Royal Dutch Shell Plc: The Competitive Strategies



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Code : COM0092

Year :
2005

Industry : Oil and Natural Gas

Region : Netherlands

Teaching Note:Not Available

Structured Assignment :Not Available

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Introduction:The Royal Dutch/Shell Group, world's third largest oil company, was renamed as Royal Dutch Shell Plc in July 2005. The renaming marked the unification of its two boards, which represent the shareholdings of Royal Dutch Petroleum (based in the Netherlands; owns 60%) and London-based Shell Transport and Trading that owns the remaining 40% of the Royal Dutch/ShellGroup. The dual board structure of the group, in which operating management, including the CEO, had to report to both the boards, was criticised on the grounds that it made the group opaque and bureaucratic. The bureaucratic set up led to lengthy procedures and slow decision-making processes hindering the company from pursuing aggressive mergers and acquisitions policy in the 1990s. The Group was also criticised for under-investing in explorations of new oil fields. As a result, the Group lagged behind its competitors Exxon-Mobile and British Petroleumin reserve replacement ratio and proven reserves of oil and natural gas - two vital components that affect the valuation of an oil company. In 2004, when the Group was caught overstating its reserves, it had to pay fines to the tune of $150 million to Securities and Exchange Commission (SEC) of theUS and Britain's Financial Services Authority. Apart from paying fines, the Group removed three senior executives, chairman Sir Philip Watts, exploration and production chief, Walter van de Vijver and CFO, Judy Boynton, who were alleged to be responsible for the scandal. The Economist commented, "IT IS the corporate equivalent of a Shakespearean tragedy. For more than a century, Royal Dutch/Shell was one of the proudest and most admired companies in the world. Famous for its long-term planning, its technical skills and its collegialmanagement style, Shell also once served as amodel of the successful multinational, with its far-flung operations, Anglo-Dutch heritage and twin board structure. Its old corporate slogan, 'You can be sure of Shell', seemed amere statement of fact. Nowit seems as if the opposite is the case."

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