Pacified? They are totally mystified

THE extraordinarily reticent powers-that-be at Shell were woefully misguided if they thought that the ousting of Sir Philip Watts and chief executive Walter van de Vijver would draw a line under the debacle at the world's second-largest oil giant.

The way the group announced replacements last week - ageing academic Lord Oxburgh will become temporary non-executive chairman and Shell 'lifer' Jeroen van der Veer takes over as chief executive - was handled with typical ineptitude.

The shareholders, who were supposed to be pacified by the move, were simply mystified.

And if this is the extent of the board changes that Shell plans to make in response to the crisis in its relationship with City investors, that fast-fading love affair looks as if it is doomed to become a Who's Afraid Of Virginia Woolf?-type slanging match.

Shareholders had been hoping to hear that the group would simplify its dual board structure in favour of far cleaner lines of communication to help avoid Shell's hapless handling of fiascos ranging from Brent Spar to the overstating of reserves.

But as Financial Mail reveals today, the problems within Shell appear to run deeper still.

The company endorsed a system of reserve reporting in Nigeria which actually seems to have encouraged local managers to take a recklessly optimistic view of potential oil and gas volumes in the ground.

Shell's decision to book gas reserves in the giant Gorgon field in Australia as proven was revealed as similarly heroic, given that all its partners in the same field took a far more conservative line.

Staff raised doubts, but it is understood that senior executives overruled them. And, as our report above makes clear, the company's attempts to buy off its powerful critics in lobby groups such as Greenpeace, which had so threatened its business in the past, were little more than a sham.

A promise to invest tens of millions of pounds in the infrastructure of Nigeria was about as reliable as other aspects of the company's reporting have turned out to be. Clearly, any company of the size and complexity of Shell is likely to contain rogue elements. The typically turbulent and politically challenged areas of the world in which oil companies drill exacerbate the difficulties.

But the Kremlin-style bureaucracy at Shell makes it much harder to control its multiplicity of outposts and stamp on emerging problems quickly.

With America's Securities & Exchange Commission breathing down its neck and a deluge of litigation threatened by angry US investors, it seems likely that Shell will have to do some pretty dramatic fire-fighting in future.

So it must move quickly to ensure that its boardroom structure and lines of communication are up to the job. If not, there will be several more senior executives who, like Watts, will be forced into humiliating public apologies and be shown the door.

Let's hope they - and Watts - get no pay-offs for failure.

MICHAEL Dobson caused investor outrage with a guaranteed £3.5m-a-year pay package on taking the helm at fund management group Schroders in 1991. But he must have thought he was off the hook last week when he unveiled a blistering rise in profits from £18.9m to £65.6m.

There was determined talk about resisting predators and staying independent. Instead Dobson pointed to Schroders' £690m warchest and said that if anything, he was the one on the takeover offensive. What was he looking to buy?

Possibly a hedge fund, he said ... immediately reawakening some of the shareholder doubts that have so far characterised his tenure.

Investors were quick to remember that as part of Dobson's signing-on package, the mighty asset manager agreed to pay the best part of £34m for an embryonic hedge fund - Beaumont - that Dobson himself had set up.

Detailed study of Schroders' website reveals that the name Beaumont still exists. But the investors in the group had a harder time finding exactly what contribution this expensively acquired business was now making to the group.

Clearly they will be hoping that future hedge fund purchases will make more of an impression on Schroders' bottom line.