivity to local cultures and business environments. This is particularly a problem in the downstream where, as we have seen, it is axiomatic that “all markets are local” - a maxim that Shell now ignores completely.
The history of the international oil industry in the last decade or so has been characterised in particular by the mega mergers which have turned some already large companies into even bigger ones. Exxon took over Mobil. BP took over Amoco and Castrol. Chevron merged with Texaco. Total, Elf and Petrofina created a European giant. It is one of Shell and particularly van der Veer’s failures that they have not seen the strategic benefits of such moves and a few minor acquisitions aside they have not succeeded in taking over or merging with anybody. This is one of the causes of Shell’s inability to add significantly to its hydrocarbon asset base over this time - and indirectly of the reserves scandal which brought van der Veer to power. But in his five years Shell has actually contracted somewhat rather than expanded by acquisitions. Diversifications have failed - even those like the creation of a power generation company Intergen which had a lot of strategic logic to them could not be made to work and were disposed of. The move into alternative energy was, as we have seen, feeble and under-funded. The problem seems to have been a corporate spinelessness about risk and an obsession with quantification. Perfectly viable acquisition possibilities were walked away from because of a belief that they were too risky and because the investment analyses lacked certainty. And yet Shell’s track record of accurately estimating capital budgets was pretty woeful on projects that they did proceed with - Sakhalin being the most obvious example of this.
Under van der Veer Shell has mostly been highly profitable - but in truth this is not in any way attributable to his efforts (the restructuring success aside) but because there is a direct correlation between the oil price and Shell profits. Now the price has fallen back Shell is of course charging once more into the cost cutting territory under Voser. Plus ca change!
Peter Voser’s Email to staff (see my comments at http://www.bloggernews.net/121039) was surely the ultimate proof that the van der Veer years have been a disaster. The Peter Principle (http://en.wikipedia.org/wiki/Peter_Principle) lives!
© Paddy Briggs
20th June 2009