Shell succumbed to mounting shareholder and regulatory pressure yesterday by ousting its chairman, Sir Philip Watts, over the shock downgrade of its reserves two months ago.
The Anglo-Dutch oil giant also announced that its head of exploration and production, Walter van de Vijver, at one time tipped as the next chairman, had also stepped down with immediate effect.
The departures come as the US Securities and Exchange Commission steps up its investigation into Shell's decision to cut its reserves by 3.9 billion barrels or 20 per cent, and American shareholders pursue legal action over the way the market was allegedly deliberately misled.
Sir Philip, who joined Shell as a seismologist 35 years ago, has been replaced as group chairman by the president of the company's Dutch half, Jeroen van der Veer. Meanwhile, Lord Oxburgh, the senior independent director of the company's UK half, Shell Transport and Trading, has been given the newly created interim role of its non-executive chairman. News of Sir Philip's departure sent Shell shares up 7.5p to close 2 per cent higher at 383.5p.
These changes are unlikely to be enough, however, to satisfy investors who are calling for a wholesale shake-up of Shell's arcane and antiquated corporate structure and the creation of a single unified board.
"There has been a coup and they have got rid of the two figures at the head of the company but it is not the end of the story," said one of Shell's leading UK investors.
Sir Philip and Mr van de Vijver resigned at a meeting of the two parent company boards in the Hague yesterday morning. "The resignations were tendered promptly on receipt of the indication of the boards' wishes for a change in leadership of the group," a spokesman said.
He later made it clear that the departure of the two men had resulted from the disclosure in early January that Shell was cutting its estimate of proved reserves - an announcement that Sir Philip failed to attend in person. "The group audit committee's review of the facts and circumstances surrounding the 9 January announcement of the group's reserves led the board to seek the changes in leadership of the group," the spokesman added.
Sir Philip's position had been made even more vulnerable by the fact that he was Shell's head of exploration and production from 1997 to 2001, when most of the overbooking of reserves took place.
It is not clear how big a pay-off Sir Philip, 58, will receive. He has only a three-month service contract and, because there are no predetermined compensation arrangements for Shell directors, his pay-off will be at the discretion of the board. Shell said last night that no pay-off had yet been agreed.
Sir Philip was paid £1.8m in 2002 and already qualifies for a pension of £480,000 a year. He also participates in a new long-term incentive scheme introduced last year and has 2 million share options, although all but 308,000 of these are at strike prices above Shell's current market price.
Although there had been widespread calls for changes at the top, the timing of Sir Philip's removal surprised some investors. Shell is still in the process of consulting leading shareholders about the changes they want to see in the group, and it had been thought that any personnel changes would wait until the outcome of this.
Presenting Shell's 2003 results four weeks ago, Sir Philip apologised profusely for failing to announce the reserves downgrade himself, but he insisted that he had the "full support" of the board, adding: "This thing happened on my watch and I have the will and determination to see us through this difficult patch."
One fund manager who had met Sir Philip in the past month as he embarked on an intensive round of shareholder meetings said: "I am a little bit surprised that he has gone. He seemed to be in a listening mode but perhaps what he was hearing was so overwhelmingly hostile that the board had to demand a sacrificial lamb.
"Even with Sir Philip gone, it is still a very messy situation at Shell. It does leave the situation extraordinarily open."
Among other changes announced by the group yesterday, Malcolm Brinded, the head of gas and power, takes the number two role of vice-chairman of Shell's committee of managing directors.
SLIPPING ON A SLICK ...
9 January: Shell cuts estimate of proved reserves by 3.9 billion barrels or 20 per cent. Watts fails to attend announcement
16 January: Watts admits in a letter to staff that downgrade caused "outrage" in some quarters
22 January: Watts cancels appearance at World Economic Forum in Davos, Switzerland
23 January: Watts tells meeting of staff at Shell headquarters that he has no intention of resigning as chairman
26 January: US investors launch class action accusing Shell and Watts of deliberately misleading the market
5 February: Watts apologises "unreservedly" over reserves announcement but rules out resigning. Says Shell is "open to change".
19 February: Securities and Exchange Commission begins formal investigation into reserves downgrade
3 March: Watts steps down "by mutual consent"Reuse content