Realism and reinvention for the new energy future
Jan 12, 2015
To the outside world his appointment a year ago came as a surprise. Ben van Beurden took on the role of Chief Executive Officer (CEO) of Royal Dutch Shell as a relatively unknown quantity. But he wasted no time in making his mark.
What were your highs and lows in 2014, your first year as CEO?
The low was the flight MH17 tragedy over Ukraine. We lost four dear colleagues and eight of their family members. That hurts. And the high? Of course we can look at the results, because so far they are better than in 2013. But I think that’s a bit too easy because in my opinion the organisation is now performing at the level that it should do anyway. What I am pleased with is that so many more colleagues now talk about the bottom line and consider how they can contribute to it. I think that’s a highlight.
What was your most important lesson in leadership?
The most important lesson is always that when we evaluate a situation properly together there is actually no problem that we cannot solve. It isn’t that we don’t have enough money, that we don’t have the people, or that we don’t have the skills. The problem is often that we don’t fully understand exactly what the problem is. You also need vision, of course, but that’s often exaggerated, overestimated. It really doesn’t all have to be so grand. The most important thing is that a leader can, and must, clarify problems and how they will be approached.
Will results remain the spearhead for 2015?
Yes. It is very important that we become much more conscious of the profit and loss account, that everyone in the organisation knows how he or she contributes to our operating results. That way of thinking and working has not become completely embedded yet, we still have work to do in that area.
“Credible, competitive, affordable” was the mantra of your first year as CEO. How about 2015?
Credibility remains the basis. Plans that look nice but aren’t realistic are useless. We have worked hard on this in 2014 and I’ve noticed that the organisation is beginning to respond. People are paying more attention to whether plans are realistic enough. What will come up for discussion more often in the coming period, also because of the low oil price, is affordability. That is priority number two, and competitiveness is our ultimate goal. So all three will remain important in 2015.
Is the lower oil price a matter for serious concern? How does it affect Shell’s capital investment plans?
I still believe that we will see a return to higher oil prices, and therefore I also think that our long-term planning is still correct. That’s not so much the problem. However, the lower oil price reduces our income and we consequently have less to spend, which could become a problem. We configured part of our investment programme based on the oil price being around $90. So if the oil price remains low for a few years, the programme will come under pressure.
Can you spend so much money based on a hunch that it will turn out right in the long term? You need to have the funds in the short term. Of course, we are in a strong financial position, and we can even borrow more money if we so wish. We also have operations that we can divest. So, we have financial flexibility. But it is not infinite. Steering the company through this period is priority number one for 2015.
That is a priority for the shorter term. What is your view of the longer term? What will Shell’s portfolio look like in — let’s say — 2030?
Looking ahead is always tricky, but there’s a number of things that you can say. Gas will be key and will continue to be. I think that oil will still be a major product in the mix. We’ll possibly be a bit further with gas than oil, the rate is roughly at 50-50 already.
I also expect that chemicals will become even more important. Oil products will probably still be prominent by 2030, but possibly a little more specialised. More lubricants and fewer traditional fuels, for example. And I would like to think that in 15 years, after a lot of experimenting, Shell will be involved in one way or another in renewable energy on a greater scale. That doesn’t mean that by then we’ll be investing more in renewable energy directly, but that we will have found a business model or earnings model that works for us.
It is often thought that Shell is linked inextricably to the present fossil fuel energy system. But you think that there is also a role for Shell in a new system?
Yes. It is very important that we keep pace with the energy transition, certainly in advanced economies. We must continue to consider what this means for us. Not so much in a defensive way, such as “Will this lead to a further reduction in fossil fuels?” No, in a positive way. “What new opportunities does this transition offer us?” Because one thing is clear: 100 years from now we will have a completely different energy system.
As Shell it must be our ambition to play a relevant part in it. Possibly in a different way, but relevant in any case. An organisation that has so many qualities, so much expertise, so much capital, has to be able to reinvent itself.
If you say energy transition, you automatically think of climate change. In September you gave a speech expressing your views on this subject at Columbia University in New York. Why is it good for Shell to talk about climate change?
In the past we learned the hard way that it was better to keep a low profile regarding this subject, because everything you say is wrong or considered hypocritical, or whatever. I do understand the choice, but in the end it’s not a good one. Because companies such as ours keep a low profile and because there is too little co-ordination in the energy sector you see strange things happening.
Policies are implemented that have a negative or even counterproductive effect. Take Germany, for example, where they now burn more coal and less gas. That cannot be the right solution. If we want to be seen as being socially responsible we must also play a role in this debate.
Can Shell influence public opinion?
I don’t think that influencing general public opinion should be our approach. I think that we should primarily focus on the questions: what can Shell do to promote the right policy? What instruments are now needed? The discussion now often lingers over the need for more renewable energy and the need to move away from fossil fuels. But that isn’t a policy and it gets you nowhere. Policy about carbon capture and storage, an effective CO2 price, efficient energy use, and so on are necessary. We should influence that discussion rather than general public opinion.
Are policymakers open to Shell’s arguments?
I do think so. When I talk to policymakers or others in the sector, I notice that they see a greater role for companies like ours. But I also think that we cannot do it alone, if only because not everyone sees us as credible. That means that we must work with other parties to make it clear that what we advocate is good for the climate.
Is our credibility an issue in this respect?
I certainly think so, predominantly because we were so often put in the dock in the past. Mostly unjustifiably, for that matter. I’m sometimes bothered by simplistic analyses that don’t acknowledge that our company has high standards, that our staff want to do the right thing for themselves, the company and for society.
We need to address this problem by raising our profile, by communicating better. People at Shell are also ready to be more assertive, I see. I sense a definite relief: finally we are going to try to bring a sense of reality into the climate debate, finally we are going to respond.
But we must also take a critical look at ourselves. For example, you cannot talk credibly about increasing the role of gas and reducing coal if you don’t talk about methane emissions from your own system at the same time. And we took a too limited approach to the problem in the past.
For example, by saying: “It is all terribly complicated, but whichever way you look at it, more gas and less coal would be good, so let’s go for it.” Fine, that is a good approach, but it is also seen as us acting in our own interest by part of society because we are involved in gas but not coal. In order to be credible we need to broaden our narrative.
Newspapers wrote that Shell is seeking to gain “green” credibility by appointing Chad Holliday as its new Chairman. Was that a consideration in his appointment?
No, that played no part. Chad led DuPont Chemicals, and was later Chairman of the Bank of America. Indeed he has built a sustainable profile with his work for the World Business Council for Sustainable Development, but that’s not why he was selected. He was selected because the board believes that he will be a good, competent, credible Chairman of our company. Naturally he has an affinity with the climate issue, so he will certainly motivate Shell to position itself correctly. That can only be good.
Is credibility also a concern in other areas?
It was also a factor in our relationship with investors at the start of 2014. They had an image of our company that wasn’t totally correct, but also not completely wrong. I found that more emphasis on the bottom line was needed, and I think that we can manage our investment programme better and make better choices. But there were also several points where I thought: no, they’ve really got the wrong end of the stick here.
For example, we were depicted as a company that had lost its way, as a group of romantic engineers who only wanted to build new things and was not at all driven by the interests of its shareholders. That is contrary to reality. And that annoyed me, yes. But luckily we’ve been able to put that perception right.
More About Ben
Can your 30-year career – a boy from the small Dutch city of Roosendaal becomes CEO of giant Shell – be an inspiration for young employees?
I certainly hope so. The nice thing about our company is that people progress because they deserve to progress. Shell is based on merit. And this implies that the sky’s the limit. That should inspire people.
What is the biggest change for you since becoming CEO?
The feeling of ultimate responsibility is quite acute. You must always keep considering the question: “Am I setting the right priorities?”.
What was the book you most enjoyed reading in 2014?
Ask me again next year.
Ben van Beurden spoke to Rob van’t Wel and Frank van Hoorn in December 2014.