BP 2007 Annual Report Download - page 79

The chairman and senior independent director
BP’s board governance principles require that neither the chairman nor
the deputy chairman is employed as an executive of the group. During
2007, the posts were held by Mr Sutherland and Sir Ian Prosser
respectively. Sir Ian also acts as BP’s senior independent director and is
available to shareholders who have concerns that cannot be addressed
through normal channels.
The chairman is responsible for leading the board and facilitating its
work. He ensures that the governance principles and processes of the
board are maintained and encourages debate and discussion. The
chairman also leads board performance appraisals. He represents the
views of the board to shareholders on key issues, not least in succession
planning for both executive and non-executive appointments.
Shareholders’ views are fed back to the board by the chairman.
The company secretary reports to the chairman and has no executive
functions. His remuneration is determined by the remuneration
committee.
Between board meetings, the chairman has responsibility for ensuring
the integrity and effectiveness of the relationship with executive
management. 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 and all the non-executive directors meet periodically as
the chairman’s committee. The performance of the chairman is evaluated
each year, with the evaluation discussion taking place when the chairman
is not present. The BP board governance principles require that the board
develop and maintain a plan for the succession of both the chairman and
the deputy chairman.
Board committees
The board governance principles allocate the tasks of monitoring
executive actions and assessing performance to certain board
committees. These tasks prescribe the authority and role of the board
committees.
Reports for each of the main board committees follow. 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 independent of the executive management of the group.
Audit committee report
Membership
The audit committee consists solely of independent non-executive
directors who have been selected to provide a wide range of financial,
international and commercial expertise appropriate to fulfil the
committee’s duties.
Members of the audit committee throughout the year were Sir Ian
Prosser (chairman), Douglas Flint, Erroll Davis, Jr and Sir William Castell.
John Bryan was a member until his retirement in April 2007. Support is
provided by the committee secretary, David Pearl (deputy company
secretary).
The board has determined that Douglas Flint possesses the financial
and audit committee experience, as defined by the Combined Code
guidance and the SEC, and has nominated him as the audit committee’s
financial expert.
Meetings and attendance
The audit committee met 14 times during 2007.
At the request of the audit committee chairman, each meeting is
attended by the lead partner of the external auditors (Ernst & Young).
From BP, the group chief financial officer, the general auditor (head of
internal audit), the chief accounting officer and the deputy chief financial
officer also attend each meeting by invitation. Private sessions without
executive management present are held regularly.
Role and authority of the audit committee
The audit committee monitors the observance of the executive
limitations relating to financial matters and does this on behalf of
the board.
BP’s board governance principles set out the main tasks and
requirements for each of the board committees. Key tasks for the audit
committee include gaining assurance on the integrity of the group’s
reports, accounts and financial processes and reviewing the
management of financial risks and the internal controls designed to
address them. The audit committee believes that the tasks outlined
in the board governance principles meet each of the tasks and
activities outlined by the Combined Code as falling within the remit
of an audit committee.
Agendas
The audit committee uses a forward agenda at the start of each
year to establish an initial work programme. This is compiled using a
combination of regular items (including those required by regulation) and
items that reflect a current review of the group’s risks. The forward
agenda also includes regular meetings during the year with both the
external and internal auditors in private sessions where members of
executive management are not present.
During the year, the committee chairman reviews any issues that
may arise with the group chief financial officer, the external auditors and
the BP general auditor and will add items to the next meeting
agenda where appropriate.
Information
Information on audit committee agenda items are received from both
internal and external sources, including Ernst & Young, the general
auditor and the chief financial officer. The committee receives
presentations from a wide cross-section of BP’s business and financial
control management, with the attendance of additional Ernst & Young
partners, if appropriate, to a particular business or functional review.
The audit committee is able to access independent advice and counsel
when needed, on an unrestricted basis. Further support is provided to
the committee by the company secretary’s office and during 2007
external specialist legal and regulatory advice was provided by Sullivan &
Cromwell LLP.
The board is kept informed of the activities of the committee and any
issues that have arisen through the regular report given by the audit
committee chairman after each meeting. Minutes of the committee are
circulated to all board members.
Training
A programme has been developed with the committee to enable
committee members to update their skills and knowledge with regard to
the financial issues that may impact BP, for example on developments in
financial reporting and changes to financial standards.
Committee activities in 2007
Financial reports
During the year, the committee reviewed all financial reports before
recommending their publication to the board.
Internal controls and risk management
In 2007, the audit committee reviewed reports on risks, controls and
assurance for the BP business segments (Exploration and Production and
Refining and Marketing), together with gas, shipping, BP Alternative
Energy and BP’s trading function. A monitoring review was also carried
out on the performance of major BP projects against their original
sanctioned investment.
A joint meeting with SEEAC was held in early 2007 to review
the general auditor’s report on internal controls and risk management;
a further joint meeting took place in early 2008 on the same theme.
The committee discussed key regulatory issues during the year as
part of its standing agenda items, including a quarterly review of the
company’s evaluation of its internal controls systems as part of the
requirement of Section 404 of the Sarbanes-Oxley Act. The effectiveness
BP ANNUAL REPORT AND ACCOUNTS 2007 77