BP 2011 Annual Report Download - page 122

120 BP Annual Report and Form 20-F 2011
Corporate governance
Board performance report
Dear shareholder,
In my letter to shareholders earlier in this report I have endeavoured to give
an overview of the challenges which the company has faced in 2011 and
the work of the board in meeting those challenges.
In this letter, and in the report which follows, my aim is to give
shareholders, and indeed all those with whom the company interacts,
a deeper insight into the evolution of the BP board, the review which it
has undertaken and the changes that have been made, and which are
continuing to be made, to govern your company at the highest standard.
BP has a clear system of governance based upon the BP board
governance principles. This serves BP and its board well. It is vital that the
system of governance, “what” the board does, evolves with the company
and with the thinking of those charged with its governance.
The tragic events in the Gulf of Mexico require that the board
consider how it operates; however the substantial change in directors
has meant there have been new views on the role of the board. This has
resulted in the evolution that I have mentioned. In undertaking strong
governance of the company, I believe that the board should provide
leadership and challenge, but also support to executive management. In its
activities this year, the board has strived to achieve this role.
The tasks of the board set out later in this report have not and will
not change. It was clear though that a board which governs a company of
the scale and scope of BP needs to have a clear view of its role
and the steps it can take to support or challenge and the information
which it needs.
The board is initiating modifications in all of these areas and
will keep those changes under review. The actions from this work are
important as we operate a system of governance throughout the company.
The framework for how the board works is articulated in our board
governance principles, available on our website at bp.com/governance.
Over this coming year we will maintain focus, discipline and follow
through at the board as we continue to deal with a volume of issues.
Looking forward into 2012, one of our aims is to get back into a steady
rhythm of board meetings. We hope to do this through strengthening our
forward agenda and board planning processes. We will also maintain our
focus on the skills and experience of our directors, the composition of our
board and succession planning.
Diversity within UK boards was a topic of debate in 2011 and
will remain so going forward. BP is a company with global reach and we
believe that it is important to have a board that is diverse in the widest
sense; the company remains committed to meritocracy as well as to
diversity. As part of the update of our board governance principles we have
included a policy on board diversity. At the time of writing we have 12.5%
female representation on the board. Our goal is to increase the number
of women on the board to three by 2013 and to work towards 25%
representation by 2015.
In the governance report which follows we have outlined key
elements of the activities of the board and its committees during the year.
Carl-Henric Svanberg
Chairman
How the board works
BP’s governance framework
BP’s system of governance begins with the board and continues into
our subsidiaries. The governance framework is outlined in the BP board
governance principles which sets out the role of the board, its processes
and its relationship with executive management.
The board’s core activities include:
• The active consideration of long-term strategy.
• The monitoring of executive action and the performance of BP.
• Obtaining assurance that the material risks to BP are identified and that
systems of risk management and control are in place to mitigate such
risks.
• Ongoing board and executive management succession.
In all its work the board sets the ‘tone from the top’ for the organization by
considering specific issues, including health, safety, the environment and
BP’s reputation and working with management to set the values of the
company.
During 2011 the board undertook a review of its corporate
governance model. A working group consisting of the chairman and three
non-executive directors (Paul Anderson, Antony Burgmans and Cynthia
Carroll) examined key aspects of BP’s system of governance, including
the system of delegation, board processes, information, risk and the tasks
and role of the committees. During the review, input was sought from
board members and from executive management, both through board and
working group discussions and individually through our board evaluation
process.
The review concluded that BP’s system of governance is robust
but that further clarity on board processes would help reinforce the
board’s delegation to the group chief executive and strengthen the board’s
monitoring and assurance role.
Who’s on the BP board?
The composition of the board and the mix of knowledge, skills and
experience that our directors bring to the company is a key area of focus
for the nomination committee. The committee keeps this mix under review
and regularly maps the skillset of our existing board membership against
the likely tenure of individual directors. This is viewed against the potential
demands placed on the board due to developments in our strategy and
business activities. Further detail of the current skillset of the board and
the skills/competencies that the nomination committee has prioritized for
future non-executive director appointments is outlined in the report of the
nomination committee later in this section.
Full biographies of our board members can be found on our
website.
Succession: board and committee membership
Since the beginning of 2011, the following changes have taken place to the
composition of the board:
• Phuthuma Nhleko joined the board as a non-executive director on
1 February 2011.
• Dr DeAnne Julius and Douglas Flint retired from the board at the AGM in
April 2011.
• Dr Brian Gilvary joined the board as an executive director and chief
financial officer (CFO) on 1 January 2012.
• Andrew Shilston joined the board as a non-executive director on
1 January 2012.
• Professor Dame Ann Dowling joined the board as a non-executive
director on 3 February 2012.
Dr Byron Grote stepped down as CFO at the end of 2011 but will remain
on the board as an executive director during 2012, with responsibility for
BP’s integrated supply and trading operations, Alternative Energy, shipping,
technology and remediation activities.
Sir William Castell has decided not to seek re-election at this year’s
AGM and will retire from the board at the meeting. Andrew Shilston
will succeed Sir William as the senior independent director from the
2012 AGM and will be available to shareholders who have concerns that
cannot be addressed through normal channels. He will work closely with