BP 2008 Annual Report Download - page 71

BP Annual Report and Accounts 2008
BP board performance report
The chairman and senior independent director
The principles require that neither the chairman nor deputy chairman be
employed as an executive of the group. During 2008, these posts were
held by Peter Sutherland and Sir Ian Prosser respectively.
The chairman provides leadership of the board, acts as facilitator
for meetings and ensures that the governance framework of the board is
maintained and operated. The chairman also leads board performance
appraisals. He represents the views of the board to shareholders on key
issues, in particular those relating to governance and succession planning
and informs the board of shareholder views.
Between board meetings, the chairman has responsibility for
ensuring the integrity and effectiveness of the relationship with executive
management. This requires his interaction with the group chief executive,
as well as his contact with other board members, senior management
and stakeholders.
The deputy chairman acts for the chairman in his absence or at his
request. The deputy chairman also serves as the board’s senior
independent director and is available to shareholders where there are
issues that cannot be addressed through normal channels.
The chairman and all the non-executive directors meet periodically
without the presence of executive management as the chairman’s
committee. The performance of the chairman is evaluated each year, with
the evaluation discussion taking place when the chairman is not present.
The principles require that the board develop and maintain a plan for the
succession of both the chairman and deputy chairman.
Board composition
The principles require that over half the board, excluding the chairman,
comprise independent non-executive directors and that the number of
directors to not normally exceed 16. The board is composed of the
chairman, nine non-executive and four executive directors.
The board considers that it is of an appropriate size to govern BP,
with its directors possessing the relevant backgrounds and mix of
experience, knowledge and skills to maximize its effectiveness.
Board renewal and skills
The board remains actively engaged in orderly succession planning for
both executive and non-executive directors and is assisted in this task by
the nomination committee. The committee keeps under review the
composition, skills and diversity of the board to ensure that it remains
appropriate to the tasks and work it undertakes. The nomination
committee believes a breadth of skills is required for the board to meet
the demands of a business with global operations. These skills include
deep operational, engineering, safety and financial expertise, experience
of leading industrial, capital intensive or ‘long lead time’ businesses and
insight into key emerging markets and technology development.
The board: terms of appointment
The chairman and non-executive directors of BP serve on the basis of
letters of appointment. Executive directors of BP have service contracts
with the company. Details of all payments to directors are described in
the directors’ remuneration report.
The service contracts of executive directors are expressed to
expire at a normal retirement age of 60 (subject to age discrimination),
while non-executive directors ordinarily retire at the AGM following their
70th birthday.
In accordance with BP’s Articles of Association, directors are
granted an indemnity from the company in respect of liabilities incurred
as a result of their office, to the extent permitted by law. In respect of
those liabilities for which directors may not be indemnified, the company
maintained a directors’ and officers’ liability insurance policy throughout
2008. During the year, a review of the terms and nature of the policy was
undertaken and has been renewed for 2009. Although their defence
costs may be met, neither the company’s indemnity nor insurance
provides cover in the event that the director is proved to have acted
fraudulently or dishonestly. Following recent changes to company law,
the company is also permitted to advance costs to directors for their
defence in investigations or legal actions.
Director elections
New board directors are subject to election by shareholders at the first
AGM following their appointment. All existing directors stand for
re-election each year – a practice the company has followed since 2004.
All directors proposed to shareholders for election are accompanied by a
biography and a description of the skills and experience that the company
feels are relevant.
Voting levels at the 2008 AGM demonstrated continued support
for all board directors.
Board independence
Non-executive directors are required by the principles to be independent
in character and free from any business or other relationship that could
materially interfere with the exercise of their judgement. The board has
determined that the non-executive directors who served during 2008
fulfilled this requirement and were independent.
BP believes that tenure of board members should be determined
on the basis of contribution and continued evidence of the exercise of
independent judgement. As all directors are proposed for annual
re-election by shareholders, the board considers that arbitrary term limits
on a director’s service are not appropriate.
Sir Ian Prosser joined the board in 1997. It is the view of the board
that he remains firmly independent. His experience and long-term
perspective on BP’s business have provided and continue to provide a
valuable contribution to the board and the audit committee, which he
chairs. As deputy chairman and senior independent director, Sir Ian is
leading the board’s search for the successor to the current chairman. He
has been asked by the board to remain in post until April 2010 in order
that he may conclude both the chairman’s succession process and the
identification and appointment by the new chairman of a senior
independent director.
Mr Davis joined the board on the completion of the Amoco
merger in December 1998. The board believes Mr Davis continues to
demonstrate his independence. He is an active participant at the board
and sits on the audit and remuneration committees, and the high level of
his independence is demonstrated by his engagement in these forums.
The board has satisfied itself that there is no compromise to
the independence of those directors who serve together as directors
on the boards of outside entities (or who have other appointments in
outside entities).
From 1 October 2008, there has been a requirement that
directors must avoid a situation where they have, or can have, a direct
or indirect interest that conflicts, or possibly may conflict, with the
company’s interests. Directors of public companies may authorize
conflicts and potential conflicts, where appropriate, if a company’s
articles of association permit and shareholders have approved
appropriate amendments.
Procedures have been put in place for the disclosure by directors
of any such conflicts and also for the consideration and authorization of
these conflicts by the board. These procedures allow for the imposition of
limits or conditions by the board when authorizing any conflict, if they
think this is appropriate. These procedures were duly followed to approve
appropriate conflicts immediately prior to the enactment of the conflict
provisions in October 2008, and are now included as a regular standing
item for consideration by the board at its meetings.
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