News analysis
Shell directors being sued renews focus on director duties
The individual directors on the board of Shell are being sued in the UK by an environmental group with the backing of some investors.
What’s happened?
ClientEarth – a Shell shareholder and activist investor – says the board members of Shell needed to invest more in renewable energy and, therefore, adequately prepare the company for the risks associated with climate change.
Each board member violated their duties under UK law to manage “material and foreseeable” risks from climate change, says ClientEarth, and each person on the board is legally liable for such failure.
Shell’s board members were notified by ClientEarth nearly a year ago that it intended to petition the High Court, and a judge must now decide whether to accept the case.
“We do not have confidence that the board is properly preparing the company for the energy transition,” says ClientEarth’s lawyer Paul Benson.
“It’s telling that the amount of money going into renewables is considerably less than the amount going to shareholders.”
In 2022 Shell had profits of $39.9 billion, the highest profits in the company’s 115-year history. However, in the same year, Shell spent just $3.5 billion on its renewable and energy solutions division.
Shell responded by saying it did not accept the allegations that the directors had not acted in line with their fiduciary duties and the best interests of shareholders.
“This is an interesting case,” says David W Duffy, CEO of the Corporate Governance Institute. “ClientEarth is an activist investor and is unhappy with the board’s strategic direction. If the case goes to court, it will significantly impact the future of corporate governance and ESG (environmental, social and governance).”
Learn more: Prepare for the future. Become a leader in ESG
Directors in the dock over lack of action on climate change
According to the FT, shareholders have been reluctant to target individual directors in the past, claiming it could make potential board recruits reluctant to join.
Over the last few years, however, BlackRock, the world’s largest asset manager, Fidelity International and other big investors have voted against the re-election of certain directors over their lack of action towards climate change.
Boeing board members also face a lawsuit
In early 2023, a US appeals court revived a 2019 shareholder lawsuit filed against Boeing after two 737 MAX crashes killed 346 people.
The crashes led to the plane’s 20-month grounding.
The Seafarers Pension Plan claims Boeing directors and board members made false and misleading public statements about the 737 MAX in proxy materials.
Who sits on the board at Shell?
Sir Andrew Mackenzie chairs the board at Shell, which consists of 11 directors, including:
- Euleen Goh, deputy chair and senior independent director
- Wael Sawan, chief executive officer
- Sinead Gorman, chief financial officer
- Dick Boer, independent non-executive director
- Neil Carson OBE, independent non-executive director
- Ann Godbehere, independent non-executive director
- Catherine J. Hughes, independent non-executive director
- Jane Holl Lute, independent non-executive director
- Martina Hund-Mejean, independent non-executive director
- Abraham (Bram) Schot, independent non-executive director
- Caroline Omloo, company secretary
Read more: The board members at Shell