BP 2011 Annual Report Download - page 135

BP Annual Report and Form 20-F 2011 133
Corporate governance
Corporate governance
Committee’s role
The committee is comprised of the chairman and all the non-executive
directors.
The main tasks of the committee are:
• Evaluating the performance and effectiveness of the group chief
executive.
• Reviewing the structure and effectiveness of the business organization
of BP.
• Reviewing the systems for senior executive development and
determining the succession plan for the group chief executive, executive
directors and other senior members of executive management.
• Determining any other matter which is appropriate to be considered by
all of the non-executive directors.
• Opining on any matter referred to it by the chairman of any committee
comprised solely of non-executive directors.
Committee activities
The committee held private discussions between the non-executive
directors during the year on key issues for the group, including its strategic
direction, activities in Russia and risk management.
The chairman’s committee worked closely with the nomination
committee in matters around executive and non-executive succession,
in particular the succession of the chief financial officer (CFO) and in
redefining the roles of the CFO and executive director for corporate
business activities. It was agreed that outgoing CFO Byron Grote would
stay on the board as an executive director with responsibility for BP’s
corporate business activities, including its integrated supply and trading
operations, Alternative Energy, shipping, technology and remediation
activities.
The committee evaluated the performance of the group chief
executive at the half year and the full year. It reviewed succession planning
within the group and discussed the structure of the senior executive team.
The outcomes of the main board evaluation were discussed within
the chairman’s committee. The committee also reviewed the skills of the
board and discussed what would be needed to meet the challenges of the
company’s strategy. Issues of governance around committees and their
composition were examined. Led by the senior independent director, the
committee evaluated the performance of the chairman as part of BP’s
annual evaluation programme for the board and its directors.
Facilitated by the senior independent director, the committee met
to discuss an approach to the chairman by the Volvo Group to become
their part-time, non-executive chairman. The discussion was held without
the presence of the chairman and considered the time commitment of this
additional role, given that Carl-Henric Svanberg would be stepping down
from his existing non-executive directorship at Ericsson before taking on
the potential position at Volvo. The committee concluded it was supportive
of the chairman taking on this additional role.
Risk management and internal
control review
In discharging its responsibility for the company’s risk management and
internal control systems under the UK Corporate Governance Code, the
board, through its governance principles, requires the group chief executive
to operate with a comprehensive system of controls and internal audit
to identify and manage the risks that are material to BP. The governance
principles are reviewed periodically by the board and are consistent with
the requirements of the UK Corporate Governance Code including principle
C.2 (risk management and internal control).
The board has an established process by which the effectiveness
of the system of internal control (which includes the risk management
system) is reviewed as required by provision C.2.1 of the UK Corporate
Governance Code. This process enables the board and its committees
to consider the system of internal control being operated for managing
significant risks, including strategic, safety and operational and compliance
and control risks, throughout the year. Material joint ventures and
associates have not been dealt with as part of the group in this process.
As part of this process, the board and the audit, Gulf of Mexico
and safety, ethics and environment assurance committees requested,
received and reviewed reports from executive management, including
management of the business segments, divisions and functions, at their
regular meetings.
In considering the systems, the board noted that such systems are
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.
During the year, the board, through its committees, regularly
reviewed with executive management processes whereby risks are
identified, evaluated and managed. These processes were in place for the
year under review, remain current at the date of this report and accord
with the guidance on the UK Corporate Governance Code provided by the
Financial Reporting Council. In December 2011, the board considered the
group’s significant risks within the context of the annual plan presented by
the group chief executive.
A joint meeting of the audit and safety, ethics and environment
assurance committees in February 2012 reviewed a report from
the general auditor as part of the board’s annual review of the risk
management and internal control systems. The report described the annual
summary of internal audit’s consideration of elements of BP’s system of
internal control over significant risks arising in the categories of strategic,
safety and operational and compliance and control and considered the
control environment for the group. The report also highlighted the results
of audit work conducted during the year and the remedial actions taken by
management in response to significant failings and weaknesses identified.
During the year, these committees engaged with management, the
general auditor and other monitoring and assurance providers (such as the
group ethics and compliance officer, head of safety and operational risk and
the external auditor) on a regular basis to monitor the management of risks.
Significant incidents that occurred and management’s response to them
were considered by the appropriate committee and reported to the board.
Subject to determining any additional appropriate actions arising
from items still in process, the board is satisfied that, where significant
failings or weaknesses in internal controls were identified during the year,
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 (Turnbull).