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

Corporate governancethe audit programme proposed each year, the committee looks atwhether it believes key risks facing the company have been appropriatelyaddressed. The programme for 2011 was approved by the committee inJanuary 2011.The general auditor met privately with the committee once during the year,without the presence of executive management or the external auditors.This is complemented by regular meetings with the committee chairbetween meetings.The committee reviewed with the general auditor the number andexpertise of his team’s staff resources. The internal audit function providesa source of skilled staff to many parts of the company and to maintain itsresources the general auditor recruits from both inside the company – tobring in deep business expertise into the team – and externally – to bringprofessional auditing skills. The committee has sought assurance thatthese resources are sufficient to fulfil the function’s role, and the generalauditor has undertaken benchmarking work with other major companies inthe industry. In addition, an external review on internal audit effectivenesshas been undertaken in 2012. This review concluded that BP had aneffective internal audit function that compared favourably with othercomplex and industry equivalents.During 2011 the committee was satisfied that internal audit hadthe appropriate access it required to information and that management hadcommitted to the provision of that information and had responded to theresults of audit findings in a timely manner.Other activitiesThe committee monitors fraud and misconduct through quarterly updatesfrom the general auditor and any non-compliance with the BP code ofconduct through quarterly reports by the group ethics and complianceofficer. Actions arising are monitored to close out. The annual certificationreport of compliance with the code of conduct, which is signed by thegroup chief executive, is also reviewed by the committee.The company’s employee concerns programme OpenTalk hasbeen adopted by the committee for whistle-blower monitoring, and allfinancial issues that have been flagged are reviewed by the committee.The quarterly reports the committee receives track trends in both the casetype and time taken to close out queries and reports.Committee evaluationEach year the audit committee examines its performance andeffectiveness, and ensures that its tasks and processes remainappropriate. In 2011, the committee used an internally-designedquestionnaire administered by external consultants. The same questionset was used as in 2010 so that any trends could be identified. Key areascovered included the clarity of its role and responsibilities, the balanceof skills among its members and the effectiveness of reporting its workto the board. Specific areas identified for focus in 2012 included trading,provisioning and the effectiveness of internal audit. Regarding process,members noted that fulfilling the committee’s remit had led to lengthymeetings, but at the same time they recognized a wish to extend deepdives into specific topics. The committee noted that, in areas of commoninterest such as compliance and ethics, it needed to continue to workclosely with the SEEAC. It also commented on the need for pre-readpapers to be well focused to ensure best use of agenda time. Overall thecommittee considered it had the right composition in terms of expertiseand had effectively undertaken its activities and reported them to the boardduring the year.Safety, ethics and environment assurance committee(SEEAC)Chairman’s introductionWhilst the Gulf of Mexico committee, as reported elsewhere in thisdocument, has focused its work on the company’s restoration activitiesin the Gulf area and on oversight of ongoing litigation, the SEEAC spentconsiderable time over the past year monitoring the group’s response tothe 26 recommendations that were made in BP’s investigation report (theBly Report) into the tragic incident in April 2010. Our role has been to seekassurance on behalf of the board that each of those 26 recommendationsis being pursued globally with pace and commitment. We have receivedprogress reports at each of our meetings and made visits to meet keymembers of the teams in the exploration and production and S&ORorganizations that are leading these changes. This included visiting anoffshore platform to get closer to the front line, two in-depth discussionswith managers in the Houston office and participating in management’swells inspection programme. We have put fresh emphasis on getting adeeper perspective into the organization. In part we have achieved thisthrough individual committee members undertaking visits and meetingstaff outside the boardroom environment and then reporting back to thecommittee at the first opportunity. We believe this approach both deepensour collective understanding of risk and of management’s controls, andenables us to make more informed, and hence more valuable, challenges.We have endeavoured to follow this approach to all of our work undertakenthroughout 2011. As always, for a committee reviewing management’sassessment and mitigation of non-financial risk, this work has extendedto a wide range of topics. The report below provides more detail but wewould highlight our reviews of risks and risk management in pipelines,shipping and drilling. We have also taken a deeper look at risks in ourpetrochemicals business, including a visit by three members of thecommittee to the company’s paraxylene manufacturing facility in Texas.We have continued to be very well served by L. Duane Wilson’sindependent perspective of the company’s response to the ‘BakerPanel’ recommendations following the fire and explosion at the TexasCity refinery in 2005. We will shortly be appointing a highly experiencedindividual to report independently to SEEAC on the implementation of theBly Report recommendations.Overall this has been a year of significant change which will taketime to fully embed but we believe we have observed real and enduringprogress.In February 2012 we welcomed to the committee Professor DameAnn Dowling who brings deep experience in technology and engineering.We concluded during the year it would be appropriate for theSEEAC chairmanship to transfer to Paul Anderson once the restructuringand reorganization within the company was largely established. Thisintroduction to the committee’s report is therefore written by both ofus. We share the same commitment to monitor closely, and provideconstructive challenge to, management in its drive for safe and reliableoperations at all times. We believe that the extensive breadth and depth ofcommittee members’ experience will serve us well in the endeavour whichis so central for a company whose business encompasses the productionand distribution of hazardous materials.Paul AndersonSir William CastellChairman (from December 2011) Chairman (to December 2011)Committee membersPaul Anderson – committee chair (from 9 December 2011)Sir William Castell – committee chair (to 8 December 2011)Frank BowmanAntony BurgmansCynthia CarrollProfessor Dame Ann Dowling (from 3 February 2012)Committee role and structureThe role of the SEEAC is to look at the processes adopted by BP’sexecutive management to identify and mitigate significant nonfinancialrisk, including monitoring process safety management, andreceive assurance that they are appropriate in design and effective inimplementation.The committee met nine times in 2011 including a joint meetingwith the audit committee at which the general auditor’s report on internalcontrol and risk management systems for the year was reviewed inpreparation for the board’s report to shareholders in the annual report. Inthat joint meeting the committees reviewed the internal auditor’s auditprogramme for the year ahead to ensure both committees endorsed thecoverage. SEEAC also reviewed the planned work of the S&OR auditfunction and noted an enhanced focus on integrating audit work across thecompany. The SEEAC and audit committee worked together, through their128 BP Annual Report and Form 20-F 2011