Shell Shock: Why do Good Companies do Bad Things?

13 Pages Posted: 8 May 2006

Abstract

Shell's overbooking of oil and gas reserves provoked one of the biggest corporate scandals to occur in Europe in recent years. This article has three themes:

1. The Origins of the Scandal: the shortage of oil reserves, weak internal controls, the dual company structure and the closed corporate culture.

2. The Impact of the Crisis: the resignations of top managers, the fines imposed by the regulators, the fall of the share price and the decline in employee morale.

3. The Remedial Action Required: to rebuild Shell's reputation and to restore the trust of the investors, customers and the general public.

At the root of the problem is the central question How did Sir Philip Watts and his colleagues arrive at a situation where they overstated the company's proven reserves of oil and gas by 30 per cent? Royal Dutch/Shell is a leading British and Dutch company with an enviable reputation and a proud history. How could this have happened? Through analysing the scandal at Shell, the article probes into the fundamental causes of the present crisis in corporate governance.

Suggested Citation

Taylor, Bernard, Shell Shock: Why do Good Companies do Bad Things?. Corporate Governance: An International Review, Vol. 14, No. 3, pp. 181-193, May 2006, Available at SSRN: https://ssrn.com/abstract=898966 or http://dx.doi.org/10.1111/j.1467-8683.2006.00498.x

Bernard Taylor (Contact Author)

Henley Management College ( email )

Greenlands
Henley-on-Thames
Oxfordshire RG9 3AU, England
United Kingdom

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