Shell Chairman Ollila Works to Recast Company

Jul 03, 2007 (Dow Jones Newswires via the Wall Street Journal)

The Hague -- One company makes mobile phones, the other pumps crude. But for a year now, they have had one thing in common -- high-tech pioneer Jorma Ollila.

In his former job as chief executive of Nokia Corp., Mr. Ollila turned a sluggish Finnish conglomerate into an icon of innovation. Now he is hoping to work some of his magic on Royal Dutch Shell PLC, the Anglo-Dutch oil giant he joined as chairman last year.

Mr. Ollila's appointment captures Shell's efforts to recast itself as a high-tech company. He says he sees his role as working with CEO Jeroen van der Veer to put technology "at the top of Shell's agenda."

"Within the next 10 years, this will be a technology business," he says in an interview at Shell headquarters here.

Mr. Ollila, a Finn, joins the world's second-largest nonstate-controlled oil company by market capitalization, behind Exxon Mobil Corp., at a defining moment for the oil industry. Western supermajors are riding high oil prices to record profits. But soaring costs are quickly catching up, and profit growth is stagnating. Exploration opportunities have dwindled as competition grows from state-owned oil companies with deep pockets and better access to some of the world's most promising reserves.

Meanwhile, companies such as Shell are increasingly falling victim to resource nationalism, the drive by hydrocarbon-rich nations to regain control of their natural-resource wealth. Late last year, Shell was forced to cede control of a vast energy project in the Russian far eastern region of Sakhalin to a Kremlin-controlled gas company.

As the external pressures mount, Western majors see their future in the high-tech prowess they say sets them apart from state-owned rivals: their proven expertise in managing big development projects and deploying advanced technology. In Shell's case, that includes exploiting "unconventional" plays, such as squeezing petroleum out of gooey oil sands or turning natural gas into diesel fuel.

"It's technology which we can bring; it's mastering the complexity of large projects," says Mr. Ollila.

The Finn has spent the last year touring the Shell empire, visiting projects from the company's insurgency-wracked Nigerian fields to Sakhalin. Now he is meeting shareholders to hear their concerns and lay out the company's strategy.

He isn't running Shell, of course -- that is the job of Mr. van der Veer, a lifelong oil man -- but he sees his role as keeping a hawkish eye on Shell's corporate culture. That means making sure environmental and safety issues get the attention they deserve, a key concern of the industry following an explosion at BP PLC's Texas City refinery in 2005 that killed 15 people. Another priority is ensuring that Shell hires enough engineers and scientists to drive its technology agenda.

Some say he is already making his mark. "There's a much greater focus on all things 'green,'" such as renewables and combating climate change, says Neil McMahon, an analyst at Sanford Bernstein.

But some analysts wonder whether he will be able to give much guidance on the issues that concern investors most. Those, in the words of Citigroup analyst James Neale, are "reserves, costs and production growth." "Will he be able to shed new light on any of these concerns?" Mr. Neale asks.

A dapper 56-year-old who is also on the board of Ford Motor Co., Mr. Ollila was a surprise choice last summer for the job of Shell chairman, a post that had traditionally been occupied by either an Englishman or a Dutchman.

Shell had reason to break with the past. It had just emerged from a messy accounting scandal after admitting it had inflated its energy reserves, the tally of oil and gas holdings that a company expects to pump. That triggered the ouster of two top executives and a series of probes and fines. Shell was pressed by shareholders to jettison its antiquated dual-board structure and adopt American-style CEO and nonexecutive chairman roles. When the dust settled, the new, slimmer board recruited Mr. Ollila.

As Nokia's CEO, he had gained a reputation as one of the most creative thinkers in European business. He took the helm in 1992, when Nokia was a sprawling mess, making everything from rubber boots to toilet paper. On his watch, it overtook Motorola Inc. to become the world's largest maker of mobile handsets, with 30% of the global market. Mr. Ollila, who remains chairman of Nokia, kept it ahead by pouring $4 billion a year into research and development. Nokia pioneered high-end phones with multimedia bells and whistles while churning out low-cost models for emerging markets.

It was a different story in the oil industry. As crude-oil prices fell in the 1990s, the majors cut back on R&D and slashed staff. Underinvestment left them starved of talent when oil prices recovered.

"There was a historic legacy of an industry that's somewhat slow-moving and which is facing a change now," says Mr. Ollila.

He moved in June of last year into Shell's inner sanctum here, a slightly stuffy 90-year-old edifice with marble floors, wood paneling and Art Deco stained-glass windows telling the company's story from its roots in the Dutch East Indies. Mr. van der Veer sits in a somewhat larger office in a modern extension on the other side of the building.

Mr. Ollila says that since joining the company, he has tried to inject "a certain amount of informality" into board meetings with "a lot of discussion, dialogue, debate." Before his tenure, he jokes, Shell's directors spent the "same 17 minutes" on each item of the agenda. But he isn't pushing too hard. He says he won't appoint an outsider as CEO when Mr. van der Veer steps down in two years.

He admits it has been a steep learning curve. A company such as Nokia invests just $100 million in a factory making 20 million handsets a year, while the oil majors can sometimes spend $10 billion developing a field. The pace is different, too. At Nokia, engineers in charge of designing new products would "jump up from their chairs when the meeting is closed, and they run and they go for it," he says. At Shell, planning can be much more plodding, with a vast array of long-term issues, such as regulatory concerns, to deal with.

But Nokia and Shell have a lot more in common than on first blush, he says. For Shell, "the impact of technology is going to be fundamentally important in how companies are able to explore and exploit resources," he says. "It's not easy oil any longer."

Copyright (c) 2007 Dow Jones & Company, Inc.