The Baker Panel Report - ABSA

IV. OVERVIEW OF BP’S ORGANIZATIONAL STRUCTURE ANDITS FIVE U.S. REFINERIESBP is one of the world’s largest companies. As of January 7, 2007, it had a market capitalization exceeding $225 billion. 1 BP operates in morethan 100 countries across six continents and employs more than 96,000 people. 2BP’s corporate structure has been complex for many years. In the last two years, BP has made significant changes to its corporate and refiningorganizations, creating new positions, changing various job responsibilities, and establishing several new reporting lines. BP made some ofthese changes directly in response to the March 2005 Texas City accident. In many instances, the contours of these new lines and relationshipsremain undefined. While the BP organizational chart is constantly evolving, BP regards its organizational philosophy as immutable and one ofthe pillars of its corporate success. 3A. BP Management FrameworkBP’s workforce grew to nearly 100,000 employees as a result of several mergers and acquisitions in the late 1990s. To address governanceissues arising out of this rapid growth and consolidation of different heritages, in 2003 BP issued its Management Framework, colloquiallyreferred to within BP as the “Green Book.” The Management Framework, which was revised in 2004 and is soon to be revised again, is intendedto articulate BP’s corporate governance system but not to describe BP’s organizational structure in detail. The Management Framework conveysthe notion that while BP’s organizations will necessarily change, its corporate governance should not.John Browne, BP’s Group Chief Executive, developed the three primary foundations of BP’s organizational philosophy when he was in charge ofBP’s exploration and production business. 4 First, BP operates in a decentralized manner, with individual business unit leaders (such as refineryplant managers) given broad latitude for running the business and direct responsibility for delivering performance. Second, the corporateorganization provides support and assistance to the business units (such as individual refineries) through a variety of functions, networks, andpeer groups. Third, BP relies upon individual performance contracts to motivate people. 5Accountability for BP’s refining performance—whether profitability, safety, environmental, or otherwise—runs “down the line” from the Boardof Directors through the Group Chief Executive to the refinery plant managers. Refinery plant managers are not merely operations managers butalso business or commercial managers because they have direct profit-and-loss responsibility for the refinery. Authority and accountability forparticular aspects of a refinery’s business are cascaded below the refinery plant manager.BP’S SYSTEM OF DELEGATIONS AND ACCOUNTABILITIESThe foundation of the Management Framework consists of BP’s concepts of authority, delegation, and accountability. Under the ManagementFramework, authority is delegated, but accountability is not. Delegations of authority flow from the shareholders to the Board of Directors to theGroup Chief Executive and down throughout BP. BP’s philosophy is to delegate authority to the lowest appropriate point in the organization—asingle point of accountability. The single point of accountability is always a person, as opposed to an organization, committee, or other group ofpeople, who manages performance through monitoring and intervention. Those higher in the chain of delegation monitor this performance andreport up the line of delegation to meet their accountabilities. This structure reflects BP’s philosophy that leadership monitors but does notsupervise the business; leadership only supervises the people who report directly to them. BP’s Management Framework is evident at every levelof the organization. Its concepts of delegation and accountability begin with the shareholders and extend through each level of theorganization.Shareholders own BP, a public company. The shareholders annually elect BP’s Board of Directors and delegate authority to the directors fordirection and oversight of the company’s business. The shareholders receive annual reports that highlight BP’s financial performance, amongother things.Overview of BP’s Organizational Structure and Its Five U.S. Refineries C 27