The man who was sure of Shell

...doesn't want to take credit for transforming the sprawling Anglo-Dutch giant. He doesn't believe in the cult of business personality. But just for the record his name is Mark Moody-Stuart and he's the chairman of Shell...
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The Independent Online

The chairman of Shell prefers to be the quiet man of the oil business. Mark Moody-Stuart would not be happy to suffer the high-profile attention paid to Sir John Browne, his counterpart at Britain's other giant, BP Amoco. Mr Moody-Stuart is suspicious of the trend for personalising business. Most large organisations need contributions from many people, he says, and individuals often get credit or blame for things started by others. Whether somebody is seen as a hero or a villain can be largely luck, he adds.

Mr Moody-Stuart is looking lucky. He is destined to win a place in business history that will justify the fame that clearly embarrasses him. The thoughtful and quiet-spoken Shell lifer has achieved what many of his predecessors failed - he has shaken up the sprawling Anglo-Dutch group and made it perform to the edge of its potential.

The transformation began to emerge in the middle of last year, when the company reported far better second-quarter results than the market had been expecting. But the reality was clear and stark in February, when the group unveiled a 173 per cent jump in fourth-quarter post-tax profits, from $818m to $2.235bn. Full-year profits were up 38 per cent to more than $7bn. Further progress is expected when the company announces first-quarter figures early next month.

Mr Moody-Stuart has been rewarded for his efforts. The company's 1999 annual report shows his pay rose 78 per cent to £1.78m last year. A large part was down to a £301,000 performance bonus, and £811,000 from cashing in share options.

But it has not been a faultless show. Mr Moody-Stuart's first steps after taking over the chairmanship of the cumbersomely-titled committee of managing directors in May 1998 were, as an observer said, "pretty faltering".

First, the company set performance targets that turned out to be "ludicrously optimistic". Then came the results announcement of that November. The new chairman described a 56 per cent slump in third-quarter profits as disappointing. Analysts labelled the fall in net income from $1.9bn (£1.1bn) to $841m disastrous, as the shares began a decline that cut the price from 354.5p to 299.5p in just weeks.

With the benefit of hindsight, those figures look like an example of kitchen-sinking, throwing in as much bad news as possible to get the troubles over and done with. After all, the performance was not that much worse than reported by rivals BP and Exxon.

But the poor presentation had one great advantage. It created the sense of crisis that Mr Moody-Stuart, former head of the group's UK arm, needed to springboard major changes. So while BP was combining with Amoco, and Exxon was cementing its position at the top of the pile by joining with Mobil, Shell was engaged in what the chairman likes to call its "internal merger".

It is an apt turn of phrase, since, as one commentator pointed out, the culture shift required to transform a "bureaucratic monolith investing purely for size into an efficient group that questions every investment decision" was probably greater than BP and Exxon went through with their respective mergers.

Basically, it has meant bringing together the different parts of Shell to create significant advantages. The process has three distinct aspects - sorting out the portfolio so businesses are either improved or disposed of, increasing capital efficiency so the company enjoys a better return on its assets, and cutting costs.

The first part has led to assets worth $8bn being sold or contracted for sale in the past year. In the second area, a "more disciplined" approach to capital allocation resulted in $9.5bn being invested, a fall of 40 per cent compared with the year before. The return on average capital employed was markedly better, at 12.1 per cent.

But the most aggressive action has been seen in the final area of cost reduction. Last year brought savings of $2bn, enabling the company to claim earlier this year that it was "well on the way towards the new $4bn annual target by 2001".

Some of these savings came from curtailing exploration costs. But Shell has also shown itself prepared to grasp the nettle of extensive job cuts. Confounding its reputation as a cradle-to-grave employer, it said last December that it expected to shed about 18,000 jobs, nearly a fifth of its workforce, by the end of this year. But it is not just a case of reducing the headcount. Mr Moody-Stuart wants those who remain to be more productive and accountable. This entails managers being forced to think about their responsibilities in a much more businesslike way. He has referred to a company history of "multiple hierarchies" constantly getting in each other's way. His emphasis on accountability means staff know they must perform or bear the consequences.

Shell's group structure is still complex, a relic of its origins in the 1907 alliance between the Royal Dutch Petroleum Company and the "Shell" Transport and Trading Company. These parent companies remain separate but own the various companies in 135 countries.

But, despite this, and having a committee of managing directors rather than a board, Shell is starting to resemble other companies in some aspects of its executive behaviour. More than a year before Mr Moody-Stuart is due to retire, speculation is mounting about his successor. Some tip Paul Skinner, head of oil products, as the favoured internal candidate, though he became a managing director only at the beginning of the year. The other internal candidate is Phil Watts, head of exploration and production. He has been on the board for longer but may lack the diplomatic skills the top job requires.

For Mr Moody-Stuart, today's Shell is a long way from the cosy world he discovered when he joined the company with a doctorate in geology from Cambridge in 1966. He was born in the West Indian island of Antigua, and he has spent much of his life outside Britain. Apart from a spell in the Seventies, when he was leading the company's exploration teams in the North Sea, he has lived in London only since the end of 1994.

Even now he spends much of his time travelling, speaking to Shell employees and collecting their views. The man who has spent his life in Shell is spreading the word that the world of Shell has changed.

In truth, Shell's easy-going approach to business was out of date long before many in the company realised it. By common consent, Exxon and BP tightened their financial performances long before Shell saw that need.

What brought the company up with a jolt were the events of 1995 - the company's annus horribilis. The disputed disposal of the Brent Spar oil platform and the company's activities in Nigeria, amid severe civil unrest in the oil-producing Niger Delta area, led to boycotts of the company in some countries.

If this period triggered the conditions that produced the company's poor financial performance three years later, it also sparked a realisation that the organisation needed to think carefully about its role in the 21st century. In 1998, Shell joined the trend for publishing reports on its environmental and social record, as well as financial performance. This was backed by a commitment to sustainable development by moving into other energy areas, notably renewables, such as solar power and forestry, and hydrogen, which produces the fuel cells being developed to power vehicles.

To critics who suggest such ventures were distractions when they were initiated in the midst of the company's financial troubles, Mr Moody-Stuart says sustainable development and financial performance are inextricably linked.

"Sustainable development builds the platform on which business thrives and society prospers," he says, though he also accepts a commitment in this area is no substitute for a first-rate financial performance. On that front, Mr Moody-Stuart insists much remains to be done. Though refining margins have been squeezed, he accepts recent results have benefited from the high price of crude. A year ago that was $10. At the beginning of this year it was $25. Even the agreement at last month's Opec meeting to increase production has brought it down only slightly. The company is basing its plans on much lower oil prices.

City sentiment warmed to the company, sending the shares to a high in the past 12 months of 547p, though by yesterday they had slipped back to 497p. Alan MacDonald, an analyst with Warburg Dillon Read, said: "I think people will see Moody-Stuart has achieved a tremendous amount since taking over."

Shell's long-held policy of decentralising, delegating a high degree of autonomy to managers in far-flung parts, has been a big plus when many multinationals struggle to perform the trick of acting local while being global. But until Mr Moody-Stuart took over from Cor Herkstroter, Shell was slow to apply modern technology and management techniques to make a global business run more efficiently.

But Mr MacDonald feels the most important aspect of the Moody-Stuart reign is his willingness to listen. Shell executives have often had a disdainful attitude towards the financial markets, but he sits down with analysts and acts on criticisms of style and presentation.

Such pragmatism is evident in his readiness to consider joining the enthusiasm for share buybacks, once Dutch legislative changes make it practicable for tax reasons. "You get another [control] knob," says Mr Moody-Stuart. He sees it as a discipline and an alternative for a cash-rich company. Otherwise, Shell would have a choice only between increasing capital expenditure and making acquisitions.

Mr Moody-Stuart is a keen sailor. And he appreciates the comparison often made between Shell and the giant oil supertankers it pioneered. Few would yet agree with his view of Shell that it is "now a great fleet of destroyers and torpedo boats". But, if he can keep on his present tack, the next captain on the bridge might find himself at the helm of a much nimbler craft.