Spring Cleaning

PHOTO-ILLUSTRATION FOR TIME BY GARETH BURGESS

The board at Shell knew it needed to do something, and fast. A shocking revelation in January that the world's third largest oil company had overstated its proven petroleum reserves by 20%--was pummeling its stock price and angering shareholders. Regulators on two continents had started investigations. So in early March the board acted, ousting Philip Watts, who had been managing director of the Anglo-Dutch company for almost seven years and chairman since 2001, and replacing him with Jeroen van der Veer, president of Shell's Dutch sister company, Royal Dutch Petroleum. A quick cure for all those headaches?

Hardly. Just six days after Van der Veer took the helm, internal memos leaked to the press suggested that other top Shell executives still in office, including Van der Veer, may have known about the reserves problem as early as two years ago. Van der Veer vigorously denied the charges but failed to calm the jangled nerves of Shell's institutional investors. And so the company was forced to ask itself an unpleasant question: How many times can you fire your CEO in a year?

After an inquiry by an outside law firm, the Shell board gave what it hopes is the definitive answer: Just once. It said the probe had uncovered "disturbing deficiencies" in company practices, and announced the replacement of chief financial officer Judith Boynton. And for the third time this year, the company reduced the figure for its oil reserves. Van der Veer was spared. "We have complete and unreserved confidence in [his] leadership," the board said, although the internal inquiry handed further ammunition to a swarm of U.S. lawyers who have filed class actions against the firm. Shell said the company is accelerating its review of management practices but made it clear that it considers the reserves issue settled. In a statement, Van der Veer said the report "draws a line under the uncertainties that have surrounded" Shell's accounting for reserves.

Really? Some of Shell's biggest shareholders aren't satisfied. Peter Montagnon, head of investment affairs at the Association of British Insurers, which includes some of Britain's biggest institutional investors, says Shell needs to put in place "a governance arrangement that provides for proper accountability and no longer tolerates chronic underperformance."

Boardroom drama like that at Shell is becoming more common in Europe. Being a chief executive officer these days is a bit like being on a reality-TV show: no one knows who will get voted out next. In the past month alone, London-based SSL International, maker of Durex condoms and Scholl foot products, replaced its CEO. German tech company Infineon unexpectedly lost its blunt-speaking CEO, Ulrich Schumacher. He said he was leaving for "personal reasons," but it's clear that the board and shareholders were dissatisfied with the company's performance. An interim chief, Max Dietrich Kley, now runs the company. A revolt by French shareholders led to the ousting of Eurotunnel's chief executive, Richard Shirrefs, and its board. Former travel executive Jacques Maillot leads the motley band of characters trying to keep Eurotunnel, an absolute money pit, out of bankruptcy.

Over the past two years, chief executives of 17 of the euro zone's 50 biggest public companies have been replaced, with almost half leaving under pressure. (That number doesn't include a cluster of large British, Swiss and Swedish firms where heads have also rolled.) Those include financial giants like Germany's Allianz and Credit Suisse of Switzerland; media titans, such as France's Vivendi Universal and Germany's Bertelsmann; and a bevy of telecom behemoths, such as France Telecom, Deutsche Telekom and Britain's Cable & Wireless.

The purges signal that corporate boards and shareholders across Europe are fast catching up with the U.S. in refusing to tolerate scandal, sustained losses or other indications of poor management. In a study published last year of 2,500 publicly traded companies, consulting firm Booz Allen Hamilton found a sharp increase in CEO turnover and it is Europe's chief executives who are the biggest losers. From 1995 to 2002, the frequency of CEO succession in Europe increased 192%, compared with a rise of just 2% in North America, where company bosses have traditionally enjoyed less job security.

The days when CEOs in Europe could count on cozy relationships with boards, governments and financial institutions to protect them are gone. In part, that is a reaction to the irrational exuberance of the late 1990s, when CEOs like Jean-Marie Messier of Vivendi acted like rock stars and paid themselves accordingly, and to the scandals that have enveloped European firms, such as Italy's Parmalat and the Dutch retailer Ahold, which owns a number of U.S. grocery chains. But the change also reflects the influence of American-style investor activism and the growing clout of U.S. pension funds in stock markets across the Continent. "The performance culture has come to Europe," says David Newkirk, a Booz Allen senior vice president.