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Financial Times: Shell investors can lay the reserves scandal to rest US watchdog takes no action on Watts

By Andrew Hill

Published: August 31 2006 03:00 | Last updated: August 31 2006 03:00

In the midst of Shell’s investigation into its reserves crisis, in April 2004, Lord Oxburgh, then chairman of Shell Transport and Trading, said “human failings, not structural deficiencies” were to blame for the problems.

At the time, it seemed more likely to be a combination of both.

But the US Securities and Exchange Commission’s decision this week not to take action against Sir Philip Watts, Shell’s former chief executive, means that regulators on both sides of the Atlantic have now decided to punish the company rather than any individuals. The Financial Services Authority’s decision to close its investigation into Sir Philip was announced last November.

Sir Philip, not unnaturally, is “extremely pleased” and that at least must be a relief for weary watchdogs.

Even the 2004 FSA notice that imposed a record fine on his former employer had angered him – hasty, unfair and prejudicial, said his lawyers – though it did not mention Sir Philip by name. At least now the pugnacious former oilman will start to put this saga behind him. Investors should do the same.

It may seem unsatisfactory that shareholders alone have paid the price for a scandal that had human fingerprints all over it. But a number of top Shell employees have been punished in kind. Some lost their jobs. The 2004 report into the scandal by a US law firm – which laid bare the open war between Sir Philip and Walter van de Vijver, then head of exploration and production, over the reporting of reserves – was damning enough for their reputations.

The structural deficiencies that Lord Oxburgh seemed unwilling to admit had played a part in the scandal also had to be addressed. It remains to be seen whether uniting the dual holding companies last year to form Royal Dutch Shell has put a complete end to dysfunction. But the management would have resisted even that step had it not been for the close attention and strong pressure of the regulators. Now move on.

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