The eyes of the world are not focused too closely on Shell and the other western oil multinationals at the moment – but they should be. Whilst the dysfunctionality, incompetence, voracity and self-interest of the financial sector, and the utter failure of finance associated regularity systems, is top of the mind the oil sector is escaping much attention – except amongst the pressure groups and NGOs who specialise in this area. But in reality, and if we take a long term view, the actions of multinational oil companies ought to be just as closely monitored and controlled as those of the banks and finance houses whose dysfunctional management is the major cause of our current global malaise.For any economy to function successfully there need to be solid checks and balances on the free market sector. It was the almost total absence of such controls on the likes of Lehman Brothers and Madoff that allowed them to lie, cheat and defraud at will. Part of the reason was the global nature of these businesses. Lehman Brothers, for example, had offices in more than 30 countries and it was able to finesse its financing both to minimise tax liabilities and to frustrate regulators – whether the whole story will ever emerge remains to be seen. In the oil sector there is a directly comparable focus on optimising the income streams, minimising tax and creating smokescreens around some behaviours and activities.

Shell has a large and well-funded department whose sole raison-d’être is to minimise tax liabilities by ensuring that earnings are reduced in jurisdictions where tax rates are high and coincidentally increased where tax liabilities are lower. There is nothing inherently illegal about this, of course, and Shell would no doubt argue that it is operating in the shareholder interest in reducing its global tax liabilities. All well and good, in theory, although such behaviour could be regarded as a somewhat dubious use of corporate power and of its global structure.  It is certainly a subject that global regulators, if they existed with any real teeth, might like to get into – good luck to them if they try.

Whilst corporate tax avoidance is the daily business of some clever folks in Shell it will surprise nobody to know that tax avoidance at a personal level is a nice little earner for some Shell employees and external advisors. Here I refer to the cottage industry which exists to try and ensure that the earnings of the top people in Shell attract the minimum level of tax deduction. The Shell Annual report lists the compensation of the directors of Royal Dutch Shell which, in 2007, ranged from $9million in the case of Jeroen van der Veer to around $4million for his successor Peter Voser. The actual arrangement of this remuneration will have been designed to ensure the absolute minimum level of personal tax liability.   Shell would argue that all of this is above board and that their “Remuneration Committee” (REMCO) is a quasi-independent watchdog to ensure that all is well. That the Chairman of REMCO, a remunerated non-Executive Director of Shell, is a beneficiary of the system he overlooks seems rather to undermine the independent nature of his work though!

The tax avoidance imperatives that drive Shell and other oil multinationals is, however, comparatively small beer compared with the more serious reason why they should be closely investigated at the present time and almost certainly far more tightly controlled. You might wonder why Shell, BP and the rest are spending so much money at the moment on strange corporate advertising. This advertising is very similar in style and content (and as such not very differentiating) – and the theme is that the Oil companies are a force for good in the world. I paraphrase and slightly oversimplify – but not by much. Take the cringe-making TV and press advertisements which say that “Shell is helping prepare for the new energy future” in various innovative and creative ways. These ads seek to suggest that the driver for Shell’s business decision-making is in some way innovation and altruism. So the small Gas to Liquids (GTL) business features strongly with an overt claim that Shell is in GTL because it cares about the environment. It isn’t true. Shell is in GTL because other people care about the environment (mostly national and city governments) and Shell wants to position itself to benefit from this. Similarly we are meant to believe that Shell’s strongly promoted involvement in wind energy is a major part of their business because Shell believes that Wind power is one of the cleanest sources of energy available. It’s also renewable and plentiful”.  Well yes – but why should Shell want us to believe that they are a leading player in the wind energy sector? Maybe because they know that the only way at present that such projects can be viable is if they have Government subsidies. And Shell will be happy to do you a wind energy project if the taxpayer is paying – otherwise the real energy truth is that they will stick to oil and gas!

Does Shell’s often silly and mostly disingenuous corporate adverting really justify their investigation and regulation? Perhaps not – although the promulgation of misinformation ought to be seen as a pretty serious affair. But what this nonsense hides, and intends to hide, is that the vast majority of Shell investments and efforts are in the traditional hydrocarbon depleting and global warming increasing  oil and gas sectors. Cut through the obfuscation about GTL and Wind and Solar and “creativity” and what you get is a hugely financed and massively managed oil and gas business. That is the real raison d’être of Shell and anyone who thinks otherwise just needs to look at the Annual Report where the utter dominance of this business is crystal clear. Is every cent of the investment in this business wisely spent – at Sakhalin or in the tar sand areas of Canada or in County Mayo in Ireland for example? Are the environmental consequences and the social implications always considered along with the income plans – the so-called “triple bottom line”? The evidence is quite clear that they cannot be – or at least not with anything like equal weight. The grotesque damage to the landscape that open mining causes, the threat to wildlife and communities that mega-projects like Sakhalin bring with them and the invasion and attack upon a local community as in Ireland are, amongst countless other indications, evidence that there is in truth only one bottom line that matters – and that it’s measured in dollar signs.

So as we move into 2009 let us certainly not take our eyes of the financial sector and its iniquities. But let us also realise that to buy Shell’s message that the energy future is safe in their hands would be naïve and dangerous. Let Shell do what it is good at (and that certainly isn’t tilting at windmills) and let’s regulate them tightly to ensure that what they do is in the common good. It isn’t easy and the apparatchicks at the top will no doubt howl that it will be interfering with their freedoms. But the greater freedom is energy investment and decision-making that is not just designed to further the profits and the dividends and the directors’ remuneration of Shell and their like. We the people have a right to know that the energy future of our children and their children is in the right hands. And that certainly doesn’t mean in the hands of the well-paid fat cats who work in London and The Hague (and pay tax who knows where!).

  

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