BP 2009 Annual Report Download - page 71

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Board performance report
I am pleased to have this opportunity to report to you on the work of the
BP board over the last year.
I joined the board as a non-executive director in September 2009
and took the chair on 1 January 2010 upon the retirement of Peter
Sutherland. Peter has reviewed this letter and I, of course, have had the
benefit of the views of my board colleagues on its content.
This is a particularly interesting time for me to take the chair at BP.
In the past months we have seen the reports of Sir David Walker and the
Financial Reporting Council (FRC), to which we have contributed. The way
in which boards work has again been in the spotlight. There are a number
of lessons that all boards can learn from the events of 2008 and 2009.
Both these reports have focused on the need for appropriate behaviours
around the board table and for governance not to be regarded as solely
relating to compliance. This is a view which BP has taken for some time
and which I fully endorse.
I have been impressed by BP’s commitment to the highest
standards of corporate governance. Governance describes all that a board
does – a point which has been reinforced by the FRC’s draft revised
Combined Code. It is vital that a board balances the time that it spends
between strategy and oversight. From early indications, I believe that the
BP board achieves this balance well.
The board is responsible for the direction and oversight of
BP p.l.c. on behalf of shareholders; it is accountable to them,
as owners, for all aspects of BP’s business. It sets the tone from the top.
In conducting its business, BP needs to be responsive to other
constituencies with whom it comes into contact.
Governance framework
Clarity of roles and responsibilities, and the proper utilization of distinct
skills and processes lie at the heart of the board’s role. The BP board
governance principles (‘principles’) are the framework within which the
board operates.
This framework sets out the role of the board, its processes,
its relationship with executive management and the main tasks and
requirements of the board committees. The board’s core activities
include:
• The active consideration of long-term strategy.
• The monitoring of executive action and the performance of BP.
• Obtaining assurance that the material risks to BP are identified and
that systems of risk management and control are in place to mitigate
such risks.
• Ongoing board and executive management succession.
The principles can be seen on BP’s website at www.bp.com/governance.
The board delegates authority for executive management of the company
to the group chief executive. This delegation is subject to a clearly defined
set of executive limitations which are monitored by the board. The
executive limitations require the group chief executive to take into
consideration specific issues in the course of business – these include
key risk areas such as health, safety and environmental matters and
generally ensuring that BP’s reputation is maintained. The group chief
executive is also responsible for ensuring there is a comprehensive
system of controls to identify and manage the risks that are material
to BP.
The board keeps this framework under regular review and tests
its effectiveness through the annual board evaluation.
BP Annual Report and Accounts 2009
Board performance and biographies
Board performance and biographies
Board activities in 2009
The board’s work reflects the tasks described above, namely strategy,
risk and the oversight of the company’s performance and operation of
the system of delegation.
The board endeavours to balance its work so that these tasks are
achieved either through the work of the board or its committees. At the
start of each year, the board reviews and agrees a forward workplan
based upon:
• The need for the board to be involved in strategy development and
the oversight of risk.
• Annual reviews of the two business segments and of the corporate
business and functions which includes Alternative Energy.
• Oversight of risk generally and specifically those risks identified
through the annual plan (the board will decide which risk issues will
be considered by the whole board and which will be delegated to the
committees with appropriate reporting to the board).
• Consideration of quarterly and annual corporate reporting
documentation.
In determining its programme the board has to allow sufficient time for
urgent issues to be accommodated. The board will meet by telephone
should circumstances dictate.
The board now holds one of its meetings at the company’s
offices in Washington and will meet at other locations when appropriate.
In 2009, the board met in Long Beach, California and used this
opportunity to visit the company’s businesses in the West Coast fuels
value chain and to learn about the research taking place into biofuels.
An analysis of the time spent by the board during 2009 is shown below:
Board activities
Approximate allocation of agenda time in 2009*
20%
20%
41%
11%
4%
4%
GCE and executive director updates,
business reviews (including safety)
Strategy and risk
Country specific reports (including safety)
Functional reviews
Financial and corporate reporting
Other matters *Excludes time spent on site visits.
Strategy and risk
While strategic issues are normally discussed at the two dedicated away
day sessions, the development of the group’s business over the year has
meant that strategic issues have been actively considered at a number of
meetings. Strategic and geopolitical challenges, together with the
associated risks are at the core of the group’s business.
The business and competitive environment, the global economic
outlook, the impact of the price of oil, the issues raised by carbon policy,
the technological challenges and strengths of the group were all matters
which the board kept under review.