We saw this with the troubled engineering group Invensys and the willingness of institutions to put up £2.7bn in new equity and credits, for no better reason than that they had faith in ‘slick Rick’ Haythornthwaite. And we saw the effect in reverse with the battering received by Shell chairman Sir Philip Watts.
The oil company row started a few weeks ago with a significant downgrade of Shell’s proven oil and gas reserves. The combination of a controversial announcement and an absentee chairman – Watts – sent the share price spinning, but is now seen merely as a symptom of a deeper malaise. It has brought to the fore a seam of unhappiness with the way Shell conducts and portrays itself, and it has put a significant number of shareholders in the mood to press for substantive change.
The group that learned the hard way over Brent Spar that it had to listen to environmentalists even when they were wrong, is now going through the same painful lessons with the financial community.
These days there is a clear link between charisma and capital value. BP understands this and has a CEO in Lord Browne to whom the City has warmed. Watts has made nothing like that kind of impression. His brushes with investment analysts and the media have been the defining points of his regime. The rest is greyness.
This does not mean that Shell is inefficient, but in a world driven by share prices, perceptions count. Thus it is that BP trades on an earnings multiple of 19 while for Shell Transport – the UK business – it’s just 14. Were Shell able to command the same stock market rating as BP it would imply an increase in its market cap from £33.7bn to £46.2bn. Even if a mere ten per cent of this rating difference is down to the fact that Browne comes across better than Watts, it is a gain of more than £1bn. Shell could buy a lot of PR advice for that.