BP 2005 Annual Report Download - page 163

demonstrate the requisite commitment to discharge effectively their
duties to BP. The nomination committee keeps the extent of directors’
other interests under review to ensure that the effectiveness of our
board is not compromised. The board attendance table on page 160
illustrates our directors’ commitment to the work of the board.
Evaluation The board continued its ongoing evaluation processes to
assess its performance and identify areas in which its effectiveness,
policies or processes might be enhanced. A formal evaluation of board
process and effectiveness was undertaken, drawing on internal
resources. Individual questionnaires and interviews were completed;
no individual performance problems were identified. The results
showed an improvement from the previous evaluation, particularly
in board committee process and activities, while also identifying areas
for further improvement.
Regular evaluation of board effectiveness underpins our
confidence in BP’s governance policies and processes and
affords opportunity for their development.
Separate evaluations of the remuneration, ethics and environment
and audit assurance committees took place during the year. The use
of external providers in the context of board evaluation is being kept
under review.
THE CHAIRMAN AND SENIOR INDEPENDENT DIRECTOR
BP’s board governance policies require that neither the chairman
nor deputy chairman are to be employed executives of the group;
throughout 2005 the posts were held by Mr Sutherland and Sir Ian
Prosser respectively. Sir Ian also acts as our senior independent
director and is the director whom shareholders may contact if they
feel their concerns are not being addressed through normal channels.
Between board meetings, the chairman has responsibility for
ensuring the integrity and effectiveness of the board/executive
relationship. This requires his interaction with the group chief
executive between board meetings, as well as his contact with
other board members and shareholders. The chairman represents
the views of the board to shareholders on key issues, not least in
succession planning issues for both executive and non-executive
appointments. The chairman and all the non-executive directors
meet periodically as the chairman’s committee (see report on
pages 162-163). The performance of the chairman is evaluated each
year at a meeting of the chairman’s committee, for which item of
business he is not present. The company secretary reports to the
chairman and has no executive functions.
BOARD COMMITTEES
The governance process policy allocates the tasks of monitoring
executive actions and assessing performance to certain board
committees. These tasks, rather than any terms of reference,
prescribe the authority and the role of the board committees.
Reports for each of the committees for 2005 appear below.
In common with the board, each committee has access to
independent advice and counsel as required and each is supported
by the company secretary’s office, which is demonstrably
independent of the executive management of the group.
AUDIT COMMITTEE REPORT
Schedule and composition The committee met 12
times during 2005 and comprised the following directors:
Sir Ian Prosser (chairman), J H Bryan, E B Davis, Jr,
D J Flint, H M P Miles, M H Wilson.
All members of the audit committee are independent non-executive
directors. Together, the audit committee members continue to have
the recent and relevant financial experience required to discharge the
committee’s duties. Following his appointment to the committee this
year, the board satisfied itself that Mr Flint as an individual possesses
the financial experience identified in the Combined Code guidance.
The external auditors’ lead partner, the BP general auditor (head
of internal audit), together with the group chief financial officer, the
chief accounting officer and the group controller, attend each meeting
at the request of the committee chairman. During the year, the
committee meets with the external auditor, without the executive
management being present, and also meets in private session with
the BP general auditor.
Role and authority The audit committee’s tasks are considered by
the committee to be broader than those envisaged under Combined
Code Provision C.3.2. The committee is satisfied that it addresses
each of those matters identified as properly falling within an audit
committee’s purview. The committee has full delegated authority
from the board to address those tasks assigned to it. In common
with the board and all committees, it may request any information
from the executive management necessary to discharge its functions
and may, where it considers it necessary, seek independent advice
and counsel.
Process The committee structures its work programme so as to
discharge its tasks, which include systematic monitoring and obtaining
assurance that the legally required standards of disclosure are being
fully and fairly observed and that the executive limitations relating
to financial matters are being observed. Forward agendas are set
each year to meet these requirements and to allow the committee
to monitor (and seek assurance on) the management of the
financial risks identified in the company’s annual business plan.
The committee chairman reports on the committee’s activities to
the board meeting immediately following a committee meeting.
Between meetings, the committee chairman reviews emerging
issues as appropriate with the group chief financial officer, the
external auditor and the BP general auditor. He is supported in this
task by the company secretary’s office. During the year, external
specialist legal and regulatory advice has also been provided to
the committee by Sullivan & Cromwell LLP.
Activities in 2005 Financial reports During the year, the
committee reviewed all annual and quarterly financial reports before
recommending their publication on behalf of the board. In particular,
the committee reviewed the implementation of International
Financial Reporting Standards and their impact on the group’s
financial results and the restatement of comparative information.
The committee discussed and constructively challenged judgements
related to critical accounting policies and estimates drawing on
prepared reports, presentations and independent advice from the
external auditors.
Internal control and risk management During the year, specific
reports on risk management and internal control were reviewed
for the exploration and production, refining and marketing, and gas,
power and renewables segments, along with the controls and
systems underpinning the trading functions that service all BP’s
businesses. Reviews were undertaken of the reporting interface
between the group and TNK-BP and of the planned disposal of
the Innovene petrochemicals business. On a quarterly basis, the
committee also monitored the company’s progress in evaluating its
internal controls in response to applicable requirements of Section 404
of the US Sarbanes-Oxley Act of 2002. Regular advice was also
provided by the internal audit function, including an annual assessment
of the effectiveness of the company’s enterprise level controls.
Special topics considered during the year included capital project
selection processes, the assessment of environmental and litigation
provisions and accounting for long-term contractual commitments.
BP Annual Report and Accounts 2005 161