Very few sectors have a future that looks as rosy as the oil and gas sector’s does. The Guardian reported that in the first quarter of this year, £1 in every £4 paid in dividends to UK shareholders came from a single industry: oil and gas. From that sector, only two companies – BP and Shell – accounted for the majority. “Whether you like it or not, the world’s demand for energy will double,” says Hugh Mitchell, a member of the nine-strong executive committee of Royal Dutch Shell, one of the largest corporations in the world. “And the demand will be met.”
Mitchell makes no apologies for his industry. Part of his executive portfolio includes external communications, and he’s more than aware that plenty of people don’t like Shell. His retort: “The challenge is how you respond to the demand of the world. Would you rather it was a company like Shell responding to it, or would you rather it was some bunch of cowboys only focused on short-term exploitation? We behave and operate to the highest possible standards.
“We’re on the front page of the newspaper, somewhere in the world, every day of the week,” continues Mitchell. “If you want to be loved, it may not be the place to be. The challenges you get are fairly hostile; in media communications you’re often moving from one major crisis to the next. But the people within Shell get a phenomenal buzz because it’s so vibrant, working with people from all over the world.”
Mitchell is a lifer. He joined Shell as a graduate trainee on the HR stream in 1979, and never looked back. A Scot, his entrance into the oil industry in the era of the North Sea oil boom was conveniently timed. From the black gold rush of Aberdeen he soon moved to his first international role in Brunei, returning to Scotland later as part of the leadership team of the Brent oil field, covering the period of the notorious Brent Spar incident (the major, and ultimately successful, Greenpeace campaign against Shell’s plans to dispose of the defunct oil platform out at sea). He describes his early experiences as typical of his graduate intake. In fact, all four recruited from his assessment centre back in 1979 celebrated their thirtieth anniversary at the company last year. One remains his head of learning.
Far-reaching responsibilities
Mitchell is now chief HR and corporate officer, with a hefty portfolio: responsibility for HR, internal and external communication, real estate, health, aircraft, security, and regional director with responsibility for sub-Saharan Africa, excluding Nigeria: “I manage HR, and I govern the others,” he explains. Indeed his role in sub-Saharan Africa is more as a corporate diplomat, engaging with governments and pursuing Shell’s interests, rather than hands-on operationally: “It’s all about organisational and human dynamics, relationships, politics and working in a position of influence rather than power – that’s how the bulk of HR people get things done.” It’s just that the bulk of HR people tend not to negotiate with the political leaders of some of the world’s poorest nations.
You don’t get to Mitchell’s position without battle scars. Besides Brent Spar, he also found himself embroiled in the “reserves crisis” of 2004, arguably the most damaging incident in the company’s 103-year history. Leaked emails showed Sir Philip Watts, then chairman, and Walter van de Vijver, the head of exploration and production, seemingly colluding over an exaggeration of the firm’s oil reserves. The company’s tagline, “You can be sure of Shell,” became a punchline. Following the swift resignations of Watts and van de Vijver, and some hasty recalculations, Shell suddenly found a fifth of its “proven” reserves written off, making it smaller than its arch rival BP. “For the whole of my career it was basically Shell and Exxon [which merged with Mobil to become ExxonMobil in 1999] vying for the top spot, and then for a period we found ourselves behind BP, which we didn’t particularly like.”
Not that the reserves crisis was all bad for Mitchell. The executive clearout that followed saw him emerge as one of the new generation of leaders, with incumbent CEO Jeroen van der Veer promoting Mitchell onto the executive board.
“Jeroen created a strong platform for the future,” says Mitchell. But the big changes began when Peter Voser became CEO upon van der Veer’s retirement in June 2009 and took the opportunity to restructure the company. The mandate for change came in part from the global recession and 7,000 people were “removed” from the business over 18 months.
‘Aspirational’ restructuring
It’s Mitchell belief that “if it’s just cost-cutting you want, then cut the existing organisation, don’t restructure it. There should be a positive, aspirational element to restructuring.” Even in a global recession, cost-cutting wasn’t Shell’s primary focus (net income for 2009 was more than $10 billion). So Voser and Mitchell’s restructure was aspirational: “We took 20 per cent of the senior management out. We wanted to drive out overlap and duplication, and move toward what I call ‘explicit interdependency’ – where one part of the business cannot deliver unless another arm delivers what it needs.” There were, he admits, some reluctant casualties. Some previous executive-level functions were also “pushed back to the business”. And shortly after their thirtieth anniversary, two of the four Aberdonian graduate class of ’79 were gone, although willingly.
HR was not immune. In July 2009, PM’s website reported Voser as saying: “I want to strip away the layers that are not adding value, and put much more focus on front-line activities. This means changes in functional areas like human resources.” He called for doers, not thinkers. If it sounds like a direct challenge to “strategic HR”, then Mitchell is happy with that. “The idea that my role is just to produce strategic HR direction, well – if you sit in the leadership team of a business, don’t assume every conversation is strategic.” This doesn’t just go for the top level. “I have HR people on every business leadership team in Shell. Ultimately they report to me, but if you ask them where they belong, what gets them out of bed in the morning, it’s the business they are part of.” Only once you’ve proven yourself within the business can you influence strategy, he says. And he should know – it was Mitchell who first brought HR onto the executive board.
“This is a long-term business,” explains Mitchell. “The team we have today will be successful if people took the right decisions seven years ago. Next year we will bring onstream a huge $15 billion project in Qatar, which involved 55,000 construction workers. It was started 12 years ago, but the current management will be held responsible for its success.
“I’m always pushing for the right balance between meeting the needs of the organisation today and doing what is right for the long term – which is fundamentally around people development, graduate recruitment and so on.”
In such a global, nomadic business as oil, working in the most politically and environmentally hostile places, deployment of talent dominates the agenda, says Mitchell. “The energy industry in a place like China is inextricably linked with government, with national ambitions; this is not like selling a chocolate bar. You need people not only with the technical skills, but also the political relationship skills.” While Mitchell agrees that this must involve employing a large number of nationals in such countries, he is also a strong advocate of using expats. Shell’s 7,500 expats, he admits, is “a costly model”. As many Nigerians work outside of Nigeria for Shell as it has expats in Nigeria. “We want our people to have experience of running a global business,” he says simply. Especially when assigning people to run operations in Iraq.
Lessons from the Gulf of Mexico
When PM met Mitchell, it was the very day BP reported its findings into the Deepwater Horizon disaster. His first reaction to the disaster was one of “shock”. With further hindsight, it became a lesson in “wanting to understand what happened so you can draw that learning into your own business. You need to make sure you are not equally vulnerable.” He puts it into the context of the industry’s history of disasters: “Exxon had the Exxon Valdez, which shaped a lot of industry standards; after the Occidental Piper Alpha explosion in the North Sea, the Cullen report introduced new safety standards; Brent Spar gave us a whole lot of learning around how you manage public opinion, authorities and so on.” In part, he wishes to portray the industry as adaptable, willing to learn and not ruthlessly aloof. “If you look at the BP incident, they will have learnt things about their management of media and politics, no question.”
BP is not alone in deepwater drilling in the Gulf of Mexico – Shell is there too. While disaster management training is valuable, the potential incidents are so diverse that it’s impossible to prepare for all eventualities, says Mitchell. The Deepwater Horizon disaster was a prime example, being not only a single incident, but also an ongoing one lasting several months. There is clearly some sympathy for Tony Hayward, BP’s chief executive who was forced to step down over his poor handling of the crisis. “Peter Voser is running one of the top three or four companies in the world, but he isn’t even among the top 100 rewarded individuals. It’s not commensurate, and I’m not saying it should be. But you look at Tony Hayward and ask, who would sign up for this? Rightly or wrongly publicly vilified – even if you were paid £5 million a year, is that enough to go through that?”
Executive pay has been the fulcrum of shareholder activism in recent years – last year Shell shareholders voted down a proposed executive remuneration package. Mitchell points to the banking crisis as a trigger, and to global, specifically US, competition raising the bar of executive remuneration. However, ideological questions linger for Mitchell: “If you have a pack of 10 companies, and the share value of every one of those companies goes down, but one company did the best – it went down the least of the 10 – do you reward the execs of that company?” His answer? “Yes, you should reward them.” It’s honest, though not necessarily popular, he admits, given that the issue’s already murky waters were further polluted by the furore of bankers’ bonuses.
Looking to the future, what keeps Mitchell awake at night? “I don’t think anything keeps me up at night, to be honest.” Intriguingly, despite ongoing campaigns by Greenpeace and human rights group Amnesty International among others, Mitchell says that attracting new talent is not a problem: “Probably four or five years ago there were a lot of graduates who wouldn’t join us. But in the past five years it has changed massively. Now a large amount of people hold the desire to create a better world from within the system, rather than challenge from outside of it.” The picture he paints of Shell, and its employees, is of humble engineers smoothing the rough edges of an imperfect world.
Mitchell on pensions
“In my career, pensions has always been one of those things you hoped you never had to work on!
“In the UK we have a big pension fund, as we do in much of the world. During the 1980s and ’90s, a lot of these funds enjoyed a company contribution holiday. Where you have defined benefit (DB) programmes, I’ve never believed that you should give the employees a holiday. If the company is taking the risk – which they are in a DB programme – then if the fund is in a strong position, it’s the company that should get the benefit of not paying, not the individual.
“The wider issue is asking what is the right model for retirement benefits longer term. It shouldn’t be a knee-jerk thing. The actions you take today with pensions affect people 30-40 years down the track. Our company is still predominantly one where people join young, leave old and follow a pathway through the organisation – so all those things have to play into building the right retirement benefit model.
“Is DB a tenable model going forward? The UK market suggests not. But I’m not totally convinced that 100 per cent DC is a sustainable model either. Clearly this is an issue that will also be massively shaped by government. Our UK scheme remains DB and is open to new joiners. But we would not form new DB arrangements around the world.”
The CV
Name: Hugh Mitchell
Education: 1979: University of Edinburgh, Scotland: MA (Hons) in modern history
Career:
2009: Chief human resources
and corporate officer, Royal Dutch Shell
2007: Appointed member of the executive committee of Royal Dutch Shell
2005: Human resources director, Royal Dutch Shell
2003: Director international (one of the Shell Group’s corporate directors)
1997: HR vice-president for Shell Global Oil Products, London
1995: HR director, Shell Trading and Shipping, London
1991: Business services manager, Brent Field Unit , Shell Exploration & Production, Aberdeen
1990: HR manager, technical operations, Shell Exploration & Production, Aberdeen
1986: HR policy and business HR roles in Brunei Shell Petroleum, Brunei
1983: HR roles at Shell Haven Refinery, Essex
1979: Joins Shell as HR graduate trainee in Shell Exploration & Production, Aberdeen
Hobbies and interests: Tennis, hill walking, football