BP 2012 Annual Report Download - page 116

Corporate governance
BP Annual Report and Form 20-F 2012
114
Strategy
The evolution and development of the group’s strategy was discussed
at each of the regular meetings of the board during the year. These
discussions were held against the background of the steps being taken to
resolve uncertainties in the US and Russia. More detailed discussions on
long-term strategic options were held at two strategy away-days in 2012.
Key strategic elements examined included North American gas, Russia,
technology and biofuels in Brazil. The board also reviewed the company’s
planning methodology and strategy development process, looking at
energy market structures, long-term price ranges and the assumptions
used for BP’s investment evaluations.
Assurance
The board received regular updates during the year on legal issues, in
particular on litigation and enquiries resulting from events in the Gulf of
Mexico. It examined the delivery of major projects and the effectiveness
of investment and received a review of BP’s integrated supply and trading
business.
The board assessed the effectiveness of the group’s system of internal
controls and risk management and reviewed its financial performance.
It received an update on the progress of BP’s change management
programme, implemented at the end of 2010, and reviewed the work of
the central programme management office established to ensure there is
an integrated, company-wide approach to the change programme and to
minimize disruption in the businesses. The board also received a report
from Duane Wilson, the independent expert appointed by the board to
provide an objective assessment of BP’s progress in implementing the
recommendations of the BP US Refineries Independent Review Panel.
Risk
The board and its monitoring committees (audit, SEEAC and Gulf of
Mexico) monitored the group risks which had been allocated following the
board’s review of the annual plan at the end of 2011. The annual plan and
the group strategy are central to BP’s risk management programme as
they provide a framework for the board to consider significant risks and
manage the group’s overall risk exposure as well as underpin the model of
delegation and assurance for the board in its oversight of executive
management and other activities.
The group risks allocated to and reviewed by the board over the year
included risks associated with the global macroeconomic outlook, the
delivery of BP’s 10-point plan, the group’s exposure to Russia, crisis
management, reputational impact and organizational capability. The board
held a mid-year discussion to consider any changes required to the
allocation of group risks and to confirm the schedule for oversight and
governance of these risks by the board and its committees.
Reputation
The board discussed the risks relating to the reputation of the group
globally, but in particular relating to the US, and also the processes the
company has in place to manage these risks. The result of an external
reputation survey was considered, which examined BP’s reputation in key
markets, including the UK and US. From an internal perspective, feedback
from the regular, global survey of employees was examined following the
launch of BP’s renewed values and updated code of conduct at the end of
2011.
In addition to understanding feedback from external focus groups and
employees, the board received regular reports which outlined shareholder
sentiment on the company. This includes analyst reports, the annual
investor audit, feedback from shareholders on voting on the company’s
resolutions at the AGM and follow-up discussions post investor
roadshows and other one-to-one shareholder meetings (see shareholder
engagement on page 116).
Board effectiveness
Induction and board learning
On joining BP, non-executive directors are given a tailored induction
programme. This includes one-to-one meetings with management, the
external auditors and site visits to operations. The induction will also cover
the board committees that a director will join. During the year induction
programmes were organized for Andrew Shilston and Professor Dame
Ann Dowling. An example of the induction programme given to recently
appointed non-executive directors is set out below.
Director induction programme
Board and governance
t BP’s board governance model, directors’ duties, interests and
potential conflicts.
t Committee induction.
BP’s business
t Upstream (exploration, development, production, overview of our
operations).
t Downstream.
t Alternative Energy.
t Strategy and planning.
t BP’s performance relative to its competitors.
Functional input
t Finance and tax.
t Controls, external auditors and internal audit.
t Human resources.
t Ethics and compliance.
t Safety and operational risk (S&OR), BP’s operating management
system (OMS) and environmental performance.
t Research and technology.
t Engineering.
t Trading.
The board’s learning is continued through board and committee briefings
and site visits. In 2012, the board received briefings on key aspects of
BP’s activities, including the competitive context for the company and
BP’s projections for energy supply and demand. At the board meeting in
Houston, non-executive directors were given the opportunity to meet
BP’s wider US leadership group at informal lunch and dinner events. In the
autumn, the board met leading US political figures in advance of the US
presidential elections.
Non-executive directors are expected to attend at least one site visit per
year. During 2012 the board made a number of visits, including to BP’s
Texas paraxylene site, fracking operations in East Texas, the Thunderhorse
platform in the Gulf of Mexico and the Buncefield terminal in the UK. The
chairman visited the Deepwater Gunashli platform and Sangachal terminal
in Azerbaijan, the Kinneil terminal in the North Sea and the Greater
Plutonio floating production, storage and offloading facility in Angola. He
also held employee town halls and met with regional leadership teams
whilst visiting BP’s offices in Azerbaijan, Tokyo, the North Sea and Angola.
After each site visit, the board or appropriate committee is briefed on the
impressions gained by directors attending the visit.