Investor activism: Funds stand up to Shell

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By:
Helen Avery
Published on:

EU pension funds begin to flex muscles over scandals. Twenty-six Dutch pension funds are suing Royal Dutch Shell for overstating its oil reserves between 1999 and 2003.

The group of predominantly Dutch pension funds, led by ABP, the €168 billion Dutch civil service and educational pension fund, has filed a pending class-action lawsuit against the energy company with US law firm Grant & Eisenhofer.

“We’re arguing that these clients bought shares based on Shell’s stated oil reserves,” says Geoff Jarvis, partner at Grant & Eisenhofer. “When Shell acknowledged that they had overstated the reserves at a later date, the stock price took a hit and resulted in our clients losing hundreds of millions of dollars.”

Defendants

Among the former and current Shell executives named as defendants in the lawsuit is Sir Philip Watts, former chairman of Shell, who left the company last year after reserves downgrades were conceded. Consultants KPMG and PricewaterhouseCoopers are also named as defendants. Shell has already paid more than $150 million in fines to UK and US regulators, and $90 million to employees who claimed their pension funds had been hit by the overstatements.

Grant & Eisenhofer is one of the US’s largest securities class action law firms to represent institutional investors. The firm has pending class action suits against other corporations, including Tyco and Marsh & McLennan, on behalf of institutional shareholders.

The Shell case points to the growing awareness of European institutional investors as to their rights in corporate scandals. In the US institutional investors have tended to be more vocal in defending themselves against corporate abuse, because of the 1995 Private Securities Litigation Reform Act, which gave institutional investors greater rights in securities class action lawsuits.

Awareness

“The involvement of European institutional investors has been more recent,” says Jarvis, “and has been gaining traction in the last three to four years.” One US lawyer attributes the growing awareness of Europe’s investors to the wave of corporate scandals. “The Enron and Tyco scandals were well documented across the globe and attracted the attention of European pension funds. Europe’s own corporate scandals, such as Ahold, further increased the awareness and willingness of institutional investors there to become involved.”

An official at the VB (the Dutch association of pension funds) agreed that shareholder activism and awareness of rights was increasing. “It’s clear that the larger European pension funds such as ABP and PGGM [the Dutch healthcare and social work employees’ pension fund] are more frequently standing up for themselves,” she said.