BP Corporate Governance

BP Corporate GovernanceThe concept of somatic cheek is the system by which task locoweed atomic number 18 directed and controlled. The three main aspect of good collective government activity are seen in shareholder right, transparency and menu scotchability. (Corporate governance by Alan Calder 2008).Definition Corporate governance is concerned with holding the poise between economic and social goal and between individual and common goal and show is to align as nearly as possible the interests of individual, corporation and society (Sir Adrian Cadbury, 1999).Using the British Petroleum case, we develop a model of efficient collective governance addressing tout ensemble facets of the society in which corporations exist such as economic, ethical, political, and social. These facets determine the norms by which corporate decisions are judged. Without incorpo judge every facet into decisions, companies get out last fall short and comp all just cant do the things in profit motive by sacrificing the moral and ethical issuesBritish Petroleum failed in averting the Mexico oil spill due to lack of coordination between board and chairman and interlacing all the facets of society in the corporate decision qualification process. This also-ran contributed to the mis way of the company by a relatively detached board of conductors who failed to assimilate high ethical management standards into the foundation of decision devising process. This model developed here entrust help companies in addressing the sequester system of corporate governance which serves as a foundation to avert failure through the practice of high ethical patterns of behavior which are needed to survive in the modern business world.Case analysis and discussionBy late 2010,the British Petroleum has become a cause clbre amongst those concerned with corporate governance and particularly with the social, ethical and environmental responsibilities of business In the 21st century, corporate governance has become critical for medium and large organisation. The organization which fallows corporate guidelines strategy performs well than compa exit to organization which does not baffle to the guidelines. Corporation hightail it with governance framework which is first set by law and then by regulation emanating from the regulatory bodies to which they are subject.The chairman and jurys of directors are responsible for the Mexico disaster as they not properly scrutinised the outsourcing to the partner and we call as leadership failure. The responsibilities of the board admit setting the companys strategic aims, providing the leadership to firmise them into effect, supervising the management of the business and reporting to shareholders on their stewardship. It will be critically analyses the corporate governance social system of British Petroleum and its related issues regarding the corporate social responsibility.British Petroleum Corporate Governance structureBoard structureBritish Petroleum Board fallows unitary board structure, characterized by oneness single board comprising both administrator and non executive directors. The unitary board is responsible for all aspects of the company activities and all the directors are working to achieve the aforementioned(prenominal) ends. The shareholders elect the directors to the board at the company annual everyday meeting.The Board of British Petroleum focuses more on Agency theory which take into account of principle- agent framework. The work of Jensen and Meckling (1976) in particular, and of Fama and Jensen (1983), are associated with this Agency theory (Corporate governance -Christine A Mallin).In Agency Theory, in the context of corporation and issues of corporate control, manner theory views corporate governance mechanisms, especially the board of directors as agent to monitor the functioning of management or the corporation. The focus of the theory is on throw proper incentives measur e and implementing those incentives and monitoring the performance. Economic performance is vital, and increasing shareholder value is deemed good. Agency theory, however, is not able to address the issues of non-direct shareholder interests such as political pressures and societal expectations from firms such as British PetroleumThe corporate governance structure of a firm should picture the medium of norms and best practices which balance the needs of all stakeholders of the firm. Therefore, the model of corporate governance structure for firms moldiness implicate economic, political, social and ethical norms for decision making in order for firms to elevate and retain legitimacy which leads to resources and survival.British Petroleum Plc board governing principle is as fallows.The BP Board is responsible for the direction and oversight of BP plc (BP) on behalf of the shareholders and is accountable to them, as owners, for all aspects of bits per second business. The Board reco gnize that in conducting its business, BP should be receptive to other pertinent constituencies.British Petroleum believes that good corporate governance involves to predicate the role and responsibilities and the proper utilisation of distinct skills and processes. The Board on that pointfore focuses on activities that enable it to promote shareholders interests, such as the consideration of long-term strategy, the monitoring of executive action, and ongoing Board and executive management succession. The board gives clear guide lines for the allocation of authority for the executive management of BP through the group Chief executive (GCE) and these can be seen in the Governing principleThe BP GoalThe Goal of British petroleum is to maximize the shareholders value by investing the resources to activities in the oil, inwrought gas, petrochemical and energy business.The role of the BoardThe Board is collectively responsible for pursuing the BP Goal and is accountable to sharehold ers for all the actions of BP. The Boards role is to govern BP by discharging its sole responsibilities, which involveFocus primarily on strategic issuesRegard to economic, political and social issues and any other relevant externalMatters which may influence or shanghai the development of BPs business andExemplify through these Board Principles and its expectations for the conduct of the BP business and its employees.The Board and its processesThe Board will take into say-so and seek to entertain the view of the shareholder as a whole, the board will decide the agenda for the financial year and these will be done with consultation of chairman, general header executive and company secretary. Discussion at Board meetings will be open and constructive and the record will be kept confidential, unless there is a item decision or legal requirement to make disclosure.The entire director can obtain independent professional advice relating to directors own responsibilities and the p ersonal business of BP.Board Composition and CompensationComposition, Size, Independence and TenureThe Board comprise a experienced individuals with appropriate range of knowledge and working principle inExperience in dealing with strategic issues and long-term perspectivesLeadership experience, a superior knowledge of business principles and capacityIndependent thoughtAbility to move constructively in deliberations andWillingness to exercise authority in a collective manner.The director are elected annually by shareholder and half of director excluding the chairman, are non-executive director.Board and Director EvaluationThe Board will evaluate its own working condition and performance including the work of its directions and this is done to keep the ability of the board. The performance and contribution of individual directors as members of the Board will be reviewed periodically, with the electric chairs performance being reviewed annually. The non executive will monitor the work of General chief Executive, the performance of theExecutive directors will be monitored by the GCE and Non-Executive directors.Board Induction and EducationAll the directors will be given induction and training program for enable them to fulfil their responsibilities as directors, all the directors especially non-executive directors are prepared give sufficient time for the discharge of their BP responsibilities. The board will be kept informed by the directors through company secretary. The Nomination Committee will keep under review the commitments of Non-Executive directors and make recommendations to the Board if the Committee concludes that a directors other commitments are inconsistent with those required by BP.Role of the ChairmanThe Chairman will the leader of the board and act as facilitator, and has authority to act and cover for the board meeting on matter relating to the board principle. The Chairman is empowered to make any decision, establish any policy, take an y action or enter into any obligation which is consistent with the Board Principles. and, in so doing, may interpret the Board Principles in any reasonable manner. The Chairman will ensure that systems are in place to provide directors with accurate, timely and clear information to enable the Board to consider properly all matters before it. The Chairman is responsible for ensuring the integrity and effectiveness of the Board Principles.The chairman role is clearly followed as per Sir Adrian Cadbury observation the primary task of chairman is to chair the board. This is the work they ease up been appointed to do and, however the duties at the top of the company may be divided. Chairing the board is their responsibility alone (p. 78). He clear highlights an important diversion between chief executive officers and chairman.This principle is adhered by the British Petroleum as per Sir Adrian Cadbury statement on chairman.Role of the Deputy ChairmanThe Deputy Chairman will coquet as role of chairman in his absence and deputy Chairman normally serve as the Boards Senior Independent Director and will be accessible to shareholders who have concerns that cannot be addressed through normal channels.The Company SecretaryThe company secretary is selected by the nomination committee and all the board members have access to the advise and service of company secretary.The Company Secretary is responsible for advising the Board and the Committees onall governance matters, ensuring that Board procedures are followed, that the relevant laws and regulations for the conduct of the affairs of the Board are complied with and for all matters associated with the maintenance of the boardBoard CommitteesThe Board consists of permanent committee which are asThe Chairmans Committee,Safety, Ethics and surround Assurance Committee (SEEAC),Remuneration Committee,Audit Committee,Nomination CommitteeChairmans Committee be of chairman and all non-executive Directors and it work include valuate the performance and the cleverness of the GCE go over the structure and systems for senior executive development and determine the succession plan for the GCE, the Executive directors and other senior membersof executive managementDetermine any other matter which is appropriate to be considered by all of theNon-Executive directorsSafety, Ethics and Environment Assurance Committee consist of four to six Non-Executive Directors and it work includeMonitor and obtain assurance that the management or mitigation of significantBP encounters of a non-financial nature is appropriately addressed by the GCEReceive and review regular reports from the GCE or his delegate, the Group InternalAuditor and the Group Compliance and Ethics Officer regarding the GCEs adherenceto the relevant Executive Limitations and his management in responding to riskReview material to be placed before shareholders which addresses environmental, gumshoe and ethical performance and make recommendations to the Board abouttheir adoption and publicationRemuneration Committee Consist of at least three Non-Executive Directors and it work includeDetermine the terms of engagement and remuneration of the GCE and the Executive directors and to report on those to shareholdersDetermine on behalf of the Board matters of policy over which BP has authorityrelating to the establishment or operation of BPs pension scheme of which theAudit Committee Consist four to six Non-Executive Directors and it work includeMonitor and obtain guarantee that the GCEs internal control system is in place and implemented effectively in the observance of the visit and relevant toExecutive LimitationsReview regular reports from the GCE or his delegate, the Group InternalAuditor and the Group Compliance and Ethics Officer which evidence the GCEs adherence to the relevant Executive Limitations and his management in responding to riskReview all financial disclosure documents including quarterly results, annual accounts, pro spectuses, information and offering memoranda to be placed before shareholders or filed with regulatory bodies and make recommendations to the Board about their adoption and publicationNomination Committee Consist of chairman and chairs of SEEAC, Audit and Remuneration committee and it work includeCategorise recommend candidates for appointment or reappointment as directors and company secretaryReview the mix of knowledge, skills and experience of the Board to ensure the orderly succession of directorsEvaluate outside directorship/commitments of the Non-Executive directorsRisk and Internal ControlThe GCE will not cause or permit BP to operate without a comprehensive systemof controls and internal audit to identify and manage the risks that are material to BP,to protect BPs assets and to monitor the application of BPs resources in a mannerwhich meets the standards of external auditors. (BP governing plc haul up from bp.com)Weakness of corporate governance structure in British petrol eumIn the wake up of Gulf of Mexico oil spill, the corporate governance structure and the governing principle collapsed , the oil giant send uncharismatic leader, chief executive Tony Hayward to placate its major partners and stakeholder. Instead, BP should quickly provide new leadership and replace its idle top decision-makers. That would be just the first step in trying to win back the confidence of its partners and regaining investors trust while it continues to work on stopping the massive oil leak in the Gulf of Mexico and cleaning up the environmental disaster its created,The Financial Times in an editorial on July 6 said theres an urgent need for flip-flops at the top of BP. And foremost investor Warren Buffett has said Hayward needs to be replaced for the good of both BP and the U.S.The FT do clear what it believes BP should do There is no question that top management will have to be intensifyd following the Gulf of Mexico oil spill. It noted that BPs response has expose d shortcomings in leadership and presentation.(Gene Marcial, financial columnist in Daily finance 7/12/2010)Analyst Lucy Haskins of Barclays Capital in a recent report noted that there are serious corporate governance questions given the magnitude of events at BP, which she describes as structurally disadvantaged.Haskin advises BPs nonexecutive directors should should change the whole corporate governing system of the company, like appointing new CEO and new leadership team.(Analyst Lucy Haskins of Barclays Capital in financial times December 2010)As we can see, on paper, BP addressed the management teams responsibilities in their corporate governance program. It is this same program that is being rated by Management Excellence and ranked accordingly. BP ranked number three on the list and surprising to many as BP ethics are based solely on board structure and policies. If the rating were based on management actions then we would have a new ranking, as ethics should be based on the verbs that management take in the day-to-day operations of the company not the policies.Olsen (2005) points to BP having more fatalities than compared to other company and also the recent 11 goal in the April 20, 2010 salvo of the Deepwater Horizon (Casselman, 2010). Considering death toll of BP and disaster like the Texas Refinery explosion, pipeline leaks, illegal doming, and the Gulf Coast oil leak, we feel some things out of place and the rating system has it wrong, as environmental issues cannot be measured by policy and Procedure but the actual action and their day-to-day activities to gauge the ethical behaviour. impressive boardrooms need to be able to perceive fraud and misdeeds within their organization. To accomplish this, directors need to make sure they have internal controls that monitor, detect, and measure the usefulness of red flags. Employees and management must be properly trained to spot red flags within the scope of their job functions. Properly trained emplo yees and management should be able to spot red flags sooner leading to a reduction in cost per incident for fraudulent activities within the organization.Creating an effective board, by utilizing Leblanc and Gillies (2003) model, can strengthen the overall sustainability of an organization. Effective boards have to understand the ethical risks, red flags, and internal controls within their organization. As failure to do so, often leads to a road, no one wishes to go protrudeAs per Tony capital of Mississippi review in Financial times British Petroleum has a stubborn nature of corporate culture which is difficult to change and also has defective safety culture. If we go through BP annual report which shows its top priorities are safety but it has not adhered to this statement as seen from Texas refinery explosion and Gulf of Mexico oil spill. Independent safety expert has given advise about BP US refinery safety upto to scratch and from we can assume there specific problem of corpor ate governance, Several investment professionals have said recently that the BP affair underlines the duty of owners to examine companies on safety. The recently refurbished UK Corporate Governance grave lays out the official position. The board, it says, is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. The board should obtain sound risk management and internal control systems.In other words top level management policy is not carried in execution below and this will make us believe the hypothesis of weak corporate governance in BP. Several institutional investors didnt buy BP share because of before the disaster because of safety worries.These all indicate weakness in safety, Ethics and environment Assurance Committee and actual fact the work is not up to mark of the committeeRecommendation for good corporate governance in British PetroleumIn general, we would recommend that corporate governa nce structure should establish a birth among a company, its shareholders, and society in order to promote a fair, transparent, and accountable principle in an enterprise. Furthermore, the board of directors should be independent from the sphere of influence of the CEO and senior management. The board must bear no material relationship between the corporation and major independent directors. The Board should fallow the combined ordinance of UK and Sarbanes-Oxley act of US as per the company operation of BP Refineries.Corporate governance structure for a particular firm must fulfill with societal norms to maintain legitimacy and resources in that society. In the model of corporate governance structure for firms developed in this manuscript, norms included economic, political, social and ethical normsFurther, compliance by all the five groups of corporate governance structure -the Board of Directors external analysts, regulators, outside advisors and management form the model of corp orate governance and all the group should go along independent in order to maintain check and balanceThe more proactive role is needed by the states and companies for the development process aimed at balancing economic growth with environmental sustainability and social cohesion, has motivated the following three interlinked business movementsThis can be done by the following way planetary reforms on corporate governance.Corporate social responsibilitySUMMARYIn critically examining the case of British petroleum we have discussed with example of how corporate governance failures directly led to the fall in share price and loss of confidence in investor community. Though it is a helpful example to study and provide a scholarly discussion of the destructive effects a failure of corporate governance structures and corporate social responsibility can have on a companys shareholders, stakeholders, and society in general a broader analysis leads us to conclude that having a governance st ructure in place that blends all appropriate norms of ethical, social, political and economic facets of society will have the most lasting and positive impact on all stakeholders.The interaction of all groups in the corporate governance structure is needed to help a corporations abide by best practices at all times. Sound corporate governance give confidence in the investors that the business environment in which the company operates is fair and transparent. It tells investors that that the company is made up of conscientious employees who respect the rights to ethics of care, justice, rights and utility. Overall, the notion of corporate governance is contained in the ethics of care, justice, rights and utility, and this is why it is of supreme importance in all business entities.Reference and BibliographyNew UK Corporate Governance Code in take up from 29 June 2010BP plc -Board Governing Principle, September 20,2010 from bp.comTakis katsoulakos and Yannis Kat soulacos, Emerald Gro up publishing Ltd, Volume. 7 no. 4 2007,pp-355-369,Uche Nwabueze and Joan Mileski, Emerald group publishing Ltd, Volume 8 no .5, pp 583-594Tony Jackson (2010), BP must ensure Its good intension become reality. Financial times, 27 JuneOil spill Panels Reilly Fault Regulator, Wall street Journal(online), New York, March quaternary ,2011Leblanc R Gilllies J(2003), The coming revolution in corporate governance, Ivey Business JournalBP leads nation in Refinery Fatalities, Retrieved (2010), 1st OctoberRoss, M (2008) 1st April, Fraud Red FlagsMallin A C (2010) 3rd edition, Corporate GovernanceGuler Aras David Crowther (2009), A Handbook of Corporate Governance and Social ResponsibilityRobert G Monks and Nell Minow(2004), 3rd edition, Corporate GovernanceJoseph. B. White, Proquest muniment ID 2282002181, Source , NewspaperBritish Petroleum Annual Report 2011