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Royal Dutch/Shell Case Write Up Essay

829 words - 4 pages

Royal Dutch/Shell case write up

Introduction
Royal Dutch/Shell Group of Companies was formed through and alliance of Royal Dutch Petroleum company and Shell Transport Trading company in 1907. Even though the two companies remain separate, the matrix structure of Royal Dutch/Shell Group of Companies had helped the company survive the oil price collapse and some other crisis. By 1990, Royal Dutch/Shell’s revenues exceeded the industry leader Exxon’s, making it the largest oil company in the world. However, In the 1990s and early 2000s, the company’s reserve replacement ratio has dropped from above 100 percent to almost below 100 percent, which indicates that the company was having trouble ...view middle of the document...

The different backgrounds of these directors might potentially prolong the decision making processes, and therefore decrease the decision making efficiency of the business. Moreover, the company reorganized its group activities by different activities rather than by geography and replaced its matrix structure with five centralized operating units. These changes decreased the autonomy of regional leaders and at the same time created a big problem for the company. As the ways to estimate oil reserves are different across regions, the regional leaders generally are more accurate in calculating oil reserves as they are more familiar with local geographic conditions. However, under the matrix structure, the calculation was carried out by one of the five groups which had little knowledge about local environments and problems automatically occurred. In addition, the complex structure also hindered the company in that the communications between the business units’ officers and top managers were rare and inefficient. The CFO of the company, Judy Boyton, was not able to react to the reserve issues simplely because none of the business units’ CFO reported to her.

Moreover, the CEO himself should be held responsible for this scandal. Firstly, Philip Watt, the chairman of CMD, was “aloof and uncommunicative” as described by some investors. He reduced the company’s expected return on sales but did not provide enough explanations to justify his decision and therefore made most investors unsatisfied. His silence negatively affected the relationships between Royal Dutch/Shell and its shareholders. Secondly, Watt did...

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