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Outlook: Shell shows unnerving signs of life

WAS THAT movement we just witness in Shell, the sleeping giant of the oil majors? Yes indeed, the company we have traditionally been sure of as big, boring, and filled with barbiturates, seems finally to have aroused itself sufficiently from its slumbers to do a not insignificant deal. Uncharacteristically for Shell, which has stoically resisted the modern management taste for cost cutting, it also involves some $200m of annual cost savings.

The question is whether this is a full awakening we are about to witness or just another transitory break in the big sleep. The Anglo Dutch oil major is merging its European marketing and refining operations into a joint venture with those of Texaco. While this stops short of the fully blown merger with Texaco that everyone has been speculating about since BP and Amoco announced they were getting hitched, it is plainly a big step in the right direction.

Largely unnoticed and usually unreported, Shell has actually done a whole host of things in an effort to improve on its lamentably poor return on capital over the past year, selling off superfluous interests here and closing others there. But the sheer size of the organisation has meant the effect has so far been marginal. At 3 to 4 percentage points below the leaders, Shell still has the lowest return on capital employed of all seven oil majors. Given that Shell is the second largest, this would seem a pretty poor show.

If Shell cares about this, it certainly doesn't show it. Unlike BP, which has reinvented itself in the 1990s along American `can do', high executive remuneration lines, Shell has turned a deaf ear to the call of shareholder value. At virtually every level, Shell is seriously overmanned compared to its competitors and curiously enough management seems to be positively proud of it.

Executives have tried all kinds of wacky ideas for injecting a bit of positive energy into the organisation - including, unbelieveably, securing the services of a buddist monk to exorcise the bad karma - but seem culturally incapable of doing the one thing that tends always to do the trick in the seriously overweight - reducing the head count.

In any other company of this size, the City would long ago have acted. Despite attempts to reorganise internationally along product lines, Shell remains essentially a collection of national fiefdoms and its management by committee, Anglo Dutch corporate and capital structure, seem to make it largely immune to the pressures of shareholder activists.

Shell prides itself on the paternalism of its corporate culture, and nobody disputes that this has fostered some of the best talents in the industry. But in the end, the function of management is to make the assets sweat. That's how ultimately Mark Moody Stuart, chairman of Shell Transport & Trading, is going to be judged, not for running a university of excellence. As Niall Fitzgerald at Unilever has shown, it can be done, even in unwieldy Anglo Dutch multinationals.