Shell sued by Dutch pension funds

I think what they`re getting at is the company may have fraudulently overstated its position in the market, hence allowing the market to over-value them - if investors put money into a company based on misleading information they might have a point...

"after the firm admitted it had overstated reserves by more than 20%"

Its a bit like a drug company saying they`ve found a cure for cancer, when they`re talking out of their asses and have no such product. Suddenly people will buy in to the company based on a lie, and the stock goes up as a result.

Overstating reserves would have shook investors' confidence as how much of the balance sheet was inaccurate ? This overstating probably led to Shell becoming overvalued and the selling that pursued probably brought them nearer their correct market valuation.

A similar occurrence, however on a much larger scale, was Refco at the end of last year where a large loan was taken by one of their directors for his own use setting up his hedge fund.

Shareholder activism, especially by institutional shareholders (they have more voice) is something that has grown considerably over the last decade.

Joe

I appreciate what you and Colin are saying. However the directors are appointed by the shareholders and hence are perhaps the shareholders are culpable for the directors talking up of reserves.

My point is that all the shareholders who didn't sell at the "peak" have made a loss, hence the remaining shareholders should be equally recompensed for the overstating of reserves and not just the Dutch pension funds? Just that if all shareholders are paid this compensation it would put the Dutch pension shareholders, assuming they still hold the shares, in the same position as all the others.

It was just a thought passing through my mind.

Directors are initially sourced by the supervisory/non-executive boards and then shareholders are eligible to vote for who they see fit. Bear in mind that institutional shareholders with majority shareholdings have a lot more exposure to the firms in which they invest, compared to your small, retail investor. If the non-exec boards make the institutions unhappy then this will cause considerable problems and thus many are liaised with daily. There is considerable academic literature on this corporate governance aspect, questioning whether hedge funds, for example, have an interest in such long term decisions as the appointment of a new CEO, when generally they look for returns in small time windows, usually less than a month. Morley Fund Management, as another example, prides itself on its long term investment policy and takes particular interest in such corporate governance issues.

Another point, easily overlooked, is that a director can soon change his/her rationale when money for his/her benefit is easily obtainable.

I feel for you if you hold Shell shares and you are in such a position, however it is all part of the rollercoaster ride of investing in shares.

Joe