City attacks Shell's 'brusque' chairman

Phil Watts has resolved to make changes after criticisms of his relations with investors

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Shell, the oil giant, has been forced to defend its chief executive after a stinging attack from the Anglo-Dutch group's leading shareholders.

Institutions labelled Phil Watts as one of the poorest communicators running a FTSE 100 company. They also lambasted the £4bn takeover of Enterprise Oil in April as "a poor deal, badly explained". Another said Shell "seems to show a complete disdain with the City".

Some analysts said that unless Mr Watt's performance improves he may not spend much longer in the job despite only being promoted to it a year ago.

Clearly stung by the criticism, Shell said: "Shareholders are our highest priority and we try hard to communicate effectively with them as well as the financial analysts and the broader investment community. Although we acknowledge that we have had some communications difficulties over the past year, we have worked to become more proactive and we welcome constructive feedback from investors."

Angus McPhail, at ING Financial Markets, said: "Mr Watts still has to prove that he can turn around the $7bn of assets over the next two quarters, otherwise his position could look vulnerable. The pre-Christmas annual analyst presentation could prove decisive for Mr Watts' future. Shell benefits from being rich in talent. An obvious replacement would be Jeroen van der Veer (Vice Chairman of the Committee of Managing Directors.)"

The company said it would try to be more proactive and meet with institutions more regularly. Instead of seeing its largest 50 shareholders once a year it has extended this to the top 100. It declined to say whether Mr Watts, 57, would change his style in meetings and presentations which has been described as "brusque". The company said he had already received presentation training.

The apparent bust-up between Shell and the City marks yet another example of the increasingly proactive and vocal stance being taken by major City institutions. It also demonstrates that no matter how powerful and prestigious a company is, it alienates the City at its peril.

Michael McKersie, manager of investment affairs at the Association of British Insurers, said: "It is increasingly recognised by listed companies that it is vital to have a good relationship with shareholders. Failure of communication is neither in the company's interests nor those of institutions."

He added that if shareholders fully understood a company's strategy they would be "more relaxed and prepared to take a long-term view".

Mr Watts is hardly the first to experience a furious reaction from the Square Mile when it has felt badly served. He isn't even the first head of a major oil company to experience this treatment. In the early 1990s Bob Horton was ousted as chairman of BP after the City became exasperated with his arrogant style.

At Marks & Spencer Sir Richard Greenbury maintained a remote relationship with the City during his long reign. This was tolerated when the high street giant was riding high, but when it hit problems Sir Richard had no fan base to fall back upon. M&S has since changed its approach dramatically.

Other previously old-fashioned companies have also sharpened up their acts. Associated British Foods, the Silver Spoon sugar and Twinings tea company, held audiences with the City rarely under the leadership of its late founder Sir Garry Weston. All that has changed under the new management.

The same is true of GUS, the mail order retailer which didn't hold a single analyst meeting until the late 1990s when David Wolfson, became chairman. Indeed his predecessor Leonard Wolfson is reported to have once held the shortest-ever annual shareholders meeting, lasting barely a minute. He stood on the platform and welcomed the audience. He then read the resolutions, shouted "carried" after each one, and then sat down.

Other companies have struggled in the communications field more recently. Kingfisher's chief executive Sir Geoff Mulcahy has become legendary for his meandering monologues, exasperating the City and the media alike.

Martin Read, the chief executive of the IT group Logica, is another who has been criticised for spending less time with City analysts than they might like. But yesterday he drew a distinction between analysts and shareholders. "Relationships with shareholders are important because they own the company and maintaining a good dialogue with them over the strategy does matter. But at the end of the day shareholders expect management to run the business."

It is certainly true that a board can be forgiven for a remote approach when it is doing well. But if it underperforms it immediately becomes unacceptable.

With Shell there has been clear underperformance. Since Mr Watts was appointed executive chairman in July last year the company's share price has fallen 25 per cent, underperforming the oil and gas sector by 13.9 per cent.

Its £4bn acquisition of Enterprise Oil in April was poorly received, coming at a time of rising oil prices and the announcement of a new North Sea oil tax in the Budget.

Mr Watts has admitted to a bad first year, which started almost as soon as he took over the chairmanship from Sir Mark Moody-Stuart in July 2001. Within weeks of his appointment he announced a review of the targets of 5 per cent annual increases in output of oil and gas. But he failed to inform the market of the revised 3 per cent target until September.

The Enterprise bid and the output reductions both harmed the share price. A further factor was beyond Mr Watts control and came when Standard & Poor's cut Royal Dutch Petroleum from its 500 composite index along with all other non-US stocks.

Mr Watts' sometimes brusque style may have contributed towards bad feelings although some oil industry watchers say it is merely an economy of words which is not necessarily a bad thing.

Some analysts say Mr Watts may simply be experiencing adjustment problems as he is new in the job. A Shell lifer, he has risen through the ranks achieving a good reputation as an operational manager. However this may not have prepared him for the grilling he receives as chairman from the City and the media.

Others say Shell has long had an introspective, bureaucratic culture which is exacerbated by its Anglo-Dutch structure. This means it is in effect takeover proof. But it can breed complacency.

Another point is that Shell may simply not have invested enough in its investor relations department which has half the staff of BP's. ING Financial Markets said if this issue was addressed "Mr Watt's chances of survival would increase significantly".

Mr Watts has described himself as "perplexed, frankly" by the storm but resolved to make changes.

Poor relations: company bosses who rub the institutions up the wrong way

Phil Watts, executive chairman of Shell: Shareholders say he is the worst communicator in the FTSE 100. The company says it is already improving investor relations

Martin Read: Accused of not giving enough time to analysts

Sir Richard Greenbury: Remote relationship with the City

Sir Geoff Mulcahy: Long regarded as a poor communicator

Bob Horton: Ousted from BP as a result of poor City relationship