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

Corporate governanceDame Ann Dowling, BP currently has two female board members,equating to 12.5% of our directors.The board has agreed a board diversity policy which will beincluded in our board governance principles. The policy states that whenconsidering the composition of the board, directors will be mindful ofdiversity, inclusiveness and meritocracy. As part of its workplan for thisyear, the nomination committee will develop and agree a set of measurableobjectives for implementing this policy and report back on these toshareholders.Induction and board learningOn joining BP non-executive directors are given a tailored inductionprogramme. This programme includes one-to-one meetings with seniormanagement, our auditors and site visits to our operations. The inductionwill also cover the board committees that a director will join. An example ofthe initial induction programme for one of our recently joined non-executivedirectors is set out below.Director induction programmeBoard and governance• BP’s board governance model, directors’ duties, interests and potentialconflicts.• Committee induction.• Strategy and planning.• Group investor event on governance and board activities.BP’s business• History of the integrated oil company and BP.• Upstream (exploration, development, production, overview of ouroperations).• Refining and Marketing.• Alternative Energy.Functional input• Controls, external auditors and internal audit.• Finance and corporate reporting.• HR.• Legal.• Ethics and compliance.• Safety and operational risk (S&OR), BP’s operating managementsystem (OMS) and environmental performance.• Research and technology.• Engineering.We continue the board’s learning through board and committee events.At our May 2011 board meeting in Houston, we ran a day-long eventto give our non-executive directors an insight into how BP managesits learning and capability development, including briefings on seismicinterpretation, the company’s technical education programme and trading.Non-executive directors are expected to attend at least one site visit peryear. During 2011, such visits included Texas City and Whiting refinerieswith the independent expert, L. Duane Wilson, an offshore visit to the Gulfof Mexico, visits to global wells organization leadership teams in the Gulfof Mexico and the North America gas business, our business centre inBudapest and BP’s offices in Houston and Canary Wharf. During the yearour chairman visited BP’s operations in Alaska and our oil sands projects inCanada.Board effectivenessBoard evaluationWe undertake an annual review of the board, its committees and individualdirectors. The chairman undertakes the evaluation of individual directors,with the chairman’s own performance evaluated by the chairman’scommittee (led by the senior independent director).In 2009 and 2010, we undertook an external review of the board’sperformance. In 2011, we decided to continue external facilitation as away of building on the past year’s results and providing a robust, thirdpartyinsight into the board’s effectiveness. To enable continuity andcomparability of results over the two year period, we used the sameexternal facilitator as for the 2010 review.Evaluation process for 2011• Each director (with the exception of those appointed in 2012) was sent aquestionnaire and a list of discussion topics.• The facilitator held one-to-one reviews with each participating director,using the questionnaire and discussion topics as a starting point.• Each committee held its own review using online questionnaires thatwere developed by us using an externally generated question bank. Theresults from these questionnaires were then discussed with the externalfacilitator by each committee (these are outlined in the reports of ourcommittees).• A paper on the key themes and views from the one-to-one reviews andthe evaluation of the committees were sent to the board to review.• The board held a discussion with the external facilitator to assess theseviews and the issues raised.• The board agreed on actions for the forthcoming year based on thisdiscussion.Key conclusions of the 2011 evaluationThe review concluded the board had operated well in 2011. It had beenan eventful year and the board continues to deal with events fromthe Gulf of Mexico. There was a strong view that the board had anopen and transparent style of discussion, with good engagement andcontribution from all members, particularly around strategic planning andrisk management. The board also considered that its focus, disciplineand follow through had strengthened over the year, which was seen asimportant given the events of the previous 18 months and the volume ofissues dealt with by the board. It hoped to continue this trend in 2012.The review also found that there was potential for continuousimprovement in areas such as board materials (including the length ofpapers) and agendas, and that as the board endeavours to move backinto a ‘steady state’ of operation, it would need to revisit its collectiveexpectation around governance processes and style.Tracking issues from our previous evaluationOver 2011, the board acted upon the recommendations from the 2010board evaluation. The board determined to conduct additional site visitsand participate in detailed briefings in order to gain further insight into thecompany’s operations and activities – which it achieved through an activeprogramme over the year attended by individual or groups of directors. Theboard set up a working group to review and revise the company’s boardgovernance principles to ensure that BP’s governance processes wereeffective. The board also reviewed BP’s crisis and continuity plan, includingspecific focus on the process through which board involvement is triggeredas part of its action to clarify the board’s role in the crisis planning process.Finally, the board had extensive engagement with executive managementin forward-looking strategy discussions and an overview of BP’s riskmanagement systems.Risk management: from operations to the boardOne of the board’s tasks is to satisfy itself that the material risks to BPare identified and understood and that systems of risk management,compliance and control are in place to mitigate such risks. The board,through its governance principles, requires the group chief executive tooperate with a comprehensive system of controls and internal audit toidentify and manage the risks that are material to BP. Authority for thedesign and implementation of this system of internal control is delegatedby the board to the group chief executive. Components of our systemof internal control (which includes the risk management system) aremanagement systems, organizational structures, processes, standards andbehaviours employed to conduct the business of BP.122 BP Annual Report and Form 20-F 2011