BP Annual Report and Form 20-F 2011 - Company Reporting

Corporate governanceBoard performance reportDear shareholder,In my letter to shareholders earlier in this report I have endeavoured to givean overview of the challenges which the company has faced in 2011 andthe work of the board in meeting those challenges.In this letter, and in the report which follows, my aim is to giveshareholders, and indeed all those with whom the company interacts,a deeper insight into the evolution of the BP board, the review which ithas undertaken and the changes that have been made, and which arecontinuing to be made, to govern your company at the highest standard.BP has a clear system of governance based upon the BP boardgovernance principles. This serves BP and its board well. It is vital that thesystem of governance, “what” the board does, evolves with the companyand with the thinking of those charged with its governance.The tragic events in the Gulf of Mexico require that the boardconsider how it operates; however the substantial change in directorshas meant there have been new views on the role of the board. This hasresulted in the evolution that I have mentioned. In undertaking stronggovernance of the company, I believe that the board should provideleadership and challenge, but also support to executive management. In itsactivities this year, the board has strived to achieve this role.The tasks of the board set out later in this report have not and willnot change. It was clear though that a board which governs a company ofthe scale and scope of BP needs to have a clear view of its roleand the steps it can take to support or challenge and the informationwhich it needs.The board is initiating modifications in all of these areas andwill keep those changes under review. The actions from this work areimportant as we operate a system of governance throughout the company.The framework for how the board works is articulated in our boardgovernance principles, available on our website at bp.com/governance.Over this coming year we will maintain focus, discipline and followthrough 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 steadyrhythm of board meetings. We hope to do this through strengthening ourforward agenda and board planning processes. We will also maintain ourfocus on the skills and experience of our directors, the composition of ourboard and succession planning.Diversity within UK boards was a topic of debate in 2011 andwill remain so going forward. BP is a company with global reach and webelieve that it is important to have a board that is diverse in the widestsense; the company remains committed to meritocracy as well as todiversity. As part of the update of our board governance principles we haveincluded 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 numberof 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 keyelements of the activities of the board and its committees during the year.Carl-Henric SvanbergChairmanHow the board worksBP’s governance frameworkBP’s system of governance begins with the board and continues intoour subsidiaries. The governance framework is outlined in the BP boardgovernance principles which sets out the role of the board, its processesand 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 thatsystems of risk management and control are in place to mitigate suchrisks.• Ongoing board and executive management succession.In all its work the board sets the ‘tone from the top’ for the organization byconsidering specific issues, including health, safety, the environment andBP’s reputation and working with management to set the values of thecompany.During 2011 the board undertook a review of its corporategovernance model. A working group consisting of the chairman and threenon-executive directors (Paul Anderson, Antony Burgmans and CynthiaCarroll) examined key aspects of BP’s system of governance, includingthe system of delegation, board processes, information, risk and the tasksand role of the committees. During the review, input was sought fromboard members and from executive management, both through board andworking group discussions and individually through our board evaluationprocess.The review concluded that BP’s system of governance is robustbut that further clarity on board processes would help reinforce theboard’s delegation to the group chief executive and strengthen the board’smonitoring and assurance role.Who’s on the BP board?The composition of the board and the mix of knowledge, skills andexperience that our directors bring to the company is a key area of focusfor the nomination committee. The committee keeps this mix under reviewand regularly maps the skillset of our existing board membership againstthe likely tenure of individual directors. This is viewed against the potentialdemands placed on the board due to developments in our strategy andbusiness activities. Further detail of the current skillset of the board andthe skills/competencies that the nomination committee has prioritized forfuture non-executive director appointments is outlined in the report of thenomination committee later in this section.Full biographies of our board members can be found on ourwebsite.Succession: board and committee membershipSince the beginning of 2011, the following changes have taken place to thecomposition of the board:• Phuthuma Nhleko joined the board as a non-executive director on1 February 2011.• Dr DeAnne Julius and Douglas Flint retired from the board at the AGM inApril 2011.• Dr Brian Gilvary joined the board as an executive director and chieffinancial officer (CFO) on 1 January 2012.• Andrew Shilston joined the board as a non-executive director on1 January 2012.• Professor Dame Ann Dowling joined the board as a non-executivedirector on 3 February 2012.Dr Byron Grote stepped down as CFO at the end of 2011 but will remainon the board as an executive director during 2012, with responsibility forBP’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’sAGM and will retire from the board at the meeting. Andrew Shilstonwill succeed Sir William as the senior independent director from the2012 AGM and will be available to shareholders who have concerns thatcannot be addressed through normal channels. He will work closely with120 BP Annual Report and Form 20-F 2011