The idea that in the world of Commerce Chief Executives might follow the lead of Harry S Truman and have a sign on their desks saying “The Buck stops here” has had something of a boost in recent times.The departure of top bankers from RBS (Fred Goodwin) and Barclays (Bob Diamond) and top oil men from Shell (Philip Watts) and BP (Tony Hayward) as a result of culpable failures of good governance has suggested that we do believe that the man (rarely a woman) at the top is personally accountable, whatever the fine print of the Law might say. Technically the CEO of a multinational is something of a “primus inter pares” and no more or less accountable than his fellow directors – and they all have the law of Limited Liability to protect them. Similarly the legal constructs of major Corporations may protect the likes of Hayward from personal liability. But in our febrile world of 24/7 visibility and instant judgment making in social media part of the CEO’s role is to front up in times of trouble and take the can when things go belly up. The claim that “I didn’t know” or “nobody told me” won’t wash any more – anything material within a Corporation’s activities has to be clearly on the radar of a CEO even if he delegates the management of the issue to his lieutenants (as he mostly will). It is also the case that if one participant in a Joint Venture is the operator then they are seen to have the moral responsibility for all that goes on – even if the actually shareholding is a minority one. I was pondering these thoughts particularly in the context of my own experience over 37 years with Shell and what I observed with my own eyes in respect of decision-making processes and accountability.

In my day (it’s slightly different now) Shell was a fully integrated energy company active all the way along the hydrocarbon chain from discovery to sales. The most convenient division was, and is, between the “Upstream” (exploration for and production of oil and gas) and the “Downstream” (transportation, processing, marketing and trading of oil and gas and their derivatives). Traditionally the Upstream was fairly centralised in its management and the Downstream fairly decentralised (although in recent times the Downstream has also become much less decentralised despite its very nature being that logically substantial local decision-making and autonomy ought to apply).

The culture change in Shell in the last decade or two is towards that of a far more centralised set of businesses than it used to be. In the 1970s there was far less contact between the local companies and the Centre across all of Shell’s businesses. For example in the Upstream “Programme” discussions would take place in The Hague and this would lead to agreed plans which it would then be the local company’s task to implement. High level visits would take place from time to time but much of the regular contact was advisory. This changed and the Upstream moved progressively to the far greater centralisation we see now – in part as a result of a perceived need to compete with the American oil giants which were always historically much more centrally organised.

Aside from the need to compete the move to greater central direction of the Upstream was primarily dictated by the fact that Capital investment in Exploration and Production is very large and operating costs are high as well. There was also increasingly a wish to apply the same standards globally in all areas of the Corporation’s operations. In the Upstream this latter requirement did from time to time create competitive disadvantages as, ironically, the US companies who were the centralisation model were often rather more flexible in their application of standards locally ! A very senior Shell Upstream man (now retired) said to me recently that he “… knew of no instance wherein we relaxed our standards simply to compete… at times it was tough…to have to forego competitive opportunities for such reasons…”

Today the day-to-day operations of an oil concession are the responsibility of the men on the ground in a local operating company or Joint Venture but it is unquestionably so that all major Upstream decision-making for Shell-managed operations (whatever the precise shareholding) is made in Shell’s Central Offices in The Hague. This is obvious at a Strategic level (the decision to invest in a new field for example) but it also applies to the on-going management of “Key Performance Indicators (KPIs)”. The Hague monitors an operation’s production, downtime, costs, etc. and makes comparisons between one area of operation and others and against corporate standards and competitive and other benchmarks. This is not to second guess the local management operationally but to provide them with comparisons which allow the success, or otherwise, of what they were doing to be assessed. Among the KPIs are standards that relate to Health, Safety, Security and the Environment (HSSE).

Like all multinationals Shell has a clearly stated HSSE policy. In respect of Safety this is pretty unequivocal:

“Safety is always our top priority. We aim to have zero fatalities and no incidents that harm people, or put our neighbours or facilities at risk.”

The Corporation’s Environmental policy is similarly definitive and not open to much misinterpretation. Here, for example, is what Shell says about its Environmental policies in Nigeria:

“In Shell in Nigeria, we operate in a way that reduces as far as possible the environmental impact of our activities. We also look for ways to bring environmental and social benefits to the communities where we operate. The standards and practices we use are similar to other Shell operations anywhere in the world. Where land is impacted by oil spills despite the prevention systems in place, we clean up as quickly as possible and remediate the land.”

When you are as definitive as these two “Business Principles” statements are then to avoid charges of hypocrisy and of window-dressing you have to apply global standards – and to institute processes which turn altruistic goals into operational and monitored reality. In Upstream operations this means not only that you must have targets agreed between the local Operating Company or Joint Venture (JV) and The Hague but that you must also have regular reporting of performance against these targets. In order to be able credibly to say that “The standards and practices we use are similar to other Shell operations anywhere in the world” you must closely monitor what goes on in the context of other Shell operations globally. Only the Centre can do this and there has to be swift and complete incident reporting. In brief, in this Nigerian example, Shell will have agreed its targets (including HSSE) with the JV, Shell Petroleum Development Company of Nigeria (SPDC), and The Hague will then closely monitor performance. The Hague will require that all significant HSSE incidents are promptly and completely reported. The same broad criteria relate both to “hard” and to “soft” targets. The former are events that could significantly affect cash flows either by substantially increasing costs or by reducing or delaying production. The latter are those events which may not be obviously financially damaging (at least in the short to medium term) but could cause reputational damage or involve damage to JV partner relations. In either case what is clear is that even though a large JV like SPDC does run its own affairs on a day to day basis any material events must be and are reported immediately to the Centre. Royal Dutch Shell is unquestionably so informed as it must be as the Corporation’s leaders (all the way to the top) are ultimately morally (if not always legally) responsible for all major decision-making. And incident reporting is also essential if (as the Business Principle above states), remediation must take place. Every incident is unique but one of the strengths of a Corporation the size of Shell is that even though an event might be unique in one area it may have happened elsewhere, in another country entirely, and lessons learned. Thus it is likely that even comparatively minor events (a small to medium oil spillage for example) will be immediately reported so that the best remedial action, based on Shell’s global experience, can be taken.

Within the frame of reference of the Royal Dutch Shell Board at any one time are a number of key projects/issues. These are important because of the immediacy of decision-making deadlines, their financial impact/commitment, the HSSE and other operational risks, their sensitivity in respect of Government Relations and/or NGO/Media interest and often (as is the case in Nigeria) a combination of all of these things. The Board will have on its table at all times a so-called “Risk Matrix” on which all of the Corporations’ risk areas are made explicit and categorised according to the impact that they could have either to Shell’s financial performance and/or to its reputation. Shell executives have said that because these risk management processes are so robust the likelihood of an event similar to BP’s “Deepwater Horizon” disaster are much reduced. For this to work it requires selective but strong involvement of the Board and senior staff in all of these key areas of risk. It would be surprising if Shell’s activities in Nigeria (which fill all of the high risk criteria – environmental, security, safety, Government relations, financial impact etc.) are not an “ever present” on the Board’s risk matrix.

The division of responsibilities between the Centre and the local operation can be a source of conflict in a Corporation the size of Shell. This is especially so when the operation is a Joint Venture and one of the partners is Government. In Oman I was from time to time quite close to Government relations issues which were top of the Agenda for the Shell appointed (and Shell career employee) who was the CEO of Petroleum Development Oman (PDO) – the very large locally operating company in which the Omani Government had a majority share. The parameters within which the CEO of PDO worked were determined in conjunction with Shell in The Hague and from time to time issues occurred where one or more of the local partners were reluctant to follow Shell processes or systems – often for cost reasons. These were usually amicably resolved and there were rarely major tensions. In Nigeria my understanding is that this is more problematic but what is beyond dispute is that such matters as HSSE policy and even the way the application of this policy works out in practice would have the active involvement of Shell leaders in The Hague at the highest level.

So let’s return to the subject of where the buck stops in a Corporation like Shell which is so large and geographically diverse that it must of necessity run its daily operations close to the coal face. The answer is the classic one familiar to all large organisations. There are delegated authorities – financial and operational – that local executives work within. Annual budgets, agreed targets and objectives, manpower plans – and so on. But the KPIs are monitored centrally as well as locally and if, for example, production is out of line with the plan then The Hague would know about it at the same time the local JV does. And if an incident occurs that could affect production, costs, or HSSE targets or potentially damage Shell’s reputation then it is certain that not only would The Hague know immediately but they would often be closely involved in the solving of the problem. In these cases the buck stops on the desk of Shell’s equivalent to Harry Truman. The CEO of Royal Dutch Shell in The Hague!

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