BP 2006 Annual Report Download - page 83

BP Annual Report and Accounts 2006 81
Chairman’s committee report
Membership and meeting schedule
The chairman’s committee comprises all the non-executive directors and
is chaired by the board chairman.
The committee met four times during the year.
Role of chairman’s committee
The task of the committee is to consider broad issues of governance,
including the performance of the chairman and the group chief executive,
succession planning, the organization of the group and any matters
referred to it for an opinion from another board committee.
Committee activities in 2006
The main focus of the committee was on the task of ensuring an orderly
succession plan for the group chief executive role. In that respect, the
committee formed a working group comprised of the chairmen of each of
the board’s standing committees, which has taken forward the detailed
work necessary to ensure a best-practice process to identify a new group
chief executive. The working group met six times during the year.
The committee took external advice as appropriate and benchmarked
all the candidates against the external market.
The committee concluded its work by making a unanimous
recommendation to the board that Dr A B Hayward be appointed as
the next group chief executive.
Nomination committee report
Membership and meeting schedule
The nomination committee consists of non-executive directors. Its
members include Dr D S Julius, Sir Ian Prosser and Dr W E Massey
and the committee is chaired by the board chairman, Mr P D Sutherland.
All members of the nomination committee are considered by the board
to be independent.
The committee met six times during the year.
Role of nomination committee
The task of the nomination committee is to identify and evaluate
candidates for appointment and reappointment as director or company
secretary of BP.
Committee activities in 2006
As a result of the committee’s processes, Sir William Castell joined
the board in 2006.
The committee continues to keep under review the skills and
background that the board requires to perform its various tasks. The
committee recognizes that, with the forthcoming retirements of directors,
at least one new non-executive director will need to be appointed to the
board each year for the next three years. The committee is currently
evaluating candidates with a North American background.
Combined Code compliance
BP complied throughout 2006 with the provisions of the Combined Code
Principles of Good Governance and Code of Best Practice, except in the
following aspects:
A.4.4 Letters of appointment do not set out fixed time commitments
since the schedule of board and committee meetings is subject
to change according to the exigencies of the business. All
directors are expected to demonstrate their commitment to
the work of the board on an ongoing basis. This is reviewed
by the nomination committee in recommending candidates
for annual re-election.
B.1.4 The amount of fees received by executive directors in respect
of their service on outside boards is not disclosed since this
information is not considered relevant to BP.
B.2.2 The remuneration of the chairman is fixed by the board as a
whole (rather than the remuneration committee) within the
limits set by shareholders, since the chairman’s performance
is a matter for the whole board.
Internal control review
The board, through its governance policies, has established a process by
which the effectiveness of the system of internal control can be regularly
reviewed as required by provision C.2.1 of the Combined Code.
The process enables the board and its committees to assess the
system of internal controls being operated for managing significant risks,
including social, environmental, safety and ethical risks, throughout the
year. The process did not extend to joint ventures or associates.
As part of this process, the board and the audit and safety, ethics and
environment assurance committees requested, received and reviewed
reports from executive management, including management of the
business segments, at their regular meetings.
In considering the system, the board noted that such a system is
designed to manage rather than eliminate the risk of failure to achieve
business objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss.
The BP general auditor presented reports to a joint meeting of
the committees in January 2007 to support the board in its annual
assessment of internal control. The reports described how significant
risks were identified and embedded within business segment and
function plans across the group; the effectiveness of executive controls;
and the continuing development of the systems in place to identify and
manage risks.
The reports also highlighted future risks of potential significance
that had been reviewed by the board as part of the company’s
planning process.
The committees engage with executive management during the
year on a regular basis to monitor the management of risks. Significant
incidents that occurred and management’s response to them were
considered by the committees during the year.
As is disclosed elsewhere in BP Annual Report and Accounts 2006,
the company has recently received reports that were previously
commissioned relating to the US refinery system and trading operations.
The company has accepted the recommendations of those reports
and is in the process of determining the appropriate actions required
to implement those recommendations. The committees will monitor
management’s actions in respect of these reports over the coming year.
Subject to this, the board is satisfied that, where significant failings or
weaknesses in internal controls were identified, appropriate remedial
actions were taken or are being taken.
In the board’s view, the information it received was sufficient to enable
it to review the effectiveness of the company’s system of internal control
in accordance with the ‘Internal Control Revised Guidance for Directors’ in
theCombinedCode(Turnbull).