This week’s report by US firm Davis Polk & Wardwell into the circumstances surrounding Shell’s overstatement of its reserves outlines a series of measures being taken to boost the governance role of Shell’s 600-strong legal department.
While the report does not blame in-house lawyers for the debacle, it says their lack of visibility meant disclosure and compliance issues were being discussed without the advice of lawyers with the relevant governance expertise.
Shell, which is the biggest employer of lawyers in the FTSE 100, has confirmed that all lawyers will now “unambiguously” report to its group legal director, Beat Hess, who will be required to attend meetings of the firm’s committee of managing directors to ensure “compliance with all regulatory obligations”.
Shell has also agreed that its “existing disclosure committee should be enhanced to require that [Hess] be a member”, while serious consideration is being given to making him chair.
One former Shell lawyer said: “The Shell lawyers are a diligent bunch but they are not policemen. The corporate structure did not allow them to know about this sort of commercial decision at group level.”
Canary Wharf legal head Michael Ashley-Brown commented: “The Shell story shows that the days when it is possible to cut heads of legal out of the corporate knowledge process have to end, by law if necessary.
“I am lucky to have good lines of communication with my board, but it is patently obvious to me that a huge number of legal directors at the FTSE 250 companies have not got a clue what is going on in their own companies.”