Pride goes before a fall

THE ousting of Sir Phil Watts from Shell is a landmark event. In the cosy, civil service world of the Anglo-Dutch conglomerates these things simply do not happen.

The fact that Walter van de Vijver, the head of the company's oil exploration, is also falling on his sword points to where the fundamental weaknesses at Shell lie.

It is a group crippled by structural sclerosis and bureaucratic bungling. Watts' departure - after the disclosure that the group had overestimated its reserves by 20% - is certain to be compared with the dramatic sacking of Bob Horton from BP in 1992.

But in scale and tradition these are different events. At the time of Horton's departure from BP, the oil company was worth £22bn on the stock market against Shell's current market value of more than £90bn.

BP was a company with a history of turmoil and only in recent years did Lord John Browne lead it to the sunny uplands, dramatically improving its exploration, reserves and distribution capability. Shell is known for its stolidity, its lack of adventure and its resistance to change.

The idea that the board would rise up against a chairman was unthinkable until the latest dramatic events.

But companies can no longer be impervious to shareholder activism. Since the disastrous revelation that the oil giant does not quite have the proven reserves it had published, the shares have been in the doldrums and it has come under sharp attack from the analysts.

Behind the scenes, angry shareholders have let it be known that they were not prepared to wait for Watts to retire.

As fascinating is that Watts also alienated the whole industry. Shell's over-optimistic estimates of proven reserves posed question marks for all of the major players, which now face much tighter scrutiny from the Securities & Exchange Commission in the United States.

But as far as one can tell, Shell's problems are largely confined to itself.

Now that Watts has gone, no one should assume that Shell immediately becomes a recovery story. The elevation of Jeroen van der Veer to the post of chief executive seemed to please the market.

As a stop-gap, the distinguished geologist Lord Oxburgh is taking over as chairman. But he will need to explore the world with his divining fork if the group is to start reversing its loss of ground in exploration and reserves.

The Dutch and British boards, having come together to dismiss Watts, now need to plough on with governance reforms. Shell is a group blighted by its failure to communicate clearly what it is doing.

Its ill-judged press release, announcing the changes at the top, noted that Judy Boynton would be remaining as finance director. Never has there has been a more lukewarm vote of support. Inquiries about compensation for loss of office threw the group into paroxysms.

This is not the behaviour of a world-class company.

Penrose revealed

THE waiting game for Equitable Life and its army of 750,000 policyholders will soon be over. Ruth Kelly is expected to tell Parliament today that the Penrose report into the events surrounding Equitable's near collapse will be released early next week. It has taken an excruciating amount of time to reach this point.

Lord Penrose took far longer to complete his report than expected. And when the 800-page report was finally delivered on 20 December 2003, it posed more problems for the Treasury than could be imagined.

A review by the Serious Fraud Office delayed publication. It was also discovered that Penrose's actuarial comments were far from crystal clear. This led to a bizarre episode in which Equitable bosses - including chief executive Charles Thomson - were invited to review 30 pages of Penrose at the offices of the Financial Services Authority where, like schoolchildren sitting their exams, they were invigilated by a jobsworth from the FSA.

For policyholders, the main interest in the release of the document will be what effect it will have on claims for compensation.

For the government to step in, Penrose will have to reach beyond maladministration and show that there was criminal negligence or malfeasance by regulators.

Such findings were the basis of the compensation paid over Barlow Clowes. BCCI and the Bank of England are still going through the courts.

Policyholders have a right to feel bitter. The delays have been unacceptably long and they have suffered serious financial loss.

Many are experiencing a stressful retirement. But they should not pin their hopes on compensation any time soon - if at all.