ORGANIZATIONAL RESTRUCTURING - ROYAL DUTCH/SHELL

Organizational Restructuring - Royal Dutch/Shell

Organizational Restructuring - Royal Dutch/Shell

Royal Dutch/Shell is a global group of energy and petrochemicals companies, with 104,000 employees in more than 110 countries; it is unique among the world's oil majors and was formed from the 1907 merger of the assets and operations of the Netherlands-based Royal Dutch Petroleum Company and the British-based Shell Transport and Trading Company.

In fact, it is the oldest joint venture. The business interests of the two companies were combined into a single group, with Royal Dutch owning a 60 percent share and Shell a 40 percent share. The expansion of both companies was supported by the growing demand for oil resulting from the introduction of the automobile and oil-fuelled ships. When Exxon was merging with Mobil, Shell was no longer the world's biggest energy company. In addition, the merger of Total, Fina, and Elf Aquitaine in September 1999 had created the world's fourth “super-major”, after Exxon Mobil, Shell and BP Amoco.

Royal Dutch/Shell Group (Shell) had been a joint venture for almost a century. This distinctive feature allowed the two companies to combine unique experiences and expertise, being able to take on larger business ventures. However, this feature created decentralized decision making and overlapping of resources (Evans, 2004).

Shell's management team was organized in a hierarchical fashion, with the top being the Committee of Managing Directors (CMD). The CMD provided coordination between Shell's structure and management. The governance responsibilities of CMD lead the general direction of the company while executive responsibilities of the management of the Service Companies handle day-to-day operations.

Shell's structure was geographically organized, with 200 plus businesses located in over 100 countries. These businesses were similar in terms of function, either in single or multiple sectors, but only operated within a single country. They were supported centrally by the Service Companies located in London and The Hague, and executed strategies according to the direction of CMD.

Royal Dutch/Shell group is considering a total overhaul of its board structure after it revealed a major shortfall in its reserves. An overbooking of oil and gas reserves by over 20% in the past four years has resulted in two top executives losing their jobs, an attempted cover up operation by senior executive members and backlash from shareholders has led to a call for change in the way the group is structured. Shell has been studying other multinationals with roots in two countries, including Fortis, the Dutch-Belgian banking and assurance group, and GlaxoSmithKline, the UK-US pharmaceutical company, in the hope of finding models for its own senior team. Shell could revert to a single chief executive and single chief financial officer rather than the current management committee structure, which sits on top of the Dutch and UK companies' separate boards. It could also recruit a chairman from outside the company. Bruce Evers, oil analyst at lnvestec, told Accountancy: “The group has an insufferably arrogant internal culture at present believing that the Shell way is the only ...