The Dutch government’s eagerness to retain the giant firm is not surprising—and exactly how Dutch Prime Minister Mark Rutte and his cabinet are trying to do so says a lot about which of Shell’s stated reasons for moving is the most important one.

To recap: On Monday, the Anglo-Dutch giant itself framed the proposal to move its headquarters, and its tax base, to the U.K. as a way to increase share buybacks “as there will be a larger single pool of ordinary shares that can be bought back”; to accelerate its shift away from fossil fuels “by managing its portfolio with greater agility”; and to simplify its dual-class share structure because the current one is “subject to constraints and may not be sustainable in the long term.”

Upon the announcement, there was talk of the role played by a Dutch court ruling six months ago that demanded Shell speed up its decarbonization, and by a recent effort from an activist investor to break the company up.

But the real key here is dividends.

Going less Dutch

Royal Dutch Shell—which will, as part of the proposed move, drop the “Royal Dutch” part—currently lists its shares in both the U.K. and the Netherlands, in a dual structure that is a legacy of the 2005 merger of two parts of the company.

The issue here is less the complexity of the structure—which, admittedly, is employed by just a handful of very large companies—and more the fact that the Netherlands, though famously business-friendly, has a dividend tax; the U.K. does not. In simple terms, issuing shares purely through the U.K. would remove a cap on shareholder distributions that Shell has complained about for years.

Shell cut its dividend in the midst of the historic drop in energy demand in 2020. But as oil prices have come roaring back this year, it hasn’t increased its total spending or investment. Instead, it has plowed that extra cash back into dividends and rounds of buybacks to keep investors on its side.

After starting a $2 billion buyback program in July, Shell announced in September that it would return an additional $7 billion to shareholders—via buybacks or other payouts—once it completes the sale of its Permian assets in the U.S. Its competitors from Chevron to BP have taken a similar approach.

Outside pressures

The emphasis placed on dividends today reflects Shell’s need to keep investors on its side as the company faces a mix of political, public, and legal pressures.

Shell is in the midst of a reorganization as it seeks to transform its business toward meeting its net zero by 2050 goal, alongside a host of legacy oil majors from Norway’s Equinor to the U.K.’s BP. But pressure has grown to transition much faster, including from the Dutch courts, which ordered the company to pick up the pace (Shell is appealing). Meanwhile, some pension funds are divesting from oil and gas companies completely. In October, Dutch pension fund ABP, which held €15 billion in oil and gas companies including Shell, said it would divest, a move Shell CEO Ben van Beurden dismissed as “symbolism.”

Shell is also facing some investors who fear that the energy transition will distract Shell from what it does best—finding, extracting, and processing fossil fuels—and that new renewable projects will provide comparably small returns. A surprise attack by Daniel Loeb’s Third Point in October argued the company should be broken up into at least two companies: one for its renewables business and LNG (liquefied natural gas) and marketing wings; another for its legacy oil assets.

Last-ditch efforts

The last-ditch retention efforts by outgoing Dutch Prime Minister Mark Rutte are unlikely to be successful. Dutch newspaper De Volkskrant reported on Monday night that Rutte and top ministers had initiated an attempt to resuscitate an old deal to drop the country’s dividend tax, but Rutte’s government is on its way out, and the cabinet that initially tried to eliminate the tax—and then decided against doing so, in 2018—has since fallen apart. Early polling of the political parties indicated an effort to eliminate the tax does not have enough parliamentary support. (The issue is expected to be discussed in Parliament on Tuesday.)

Questions about Shell’s future in the Netherlands had been growing for some time. At the company’s Q3 results presentation in October, a journalist asked CEO van Beurden and CFO Jessica Uhl whether the company faced “growing hostility” in the country and would consider a headquarters move—specifically, to the U.K.

But while Uhl said it was something leadership does consider regularly, adding that the company had nothing further to share, van Beurden dismissed the argument that leaving the Netherlands would allow Shell to outrun its problems—namely, the Dutch court case, and, more widely, pressure over climate change.

“Indeed, some people have asked, ‘Can’t you just relocate from the Netherlands, so you don’t have to contend with this court case anymore?’” said van Beurden. “Let me be very clear: We cannot run away from this court case, nor do we have any intention to run away from it.”

If the company relocates, the verdict would simply follow, he said.

The relocation proposal will go to a shareholder vote next month.