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

Corporate governanceCommittee’s roleThe committee is comprised of the chairman and all the non-executivedirectors.The main tasks of the committee are:• Evaluating the performance and effectiveness of the group chiefexecutive.• Reviewing the structure and effectiveness of the business organizationof BP.• Reviewing the systems for senior executive development anddetermining the succession plan for the group chief executive, executivedirectors and other senior members of executive management.• Determining any other matter which is appropriate to be considered byall of the non-executive directors.• Opining on any matter referred to it by the chairman of any committeecomprised solely of non-executive directors.Committee activitiesThe committee held private discussions between the non-executivedirectors during the year on key issues for the group, including its strategicdirection, activities in Russia and risk management.The chairman’s committee worked closely with the nominationcommittee in matters around executive and non-executive succession,in particular the succession of the chief financial officer (CFO) and inredefining the roles of the CFO and executive director for corporatebusiness activities. It was agreed that outgoing CFO Byron Grote wouldstay on the board as an executive director with responsibility for BP’scorporate business activities, including its integrated supply and tradingoperations, Alternative Energy, shipping, technology and remediationactivities.The committee evaluated the performance of the group chiefexecutive at the half year and the full year. It reviewed succession planningwithin the group and discussed the structure of the senior executive team.The outcomes of the main board evaluation were discussed withinthe chairman’s committee. The committee also reviewed the skills of theboard and discussed what would be needed to meet the challenges of thecompany’s strategy. Issues of governance around committees and theircomposition were examined. Led by the senior independent director, thecommittee evaluated the performance of the chairman as part of BP’sannual evaluation programme for the board and its directors.Facilitated by the senior independent director, the committee metto discuss an approach to the chairman by the Volvo Group to becometheir part-time, non-executive chairman. The discussion was held withoutthe presence of the chairman and considered the time commitment of thisadditional role, given that Carl-Henric Svanberg would be stepping downfrom his existing non-executive directorship at Ericsson before taking onthe potential position at Volvo. The committee concluded it was supportiveof the chairman taking on this additional role.Risk management and internalcontrol reviewIn discharging its responsibility for the company’s risk management andinternal control systems under the UK Corporate Governance Code, theboard, through its governance principles, requires the group chief executiveto operate with a comprehensive system of controls and internal auditto identify and manage the risks that are material to BP. The governanceprinciples are reviewed periodically by the board and are consistent withthe requirements of the UK Corporate Governance Code including principleC.2 (risk management and internal control).The board has an established process by which the effectivenessof the system of internal control (which includes the risk managementsystem) is reviewed as required by provision C.2.1 of the UK CorporateGovernance Code. This process enables the board and its committeesto consider the system of internal control being operated for managingsignificant risks, including strategic, safety and operational and complianceand control risks, throughout the year. Material joint ventures andassociates have not been dealt with as part of the group in this process.As part of this process, the board and the audit, Gulf of Mexicoand safety, ethics and environment assurance committees requested,received and reviewed reports from executive management, includingmanagement of the business segments, divisions and functions, at theirregular meetings.In considering the systems, the board noted that such systems aredesigned to manage, rather than eliminate, the risk of failure to achievebusiness objectives and can only provide reasonable, and not absolute,assurance against material misstatement or loss.During the year, the board, through its committees, regularlyreviewed with executive management processes whereby risks areidentified, evaluated and managed. These processes were in place for theyear under review, remain current at the date of this report and accordwith the guidance on the UK Corporate Governance Code provided by theFinancial Reporting Council. In December 2011, the board considered thegroup’s significant risks within the context of the annual plan presented bythe group chief executive.A joint meeting of the audit and safety, ethics and environmentassurance committees in February 2012 reviewed a report fromthe general auditor as part of the board’s annual review of the riskmanagement and internal control systems. The report described the annualsummary of internal audit’s consideration of elements of BP’s system ofinternal control over significant risks arising in the categories of strategic,safety and operational and compliance and control and considered thecontrol environment for the group. The report also highlighted the resultsof audit work conducted during the year and the remedial actions taken bymanagement in response to significant failings and weaknesses identified.During the year, these committees engaged with management, thegeneral auditor and other monitoring and assurance providers (such as thegroup ethics and compliance officer, head of safety and operational risk andthe external auditor) on a regular basis to monitor the management of risks.Significant incidents that occurred and management’s response to themwere considered by the appropriate committee and reported to the board.Subject to determining any additional appropriate actions arisingfrom items still in process, the board is satisfied that, where significantfailings or weaknesses in internal controls were identified during the year,appropriate remedial actions were taken or are being taken.In the board’s view, the information it received was sufficient toenable it to review the effectiveness of the company’s system of internalcontrol in accordance with the Internal Control Revised Guidance forDirectors (Turnbull).Corporate governanceBP Annual Report and Form 20-F 2011 133