Chapter IV: Diluting REACH: influencing governance at supranational level
Chapter 6: Shell and the tale of shareholder activism
3. Conclusion
The Shell case has two remarkable features that relate directly to the propositions of this thesis: firstly, it illustrates how the breakdown of a story and subsequent crisis it unleashes can make the building of a (counter) story a much harder task, as trust in the storyteller is damaged; secondly, it reveals the
particularities of an arena in which stories are constrained by established/legitimate narratives that define different roles, with corporations working towards the delivery of shareholder value, investors encouraged to actively intervene to make sure they do so, and a financial media whose main duty is to channel the necessary flow of information between the two. In this particular episode, most of the storytelling was
made by the two last groups, with Shell reluctant to provide any kind of narrative that could explain its problems.
The financial media, and in particular influential commentators such as FT’s Lombard and Lex, are central to the final outcome because it is through their articles and columns that the stories of a few minor shareholders were disseminated and supported, at the same time that Shell, and its stories, were kept under a public and negative watch. In other words, the eventual consensus among journalists, analysts and British investors around Knight’s story, which linked the reserves fiasco to deeper governance problems that could only be resolved with a complete change of corporate structures, is created by and through the media. This is crucial because the strategy to build an alliance among major shareholders through a series of individual meetings behind the scenes proved harder than anticipated. The Dutch were visibly reluctant to join any kind of organised attack on Shell and, without the Dutch on board, the epilogue would have been different.
The consensus was made easier by Shell’s inability to draw a line under the story of the restatement of the reserves. This failure, in turn, gave outsiders the opportunity to frame the problem and its solutions according to their own agenda, justifying a complete change of corporate governance on an episode without financial consequences. There are at least three interconnected elements related to success of the shareholders’ narratives: timing, Shell’s silence and, finally, Shell’s overdue story. The first relates to Knight’s initial intervention about the need to strengthen CEO accountability, a recognised ‘right’ of shareholders. This came up straight after Shell had just managed to contain the heat around the downgrade and disastrous delivery of the news, bringing the subject back to the media and its scrutiny.
At this point, the absence of a story by Shell meant that media, avid for an explanation, welcomed plausible and, coming from institutional shareholders,
legitimate versions of the story. This narrative planted the seed of investors’ argument about a lack of accountability fostered by the dual board. When Watts and Van de Vivjer were fired and a new Dutch CEO was chosen, Knight moved on to criticise the disproportional power of the Dutch and the fact that two boards weakened
accountability and direct intervention to safeguard shareholders’ interests. By taking a step back, Knight led the media to take a step back from the reserves scandal and the obsession with culprits in that particular case and look at a ‘bigger picture’.
When Shell disclosed the results of the internal auditing, its own story was about how two top managers, in a full war with each other, lied to the market to cover their mistakes, implying their ousting was the end of a localised problem. In a
response to Shell’s narrative, Knight continued to decouple particular individuals to the particular episode and linking points revealed by the audit to shareholders’ own story about Shell: why were their mistakes not spotted by the ‘conference’? Could it have happened if there was an independent director, accountable to shareholders, on the board? How is it acceptable that a group of the size of Shell has one auditor that reports to the head of EP only? This is also interesting because the drive to an ever stronger centralisation of decisions on few individuals was one of the responses of the company to the attacks of the 1990s from civil society and the stock market – an attempt to speed responses and cut costs. This time, however, given the arena in which the reserves scandal took place, Shell could not use the currently less hostile relationship with civil society to get them to tell stories that would work in its benefit, like Roche was able to do in the previous case study.
The crucial alliance here, instead, was formed among investors, supported by the consensus on the desirable way to deal not with the particular episode that initiated the six month crisis, but with the functioning of the whole Shell Group. The final blow, however, was again partially self-inflicted, as Shell’s new story about a review of the dual board and the governance structure did not turn into the constant flow of communication desired by the investors and unequivocally demanded by Knight’s story, driving the Dutch to the British side.