BP 2005 Annual Report Download - page 161

The dual role played by the group chief executive and executive
directors as both members of the board and leaders of the executive
management is also recognized and addressed. The policies require a
majority of the board to be composed of independent non-executive
directors. To assure the integrity of the governance process, the
relationship between the board and the group chief executive is
governed by the non-executive directors, particularly through the
work of the board committees they populate.
Recognizing that as a group its capacity is limited, our board
reserves to itself the making of broad policy decisions. It delegates
more detailed considerations involved in meeting its stated
requirements either to board committees and officers (in the case
of its own processes) or to the group chief executive (in the case
of the management of the company’s business activities). The board
governs BP through setting general policy for the conduct of business
(and, critically, by clearly articulating its goals) and by monitoring
its implementation by the group chief executive.
To discharge its governance function in the most effective manner,
our board has laid down rules for its own activities in a governance
process policy. The process policy covers:
••• The conduct of members at meetings.
••• The cycle of board activities and the setting of agendas.
••• The provision of timely information to the board.
••• Board officers and their roles.
••• Board committees – their tasks and composition.
••• Qualifications for board membership and the process
of the nomination committee.
••• The evaluation and assessment of board performance.
••• The remuneration of non-executive directors.
••• The process for directors to obtain independent advice.
••• The appointment and role of the company secretary.
The responsibility for implementation of this policy is placed
on the chairman.
The board-executive linkage policy sets out how the board
delegates authority to the group chief executive and the extent
of that authority. In its board goals policy, the board states what
it expects the group chief executive to deliver.
The restrictions on the manner in which the group chief executive
may achieve the required results are set out in the executive
limitations policy. This policy sets boundaries on executive action,
requiring due consideration of internal controls, risk preferences,
financing, ethical behaviour, health, safety, the environment,
treatment of employees and political considerations in any and
all action taken in the course of our business. Through the goals
and executive limitations policies, the board shapes BP’s values
and standards.
ACCOUNTABILITY IN OUR BUSINESS
Our group chief executive outlines how he intends to deliver the
required outcome in annual and medium-term plans, which also
address a comprehensive assessment of the group’s risks. Progress
towards the expected outcome forms the basis of regular reports to
the board that cover actual results and a forecast of results for the
current year. The board considers annual and five-year plans for the
group and, in doing so, reviews the major influences and risks
affecting the group’s business.
The group chief executive is obliged through dialogue and
systematic review to discuss with the board all material matters
currently or prospectively affecting the company and its performance
and all strategic projects or developments. This key dialogue
specifically includes any materially under-performing business
activities and actions that breach the executive limitations policy
and material matters of a social, environmental and ethical nature.
The board-executive linkage policy also sets out how the group
chief executive’s performance will be monitored and recognizes that,
in the multitude of changing circumstances, judgement is always
involved. The systems set out in the board-executive linkage policy
are designed to manage, rather than to eliminate, the risk of failure
to achieve the goals or observe the executive limitations policy.
They provide reasonable, not absolute, assurance against material
misstatement or loss.
WHO IS ON THE BOARD?
The board is composed of the chairman, 11 non-executive and six
executive directors. In total, five nationalities are represented on
the board. Directors’ biographies are set out on pages 174-175.
Governance policies and processes depend on the quality
and commitment of the people who operate them.
As reported last year, the board is actively engaged in succession
planning issues for both executive and non-executive roles. We
reported in the past two years on our pursuit of an orderly process
of evolution to refresh the composition of the board without
compromising its continued effectiveness. To that end, we were
delighted to welcome Mr Douglas Flint to the board in January 2005.
At the AGM in April 2005, Sir Robin Nicholson and Mr Charles (Chuck)
Knight retired. Mr Michael Miles will stand down at the 2006 AGM.
The chairmanships of the principal board committees were also
reviewed during 2005; Dr Julius became chairman of the remuneration
committee, succeeding Sir Robin Nicholson. The board committee
reports on pages 161-163 provide details on the chairmen and
composition of these committees.
The efficiency and effectiveness of the board are of paramount
importance. Our board is large but this is necessary to allow sufficient
executive director representation to cover the breadth of the group’s
business activities and sufficient non-executive representation
to reflect the scale and complexity of BP and to staff our board
committees. A board of this size allows orderly succession planning
for key roles.
BOARD INDEPENDENCE
The qualification for board membership includes a requirement that
all our non-executive directors be free from any relationship with the
executive management of the company that could materially interfere
with the exercise of their independent judgement. In the board’s view,
all our non-executive directors fulfil this requirement. It determined all
non-executive directors who served during 2005 to be independent.
All have received overwhelming endorsement at successive AGMs,
at which they are now subject to annual election.
Mr Knight and Sir Robin Nicholson were appointed to the BP
board in 1987 and Mr Miles was appointed in 1994. The length of
their respective service on the board exceeds the nine years referred
to in the Combined Code. The board considers that the experience
and long-term perspective of each of these directors on BP’s business
during its recent period of growth has provided a valuable contribution
to the board, given the long-term nature of our business. The integrity
and independence of character of these directors are beyond doubt.
Both Mr Knight and Sir Robin retired at the 2005 AGM. Mr Miles will
retire in 2006.
Those directors who joined the BP board in 1998 after service on
the board of Amoco Corporation (Messrs Bryan, Massey, Wilson and
Davis) are considered independent since the most senior executive
management of BP comprises individuals who were not previously
Amoco employees. While Amoco businesses and assets are a key
part of the group, the scope and scale of BP since its acquisition of
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