Royal Dutch Shell AGM Statement
24 May 2016
At its AGM on 19th May 2015 Royal Dutch Shell announced its decision to appoint EY as the company’s external auditor following a tender process. At that meeting Guy Jubb of Standard Life Investments made the following statement:
“In closing, we note the appointment of EY as auditors for next year. We are mindful that EY are auditors to BG Group. Did the Audit Committee engage its investors during the tender process, and what has it done to ensure additional safeguards are in place to ensure that any conflicts of interest especially during the BG offer period are properly addressed, whether or not the offer is successful?”
Since the AGM last year Standard Life Investments has engaged with Shell, BG, EY and the Financial Reporting Council (FRC) on the matter of the appointment of EY. During this engagement it became clear that the audit partner for BG Group was to become the new lead audit partner for the Shell audit.
As investors in both Shell and BG on behalf of our clients, Standard Life Investments was concerned to ensure that the interests of shareholders in both companies were adequately addressed. Given the size and importance of the transaction, we wished to ensure that the highest ethical standards and judgements were applied. We believe that Shell’s appointment of the audit partner at EY who was responsible for the BG Group audit, compounds the perception of conflicts of interest that we highlighted at Shell’s 2015 AGM.
The Auditing Practices Board (APB) publish the Ethical Standards for auditors in the UK and Ethical Standard (ES) 1 requires that ‘Auditors shall conduct the audit of the financial statements of an entity with integrity, objectivity and independence.’ and goes on to describe independence as ‘…freedom from situations and relationships which make it probable that a reasonable and informed third party would conclude that objectivity either is impaired or could be impaired.’ Standard Life Investments is a substantial investor in Shell and BG, and it is our view that the objectivity of Shell’s proposed auditor could indeed be impaired by their prior connection with BG.
Due to our concerns described above we do not believe that the best interests of our clients are served by the appointment of EY and the proposed audit partner. We have therefore voted against the resolution to appoint EY as auditors of Shell at today’s AGM.
We are disappointed that during our engagement with the parties involved it has not been possible to address our concerns in a satisfactory manner. We believe that independence and transparency are paramount to ensuring the objectivity of auditors and as a reasonable and informed third party are concerned that we have been unable to obtain a satisfactory outcome resulting in us having to vote against the appointment of the auditor of one of the most important UK companies.