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What is Shell? George Frynas (researcher - PhD on Shell Nigeria) You’ve heard a lot about the workings of the oil industry, and today I want to argue that Shell is not an oil company. Okay? Shell is, in my view, a financial corporation, and a political organisation, and maybe an oil company after that. So, what I want to get through today is to show you the structure of the company, to show you how they make money, and who these people are, at the top, something about where they are involved in oil, and at the end I’m trying to think why Shell might be different from other companies, in terms of being a baddy. Okay, so let’s start. Shell’s shareholders, they hold shares in one of two companies - Royal Dutch, which is based in the Netherlands; and Shell Transport and Trading, which is based in the UK. It’s a very peculiar structure for a company. Okay, what does it mean? It means that there’s two companies. In the real world they have two buildings - one of them is in the Hague, and one of them is in London. Both companies have directors - in the Hague it’s Cor Herkstroter, and in London it’s John Jennings in charge. They are the people who run the company - it’s not the shareholders at all - I mean this Resolution 10 that’s coming up next week is the first resolution that’s happening at Shell, and it’s certainly not going to be approved by the company. It’s the guys here that make the decisions. What they have is a joint board of directors between those two companies that take all the decisions.In the day to day running of the company, they have many other different companies that run the actual business. There’s like 1,700 active Shell companies. And these are very different companies - these can be service companies, which means they do some kind of services for Shell, like transport, shipping, gas, other things - these can be operational companies in countries like Nigeria, like Shell Nigeria, and all these companies have their own directorship, et cetera. What’s happening here is that directors from these companies are called to the Hague and London from time to time to get their plans approved. They have to come to the board of directors and show them their investment plans and what they want to do, how much they want to spend, et cetera, and the directors approve it or not - they usually approve them - as long as the profit’s okay. Why I say that Shell is a financial corporation is because the guys at the very top that I told you about - of the two companies; Royal Shell and Shell Transport and Trading -they’re only interested in profits, yeah? They are interested in how their share fares on the stock market, they are interested in how much they are making in profits from each of the companies. And when these guys, from, say, Shell Nigeria, are coming to London, and they have to report back on what’s happening in Nigeria - the only important criteria that they had was how much profit they make - if the profit margin is okay, then the directors in Europe will let these directors do whatever they want to do. They don’t care how the business is run, they are not responsible for running the business - that’s what these service companies and the other companies are for, and sub-contractors, et cetera. What’s peculiar about Shell is that they derive a lot of profits from former colonies of the UK and the Netherlands - eg: Brunei, Nigeria - these are very important areas for Shell. To give you the example of Nigeria, it generates around 13% of Shell’s crude oil, which is a lot. This is a great peculiarity about Shell, which is they have greatly prospered out of the British Empire. For instance in Nigeria they were given a concession in ‘38; in Brunei I think they started in ‘22. And still in Brunei they are kind of the monopoly company in terms of oil and gas. In Nigeria they have like 50% of the crude oil production. So they have managed to stick to the old colonial areas, and they were propped up by the colonial office, et cetera, et cetera, to get there. So one of the reasons for instance that Shell reacted in such a negative way to the Shell Nigeria campaign, was because it is so important to them. It’s very very important to them - it’s not just important for the Nigerian regime - it’s very important to them as well. Another thing in terms of finance - where most profits that can be made in oil at the moment is from exploration and production, so probably from the areas we’re most interested in, like Shell Nigeria, Shell in Latin America, and other countries where they are on the ground and dealing with communities. That way, they are also making the most profits. Just to give you some figures, last year in ‘96, Shell’s profits went up by 28%, over all. Shell’s profits in exploration and production went up by 65%. Shell’s profits in downstream went up by 2%, and Shell’s profits in chemicals went DOWN by 40%. It’s a very crucial area for them. That’s also why they are, again, why they are so touchy about it. The next point that I want to make about Shell being a financial corporation and not an oil company is tthat hey care a lot about costs and they don’t care that much about where these costs are incurred. They have had a big cost-reduction programme, which is very peculiar, you might think, because I’ve just told you that the profits are going up - there was record profits in the last couple of years in Shell. But on the other hand they have slashed jobs and costs. So you ask yourself, ‘why does it have to be like that?’ I mean in Shell Norway, they have cut 50% of the staff; in Netherlands 10% of the staff. And at the same time these guys who are at the top - I mean they are interested in money - they’re not there because oil is a great hobby; they want to make money, themselves. I mean I’ve looked into how much Mr. Mark Moody-Stuart, who’s going to be the next chairman of Shell Transport and Trading, in three days time - and he earns, according to my estimate - £1,071,000 per year. He’s the one who succeeds John Jennings - on Wednesday. The best thing that these guys are getting, are share options - Mark Moody-Stuart earns 50% of his salary from share options, which means he’s getting shares of Shell at a very low price, and can sell them at a very high price. So, Mark Moody-Stuart got shares at, I don’t know, 500p per share, and he could have sold them for over 1,000p per share, which makes a pretty high profit. Something like 900 managers worldwide in 75 countries, get share options, which is a way of giving them an incentive, because they are there, as I said, in order to earn money. On the joint board of directors, two of them represent the British side - 40%; and three represent the Dutch side - 60%. The five of them make all the decisions - all the important decisions are made by these guys - not by shareholders or by anyone else. They are the kings, or the executive committee, or whatever you want to call them. The way that I want to explain this is that Shell is a power structure. I mean, imagine when you had your history lessons, and you talked about fiefdoms - that’s how I imagine the Shell structure a bit - they have various fiefdoms - one is called Shell Nigeria, one is called Shell Brunei, et cetera, et cetera. And it’s the same with having embassies for countries - different embassies have different importance, as the embassy in the US is more important than the embassy in Brunei - and the same is in Shell. But it’s a different structure because Nigeria, for instance, is a very important fiefdom for Shell, so if you become the managing director of Shell Nigeria that means that you are a very important person in Shell - potentially you can have a very big career in the company. These guys go from one area to another - usually every three years or so, the managing directors of the different companies are changing places, which is done in order to improve their understanding of the company, et cetera, et cetera - it gives them a bit of an overview of what’s happening. So these guys are moving around. For instance, Mark Moody-Stuart - he was also running one of the divisions of Shell Nigeria at some stage. There’s another guy who’s succeeding, and will be a member of the board of directors - he’s called Phil Watts - who used to be the managing director of Shell Nigeria. Which gives me the idea that Nigeria is an important fiefdom for Shell, because some of these managers are coming straight from Shell Nigeria into very high positions in Shell, which means that this is like a stepping board for these guys. There are a lot of power struggles going on, and I feel that they’re also more important than oil. I mean, you could see for instance in Brent Spar, where the Royal Dutch board decided that they wanted to back down to Greenpeace, and give way to the demands, while the British side was against. The Dutch won. In terms of finances, Shell is the second oil company in the world, after Exxon - which is based on revenues. But in terms of oil owned, Shell is only the sixth largest oil company. Okay, so in terms of finance, second; in terms of oil, sixth. I’ll tell you who the front runners in terms of oil are - state companies of Saudi Arabia, Venezuela, Iran, Mexico, then Exxon, then Shell. Okay, I have to briefly explain to you why this is so - why oil is less important, or seems to be less important. Are you all really bored? No. Okay. In the 1970s, all these countries, including in Nigeria - they wanted to get rid of multinationals. They wanted to control the oil industry, they have nationalised to some extent, they have formed state companies. They didn’t succeed in what they wanted - most of them did not succeed. What happened was that the ownership of the oil has changed to some extent. For instance in Nigeria, just to give you an example again, Shell owns 30% of the joint venture with the government. The state oil company owns 55%. So nominally, the Nigerian state runs the oil business. But in reality this is not the case. In reality, the state owns the oil, but the company runs the business, so they let Shell do everything that they want, even though Shell only has a minority share. Shell takes all the decisions - it owns 30%, but controls 100%, which gives them lots of advantages in terms of being an oil company, because they train their own staff, they make decisions for instance what equipment to procure. It also means that they can cheat states - they can cheat Nigeria - they do. I’ve spoken once to an insider to the oil industry who was in Nigeria, and he told me stories how they cheated the Nigerian government, and various things - it’s amazing stuff. But because they take all the decisions, they can influence the pattern of development also of those countries like Nigeria, and they have different objectives. For instance, from a Nigerian point of view, it’s good to train as many Nigerians as you can. From Shell’s point of view, the aim is to keep Nigerians from skilled work as much as they can, because if Nigerians are incompetent, then they will always need Shell. You see the more incompetence there is in countries like Nigeria, the better it is for Shell, because the best advantage of being an oil company that they have, is that they have the technology. That’s the reason that all the countries were unable to contest the multinationals - because the multinationals have the new technology for offshore drilling, for horizontal drilling, for all sorts of things. Shell spends something like £500 million per year on R&D - on research and development, and that’s the biggest asset that they have in order to control the oil industry. The point I wanted to come to in terms of the oil industry was, will Shell remain an oil company? Even if we assume that Shell is an oil company, will it stay an oil company? Oil is a mature business, as an economist might tell you, or one of the managers might tell you. It’s not unusual - there’s other mature businesses - for example tyre manufacturing was considered a long time a mature business. What it means is - Shell is a capitalistic structure; they have to expand. But the oil business doesn’t expand, so they have to go into new businesses. That has happened in other industries as well. Have you heard of the company, Nokia, in electronics - it’s a tyre manufacturer and a mobile phone company. GEORGE - Nowadays, yes. They were, like Shell, in a so-called mature industry, and decided, ‘we want to go into something else’, and today less than 3% of their sales are from tyres. What oil companies are doing is going into gas - that’s what they’re mainly going into. Shell’s share of gas production is something like 35% of its total production, which is kind of the average. There are some companies which have more, like Mobil, which is like 50%. Actually BP has got very little - something like 15%. That’s where they are going to, and they’re exploring all the possibilities, including solar - I mean BP Solar I think is the biggest solar company in this country. All sorts of other things - they’re thinking about alternatives all the time - it’s just that they haven’t taken the opportunity as yet, because they don’t seem compelled to do so. So, you know, in 20, 30 years, there might still be Shell, but might not be an oil company at all. I mean, you’ve seen yesterday this Financial Times thing here with Shell and BP folding - I’m afraid it’s not going to happen - they will just go into different business, and that’s why I say they are not an oil company - because they don’t care about the business that they are in. I’ve got a nice quote in here, actually. It’s from General St. de Verre, who also will be a new member of the board of directors from Wednesday. And he said, ‘we work with a finite hydrocarbon resource, and want to make sustainable development a reality. The foundation for that is’ - and I’ve underlined this - ‘world class performance of WHATEVER we do’. I don’t want to talk about Shell being a corporate criminal, because you know a lot about this. I just want to make two or three points about why Shell might be slightly different from other oil companies. First thing - Shell’s close relations to governments - I’ll just read you a quote again, because it’s just wonderful. “As a result of it’s long involvement in countries in which oil and gas are very important to its economy, Shell has some very close relationships with governments. One of its strengths has been the ability to manage those relationships such that it has avoided some of the nationalisations that have happened to others.” That was written by an analyst in the city of London - one of those guys that Mick Money-Maker told you about yesterday, who spend all their time researching on Shell. One of the reasons that Shell had close relationships with governments is because they were helped by the British Empire. I mean, I have wonderful documents, where for instance the colonial office has asked Shell to comment on mining visas, you know - to give them comments on what they like and what they don’t like. Unfortunately we don’t have detailed information on these things nowadays, but I’m sure there’s still a very close relationship between Shell and the Nigerian government today. But a very important thing is, which is slightly different in Shell from other companies, is that they are very decentralised, which means the Shell operating companies - for instance Shell Nigeria - they have more leeway to do things as they want - than, say, Mobil Nigeria. Shell has a very decentralised power structure, which means that all the investment decisions are being approved in London, but all the operating decisions, including government relations and what they are doing in terms of staff, et cetera, et cetera, are done in the countries itself. This is to some extent to do with Shell’s history, et cetera, like the board of directors, but it’s got also some peculiarities. And I’ll just tell you about one, which is Shell Oil in the US. It has got a very, very peculiar structure, which is owned 100% by Shell, but it’s got its own board of directors, and they take all the decisions, and all the legal stuff, is handled by these guys, and they’re trying to separate themselves from the UK as much as they can. And the reason for that might be to some extent financial or profit, but this is another thing that I have heard from an analyst in London, that it’s very much to do with the legal stuff, because Shell know that they are baddies, and they know that they can be sued, and the US laws are the worst that can happen to an oil company in the world, so they wanted to decouple the Shell Oil business in the US as much as they can from the rest of the company. Basically, whenever something happens - I mean like there were letters written to Shell Oil about Nigeria, they say they have nothing to do with Shell, so the decentralised structure is also a way of committing corporate crime. And just lastly, I’ll tell you just a few words about the green backlash, because the oil companies are trying to counter our campaigns as much as they can, and Shell was one of the companies at the forefront of this movement. Shell, as was said yesterday, was proposed by the World Wildlife Fund in Canada for an environmental award, but Shell has done loads of different initiatives to counter environmental protest. For instance in Nigeria they have initiated the Niger Delta Environmental Survey, that you might have heard of, or Clean Nigeria Associates, and helped the government’s project called Vision to South, with lots of officials from the government, to do something about the environment, but they haven’t done anything - I’ve got the confidential report from the Niger Delta Environmental Survey - what they are saying is that the oil companies are not listening to them at all, and they have even refused to give out information to a survey, which was initiated and paid by Shell - so this gives you an indication. We have to be really really wary about of what these companies are doing, and what some of our fellow campaigning organisations are doing. I mean from Nigeria we have some very good details - the director of Chevron used to be the president of the World Wildlife Fund in Nigeria, for example. This just gives you an indication of how far the green backlash is going, and as far as Nigeria is concerned, Shell has been very much at the front of this movement, and the way I see it, to bring it back that Shell is not necessarily an oil company, is that Shell is a power structure, and since they have this leeway with the government and the structures of the country, that means that they can maintain their position, which means for instance that they keep competitors out, and one of the ways is to grab on those initiatives, like the Niger Delta Environmental Survey, or others. So, I think that’s about it. [APPLAUSE] Any questions? Q - I was slightly confused when you said about it becoming decentralised, because at the same time you were saying that all the decisions were being made by John Jennings, and the guy from the Netherlands. GEORGE - Yeah, sorry, I should have explained this more explicitly. There’s hundreds of different decisions that the managers have to make, and some of the decisions are very important, like investments - where does the money go to - and there are less important decisions like the day to day running of the business. What I mean is that within Shell there’s only very few decisions that are made by Jennings, et cetera - the group managing directors could decide that they want to pull out of the energy project in Nigeria, and major investment decisions like that, but they don’t run the everyday business. It goes so far in Shell that the local - as I call them - fiefdoms, they have so much leeway that there’s many more local programmes going on than there is in other companies. I’ll just give you an example - I’ve got it somewhere in here I think - Shell was exploring in 41 countries in 1994, BP in only 15 countries - this is also from someone in the city of London. The rationale behind it is that these guys in countries such as Nigeria, Brunei, et cetera, et cetera, had more leeway to say to the board of directors, ‘we want to explore here’ because it’s in their interests. So what I was trying to say here was that this vested self-interest was in the company, of different managers of different branches. Q - Possibly a question for later, but from what you are saying, obviously they feel themselves vulnerable to attack at this sort of higher level in America. Has anyone ever had a go at them in America, through the courts? Discussion from the floor: • There’s one case at the moment - mentioned yesterday, where they’re being sued for alleged conspiracy - for involvement in attacking the Ogonis, basically. • Ah yes, in Britain - you see if you do it in Britain it’s difficult - with the appeal system just goes on forever. But Americans... • It’s also to do with common law - that for instance for one thing there was a decision in the seventies or eighties that you can - in American courts you can use statistical evidence, which you can’t do in any other countries - so you can say that if it’s statistically proven that what you have done here - say this spill, or whatever, causes pollution, then we can prosecute you. In the UK you would have to show that THIS PARTICULAR oil spill caused THIS PARTICULAR pollution here, and you have to give them data and prove everything, so it’s to some extent far easier to do these things... • We’re supposed to be getting a Freedom of Information Act next October. • I heard last night that one of Shell’s financial advisors is now an MP. Is this right? • He’s the Liberal Democrat MP for Twickenham, and he’s called Dr. Vincent... • Just a comment on what you said about Shell being a finance company, and anybody being grist to their mill - I think that’s one of the things that we have to watch out for. When supermarkets go organic, it’s not WHAT they’re selling - it’s how they’re CONTROLLING what they’re doing that matters, and so if they start going on about solar instead of oil, we have to ask what’s it going to mean to everyone, if it’s coming from a company like BP. • This strengthens the argument that you can’t condemn just the oil industry - you also have to condemn the corporate ‘grip’, if you like - they’re one and the same - they’re indivisible. So if you just attack the oil industry, you’re just missing a huge part of the point, because as you say, they could be selling anything in a few years’ time. You have to try and keep that complexity in there. It’s the structure of corporations.
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