Royal Dutch Shell Plc Management Structure - Essay Example

Firm’s operations, management structure, corporate governance industry, competitors, business particulars and its motivation to operate as a MNC Royal Dutch Shell Plc – overview Royal Dutch Shell Plc is one of the most powerful companies in the international market; the firm operates in the energy and petrochemical sectors and has more than 100,000 employees around the world (Royal Dutch Shell Plc, corporate website, 2010). The firm’s operations in 2009 have been reduced compared to the previous years – the years 2007 and 2008 are included in the relevant table in Figure 2 (Appendix); this reduction has been explained by ‘the lower demand for natural gas’ (Annual Report, 2009, p.7). Generally, the firm’s performance has been positive for the years 2004 up to 2008 – see Figures 2 & 3 in the Appendix sector; this increase of the firm’s profitability for the specific years is also proved by its financial ratios for the years 2004 to 2008 (see Figure 4, Appendix). The success of the firm has been related with its structure; furthermore, the style of its governance supports the firm’s continuous expansion. Another factor that led to the growth of the company in the global market is the firm’s motivation to operate as an MNC. The effects of the recession on the firm’s performance can be identified in Shell’s financial reports for the previous years – also to the performance of its share. It seems that the effects of the global crisis on the firm’s performance have been limited. 2. Firm’s operations As noted above, Royal Dutch Shell Plc operates in the energy and petrochemical sectors; however, initiatives have been taken regarding the expansion of the firm’s operations in new areas – and the development of its existing areas of operations: more specifically, through the firm’s new facility in China it is expected that the firm will further improve its performance in the lubricants market; at a next level, the firm has established new processing units in Singapore (Royal Dutch Shell Plc, corporate website, 2010); Among the firm’s key policies for the expansion of its operations has been ‘association with Iogen and Codexis to develop better enzymes and processes for the production of biofuels from straw’ (Royal Dutch Shell Plc, corporate website, 2010). All the above activities are considered as particularly important for the development of the firm’s operations and the further improvement of its position against its competitors. 3. Management structure The management structure of the firm is quite simple; in fact the firms is based on ‘a single-tier Board of Directors chaired by a Non-executive Chairman, Jorma Ollila; the executive management is led by Chief Executive Officer, Peter Voser’ (Royal Dutch Shell Plc, corporate website, 2010); the management of the organization is supervised by an Executive Committee which is directed by the Chief Executive Officer; at a lower level, executive directors and Directors of businesses – 8 Directors in total - and functions are used to manage the firm’s various operations; in this way, it is made sure that all key corporate decisions are checked and monitored by its Chairman; decisions of less importance for the firm’s strategic position can be supervised by the management team of the lower level, for example the Chief Executive Officer or a supervisor manager of lower level. 4. Corporate governance The style of corporate governance in Shell indicates the firm’s culture; in accordance with the corporate website, the firm’s corporate governance serve two different needs: ‘a) the direction of the firm and b) the relationships with interested parties’ (Royal Dutch Shell Plc, corporate website, 2010); the Code of Conduct is a key part of the firm’s governance; in fact, the above Code is used in order to control the planning and the application of the firm’s strategies. Other elements of the firm’s corporate governance are the ‘New York Stock Exchange governance standards’ – a text including key points on investment decisions and the Articles of Association, a document signed by the firm’s leaders and used in order to promote ethical behaviour in regard to the firm’s operational activities. 5.Industry - competitors Petrochemical sector is a rapidly growing sector; the performance of firms operating in the specific industry is quite important – taking into consideration that the current recession has caused delays to the performance of firms in all industries. In accordance with a series of figures published by the World Trade Organization ‘Saudi Arabias petrochemical exports topped $14 billion in 2008; petrochemical production was down 12% in North America and 6% in Europe last year’ (Press Release Point, 2010). In other words, the specific industry has many prospects to grow further; however, the competition in this industry is strong; therefore, if the firm is interested in stabilizing its position it is necessary to update its strategies based on the market trends (Prabbu, 2010, 5). 6. Motivation to operate as an MNC The firm’s operations in 2009 have been reduced compared to the previous years – the years 2007 and 2008 are included in the relevant table in Figure 2 (Appendix); this reduction has been explained by ‘the lower demand for natural gas’ (Annual Report, 2009, p.7). The above reduction does not indicate a limitation of the firm’s motivation to expand, despite the global recession (Pearce et al., 1997, p.301); on the contrary it is regarded as a chance to review existing practices and policies and suggest the necessary changes. The fact that the reduction of the firm’s performance in 2009 has been a temporary problem can be proved by the fact that the firm’s performance from 2004 up to 2007 has been improved – on an annual basis (see Figure 3, Appendix); for 2007 and 2008 the growth of the firm was continued (see Figure 2, Appendix). Therefore, the performance of the firm’s employees for the years 2004 up to 2009 has been high; the limitation of the firm’s profitability in 2009 cannot be related with its employees’ performance; rather, the strong pressures of the turbulences in the global market have led to the limitation of the firm’s profitability in 2009; on the other hand, in the workplace the performance of employees is used in order to estimate and evaluate their motivation; employee motivation in the specific organization seems to be high – see figures above; The firm’s prospects to achieve a further growth as a MNC are significant. 7. Conclusion In the last 5 years, managers in Royal Dutch Shell plc have managed to keep the firm’s performance at a high level – despite the strong financial crisis that has temporarily affected the firm’s profitability – referring to the year 2009. The continuous expansion of the firm’s activities – through the introduction of innovative projects – can lead to the firm’s stabilization in the global market – as a powerful competitor in the energy and oil industry. The fact that the management of the firm’s operation has been divided into 8 departments – see above – helps to the increase of flexibility in managerial decisions; furthermore, the rapid development of projects is supported; moreover, any problem related to the firm’s operational activity can be identified and resolved early – i.e. before making a severe damage to the organization. In this context, it could be supported that the firm’s success can be explained by referring primarily to its leadership – including managerial decisions at all levels of the organizational hierarchy. References Pearce, J., Michael, S., 1997. Marketing strategies that make entrepreneurial firms recession-resistant. Journal of Business Venturing, Volume 12, Issue 4, pp. 301-314 Prabhu, J., 2010. The importance of building a culture of innovation in a recession. Strategic HR Review, Vol. 9, No. 2, pp. 5-11 Royal Dutch Shell, 2009 Annual Report Online sources Press Release Point, 11 March 2010, available at http://www.pressreleasepoint.com/bdp-kanoo-jv-serve-middle-east-chemical-sector Royal Dutch Shell Plc, 2010, corporate website, available at http://www.shell.com/ Appendix Figure 1 – Royal Dutch Shell, share chart, source: London South East University, available at http://www.lse.co.uk/ShareChart.asp?sharechart=RDSA) Figure 2 – Shell Annual Report, 2009, Performance Figures (source: the corporate Annual Report 2009) Figure 3 - BBC News, 31 January, 2008, available at http://news.bbc.co.uk/2/hi/7219148.stm Royal Dutch Shell plc Financial and Operational Information 2004–2008 FINANCIAL RATIOS           2008 2007 2006 2005 2004 Return on average capital employed           Income attributable to Royal Dutch Shell plc shareholders adjusted for interest expense, less tax for the period, as % of the Shell share of average capital employed 18,3 23,7 22,3 24,8 19,6 Return on sales Income attributable to Royal Dutch Shell plc shareholders plus minority interest as % of sales proceeds (including sales taxes, etc.) 4,8 7,3 6,8 6,9 5,7 Return on equity Income attributable to Royal Dutch Shell plc shareholders as % of average net assets (i.e. equity attributable to Royal Dutch Shell plc shareholders and minority interest) 20,6 26,0 23,9 26,7 22,0 Current ratio Current assets: current liabilities 1,1 1,2 1,2 1,2 1,1 Long-term debt ratio           Non-current debt as % of capital employed less current debt 9,7 8,9 7,8 7,2 8,8 Total debt ratio Non-current debt plus current debt as % of capital employed 15,3 12,6 12,1 11,7 13,8 Balance sheet gearing ratio at December 31           Net debt as percentage of total capital 5,9 6,3 5,6 1,2 5,6 Figure 4 – Financial Ratios for Dutch Shell Plc – years 2004 up to 2008 (source: http://www.faoi.shell.com/2008/servicepages/downloads/files/financial_ratios_shell_faoi_08.xls) Read More