BG Group Corporate Governance - Assignment Example

BG Group Corporate Governance Report Name Course Instructor College Date of Submission Executive Summary The Group Executive Committee (GEC), under the chairmanship of the Chief Executive, contains the Executive Directors of BG Group, together with the Non-executives. The GEC’s most important authority is the everyday running of the Group’s processes, contained by the established confines laid down by the Board. The GEC is in charge of keeping an eye on strategic risk, functioning organization of the Group as well as health, safety, security and environment (HSSE) strategy. The GEC has moreover assumed the main performance management tasks of the Group, formerly entrusted to the Group Performance Committee that was split up at some point in 2012. In addition, the GEC has established sub-committees focusing on particular facets of the Group’s business to help in efficient running of its activities. The UK Listing Rules specify that listed companies have got to incorporate in their yearly report a declaration of whether the company has acted in accordance with all the applicable requirements of the UK Corporate Governance Code (the Governance Code). In September 2012, the Financial Reporting Council (FRC) availed a new edition of the Governance Code (the New Code). The New Code applies to BG Group from 1 January 2013. While reporting in line with the Governance Code in relation to 2012, BG Group is dedicated to work in unity with the premier principles of corporate governance and has by now put into practice and conformed to all the provisions of the New Code. This report is projected to help out with the assessment of the Group’s conformity in the 2012 financial year in addition to providing an in depth review of BG Group’s Corporate Governance Structure. Table of Contents Executive Summary 2 1.0Introduction 4 2.0Leadership 5 2.1Role of the Board 5 2.2Division of Responsibilities 7 2.3The Chairman 7 2.4Non-Executive Directors 8 3.0 Effectiveness 8 3.1 Composition of the Board 8 3.2 Appointments to the Board 10 3.3 Commitment 11 3.4 Development 11 3.5 Information Support 12 3.6 Evaluation 12 3.7 Re-election 13 4.0 Accountability 14 4.1 Financial and Business Reporting 14 4.2 Risk Management and Internal Control 15 4.3 Audit Committee and Auditors 17 5.0 Remuneration 17 5.1 The Level and Component of Remuneration 17 5.2 Procedure 18 6.0 Relations with Shareholders 19 6.1 Dialogue with Shareholders 19 6.2 Constructive use of AGM 19 7.0 Conclusion and Recommendations 20 8.0 References 20 1.0 Introduction Corporate Governance is the set of procedures, guidelines and regulations that influence the manner in which a company is managed. The UK Corporate Governance Code (previously the combined code) sets out the values of high-quality practice to be applied by companies listed in equity markets in the United Kingdom (UK). The code outlines wide-ranging values as well as more detailed provisions which the listed companies have to comply with. A new edition of the code was unveiled in September 2012 an came to effect as of 1 October 2012. This report details BG Group’s Corporate Governance Structure in accordance with the UK Corporate Governance Code. It is intended that the report will serve company shareholders along with other interested parties to fully understand and evaluate how the Group is governed. The report has five main sections in accordance with the UK Corporate Governance Code; Leadership, Effectiveness, Accountability, Remuneration as well as Relations with Shareholders. At the end there is a Concluding and Recommendations section. 2.0 Leadership 2.1 Role of the Board BG Group’s Board is accountable to shareholders as regards the creation as well as deliverance of sustainable shareholder value in the course of managing the Group’s businesses in reference to the governance structure. The governance structure constitutes three parts; organisation and structure, internal control that includes risk management, and independent assurance. BG Group’s organisation and structure are intended to create way for effectual and proficient resolution creation plus to meet up corporate governance good practice. The Board has passed on power to its Committees on particular matters as set out on paper terms of reference for each. These terms of reference were revitalized in 2012 in accordance to the developing most excellent practice and elevated standards of corporate governance, and will at the moment be re-evaluated every twelve months. BG Group’s Internal Control Framework (ICF) sets out the mode in which the Group is run. It covers the Group’s Business Principles along with obligatory Policies and Standards. Inside these, a string of main controls has been noted that have a say in the recognition as well as mitigation of various Group risks. Independent assurance is a major constituent of BG Group’s Governance structure. Independent assurance is offered mainly by autonomous external auditors, along with outdoor assurance providers and Group Audit. Group Audit offers guarantee to the Board, Audit Committee, and Governing Executive Council also the administration that helpful internal control procedures are in place to spot and control business risk crossways the Group. The Board runs the Group’s policy, and makes sure that needed resources are offered, further, it ensures that proper pedals, principles as well as standards are implemented to deliver it. As regards material omission liability for financial performance, internal controls as well as risk management of the Group, the Board has in place a strict timetable of issues exclusively set aside to it for pronouncement. These take account of: approving major capital ventures, wastages and disposal actions, legal actions and settlement; the Group’s financial support arrangement as well as yearly capital and income accounts; any interim dividends, along with proposing the ultimate dividend; not forgetting any adjustments in the capital structure of BG Group. To achieve all the above and in the spirit of teamwork, the Board has planned meets regularly during the year and holds extra conferences as and when necessary. In 2012, the Board met officially on ten instances. Wherever possible it is expected that directors should be present at all Board gatherings, important Committee meetings as well as the Annual General Meeting. In extension, all Directors are covered by the Group’s Directors’ as well as Officers’ Insurance plan. 2.2 Division of Responsibilities The Chairman and Chief Executive positions are distinct; each with plainly outlined tasks set out in text and endorsed by the Board. The Chairman, Andrew Gould, is in charge of the works and management of the Board along with the balancing of the Board’s membership (together with the Board’s Committees). The Chief Executive, Sir Frank Chapman (until 31 December 2012) and Chris Finlayson (from 1 January 2013), is tasked with the leadership and running of the business within the powers that are entrusted by the Board. 2.3 The Chairman The Chairman lays down the Board’s programme and makes sure that there is ample time for the deliberation of all items. The Board Planning Conference is devoted to the deliberation of tactical matters every year. At the time of his engagement, in May 2012, Andrew Gould was well thought-out to be self-governing by the Board. Particularly, the Board considered that he had served as the Chief Executive Officer (C.E.O) and non-executive chairman of Schlumberger until August 2011 and April 2012 in that order. Having carefully evaluated the character along with the scope of the association between BG Group and Schlumberger, as well as the lack of any substantial participation by Andrew Gould in that association, the Board was content that Andrew Gould was self-governing and that the provision of services by Schlumberger to BG Group did not influence his sovereignty in carrying out his tasks as a Director. In line with the Governance Code, partial test of independence for the Chairman is inappropriate. Baroness Hogg, as Senior Independent Director, headed the selection and appointment of Andrew Gould as the new Chairman. 2.4 Non-Executive Directors Baroness Hogg is the Senior Independent Director. Her everyday jobs include meeting key shareholders as a substitute point of getting in touch with to the Chairman, Chief Executive or Chief Financial Officer. Her position’s duties is clearly established, put in writing and approved by the Board. Baroness Hogg is likely to entrust not less than three to four days in a year to the job, and much more in extraordinary conditions in addition to the ordinary time dedication in her power as a Non-Executive Director. In the absence of the chairman, Baroness Hogg and the Non-Executive Directors measured the Chairman’s performance as a fraction of the outwardly assisted Board assessment. The Chairman besides met with the Non-Executive Directors not including the Executive Directors and in person with every one Non-Executive Director. All through the year, there were no unsettled concerns in relation to the management of the Company or wished-for action. 3.0 Effectiveness 3.1 Composition of the Board At some point in the 2012, the Board, on the whole, evaluated the equilibrium of abilities, experience, autonomy and acquaintance of Board along with Committee members and prepared several adjustments to guarantee that Committee membership was suitably rejuvenated. Vivienne Cox joined the Remuneration and Sustainability Committees as Caio Koch-Weser joined the Audit Committee. The Board deems that all of its Non-Executive Directors are independent and gratis of any business connection or new situations that may perhaps give and take their use of free plus objective judgment. The Board also once a year embarks on evaluation of the freedom of its Non-Executive Directors in accord with the criterion stipulated inside the Governance Code. At present there are ten Non-Executive Directors plus three Executive Directors on the Board. Figure 1: Composition of the Board By the date of this year’s (2013) AGM, Peter Backhouse will have been on the Board for about thirteen years. According to the Governance Code, the Board resolved that Peter Backhouse has been free in nature as well as judgement and has not established business relations with the Company that may compromise his aptitude to apply sovereign judgement, in spite of his duration of service. 3.2 Appointments to the Board Chris Finlayson was selected as Chief Executive Officer on 1 January 2013. The succession procedure along with Chris Finlayson’s final engagement was watched over by the Non-Executive Directors. Also, Vivienne Cox was chosen as a Non-Executive Director in February 2012 and Lim Haw-Kuang was fixed as a Non-Executive Director in March 2013. Den Jones was appointed as the Interim Chief Financial Officer and Executive Director on 15 February 2013 subsequent to his time as Alternate Director to Fabio Barbosa. His selection was supervised by the Board. The Board considers that variety is a vital foundation for bringing in diverse points of view into Board discussions and for improved prediction of risks along with prospects in putting up a lasting, sustainable business. This beliefs form the Board’s guiding principle on diversity. The Board also recognises that gender is an essential feature of the general diversity to which chairmen must consider in creating the best possible equilibrium and composition of the Board. 3.3 Commitment The Board has factored in the outside devotions of its Chairman and Non-Executive Directors and is contented that these do not clash with their responsibilities and time commitments as Directors of the Company. 3.4 Development All Directors appointed to the Board are given a complete orientation series, taking into account their credentials as well as knowledge. Also, the Directors are given several teach-ins every year. In response to the response received as a part of the 2012 Board assessment process, a prescribed training and improvement plan will be launched for all Non-Executive Directors in 2013. The Chairman and Company Secretary will get together on a regular basis with each Non-Executive Director to hold up their personal needs. These programmes will be centred not only on the outside setting but also endow Directors with adequate admission to BG Group’s operations as well as people, to let them to build up the essential knowledge of BG Group’s business such that the success of contributions made at Board and Committee meetings is fully exploited. In addition, a proper teach-in programme was carried out during the year to make sure the Board was updated on major business progress actions. The programme covered areas of field development planning, armed security on Group-owned LNG vessels as well as changes in the corporate governance setting. 3.5 Information Support The Directors are free to seek the counsel and services of the Company Secretary, who is furthermore accountable to the Board for certifying that accurate Board measures are pursued. The Company Secretary gives advice on each and every one governance issue; guarantees successful communiqué flows inside the Board as well as its Committees, also between senior executive and Non-Executive Directors; and assist in orientation as well as the in progress professional development of Directors. The selection or dismissal of the Company Secretary is a concern for the entire Board. Guidelines are in place regarding the substance, appropriateness and production of Board with Committee papers from executives to make sure that the Board is briefed as it should be. Directors may well seek independent expert guidance at the Company’s cost if they think it might be essential in furtherance of their responsibilities. 3.6 Evaluation In 2012, routine assessments of the Board, its Committee along with individual Directors were superficially made possible by Dr Tracy Long, who had no other association with the Group. The assessment measured the balance of skills on the Board, independence, knowledge of the Company, along with mixture (counting gender). The re-evaluation covered three main facets of Board efficiency in detail: the job of the Board, Board customs along with dynamics, and the Board’s use of time, as determined by the Chairman and Dr Long to be of most meaning and worth to the Board. The results of the assessment were discussed by the Board as a whole plus by the related Committees. It was found that the Board functions well as one and that the varied composition of the Board, and considerate succession arrangement, had provoked a constructive Board culture characterized by shared trust and respect. The vibrancy was recognised as collegiate, with an even and occupied input from all members. The potency of the Audit and Sustainability Committees was accredited and there was high-quality use of the Board’s time, with efficient calendar and programme planning and good quality information scheduled for re-evaluation. The Non-Executive Directors, led by Baroness Hogg, the Senior Independent Director, were in charge for the performance assessment of the Chairman, which incorporated the exterior Board assessment. After the evaluation, the Directors noted that the Board with its Committees functions well and that all Directors contribute efficiently and show loyalty to the job. 3.7 Re-election All Directors are subject to voting at the foremost AGM subsequent to their selection. For that reason, Den Jones and Lim Haw-Kuang will get up for voting at the 2013 AGM. All other Directors except for Sir Robert Wilson, Sir Frank Chapman, Philippe Varin and Fabio Barbosa, who retired from the Board on 16 May 2012, 31 December 2012, 11 February 2013 and 15 February 2013 in that order, are subject to once a year re-election and the Board generally supports their re-election. 4.0 Accountability 4.1 Financial and Business Reporting In accordance with the 2010 Governance Code, the Directors are in charge of getting ready the Annual Report, with the Directors’ Remuneration report plus the financial statements in line with appropriate law and policies. The Act necessitates the Directors to set up financial statements for every one financial year. Under the Act, BG Group Directors have prepared the 2012 Group plus the holding corporation financial statements in accord with International Financial Reporting Standards (IFRSs) as approved by the European Union (EU) and as validated in harmony with the requirements of the Act. The Financial statements are mandatory by law to present a true and fair view of the state of affairs of BG Group and the Company along with the profit or loss of the Group for that financial year. The Directors are tasked with making sure that the Company maintains accounting reports that reveal with sensible accurateness the financial position of the Company as well as of the Group and that allow them to guarantee that the Financial statements and the Directors’ Remuneration details meet the terms of the Act and, regarding the Group Financial statements, as well as Article 4 of the International Accounting Standard Regulation. Moreover, the Directors are by and large obligated to initiate measures as are logically permitted to them to protect the assets of BG Group as well as to avoid and sense deception and other indiscretions, and have assumed a control structure for appliance across the Group. Figure 2: Business Model and Strategy In line with the revised UK Corporate Governance Code issued in September 2012, the Directors concluded that the 2012 Annual Report and Accounts, taken as a whole, is fair, balanced and comprehensible and offers the information essential for shareholders to weigh up BG Group’s performance, business model as well as strategy. 4.2 Risk Management and Internal Control The Board has put in place procedures intended to let it to gauge the efficiency of the internal control setting inside the Group. Subsequent to the appointment of a Chief Risk Officer (CRO) near the end of 2011, the Risk Management Committee (RMC) was set up as a sub-Committee of the GEC in 2012 and is a additional advancement of prior committees that assessed risk. The RMC main task is to evaluate and devise management’s suggestions to the Board on the Group’s surfacing risk shape and risk management developments and, exactly, to appraise the Group’s strategic risks. In the course of the year, the Group improved its Enterprise Risk Management Framework (ERMF), exclusively by way of a comprehensive patch up of the existing Business Risk Management Process (BRMP), and the improvement and use of Cash Flow at Risk plus Earnings at Risk models. The Board has instituted processes planned to permit it to review the usefulness of the internal control environment within BG Group on the whole. E Every year, each member of the GEC as well as the Company Secretary issues Letters of Assurance (LoA) to the Chief Executive as regards the control setting in their areas of duty. These LoAs are supported by the outcome of the Governance Self-Assessment (GSA) procedure, which involves management-level reporting to the GEC and Company Secretary to evaluate the helpfulness of the main controls in their areas of duty and to report any noteworthy insufficiency or substantial flaws. The Governance Committee reviews the LoAs and the oucome of the GSA course of action, plus separate reports from Group Audit, the Ethical Conduct Compliance Unit and additional assurance providers across BG Group. After its consideration of the general efficiency of the internal control environment, the Governance Committee reports their review findings to the GEC also to the Audit Committee. BG Group’s internal controls offer logical, rather than fixed, assurance against material loss or misstatement and are intended to deal with, rather than get rid of, the risk of letdown to realize company objectives. 4.3 Audit Committee and Auditors The Audit Committee helps out the Board in satisfying its everyday jobs in reverence of: supervising BG Group’s financial reporting procedure; the manner in which management certifies and checks the sufficiency of financial, operational and compliance controls as well as business risk management processes; the selection, compensation, independence also performance of the Group’s external auditors; and the independence and performance of Group Audit. 5.0 Remuneration 5.1 The Level and Component of Remuneration The Board considers that the Group’s remuneration guiding principle keeps on to allow the Group to catch the attention of, keep hold of as well as motivate the executive talent essential for the deliverance of its business strategy, while connecting directly to the long-term performance of the Group and the interests of shareholders. Figure 3: Relative Importance of Spend on Pay 5.2 Procedure The principal everyday jobs of the Remuneration Committee are setting, reassessing and proposing to the Board for endorsement BG Group’s remuneration policy and strategy on the whole, and setting the payment actions for Executive Directors and members of the GEC. The Committee furthermore meets not including the management and obtains information plus independent executive remuneration recommendation from Kepler Associates, an outside consultancy selected by the Committee. During 2012, Kepler Associates endow the Committee with counsel on market trends, motivation schemes along with erstwhile remuneration matters. Kepler Associates does not inform BG Group on any other issues. 6.0 Relations with Shareholders 6.1 Dialogue with Shareholders Valuable communication and having dates with investors is of supreme significance to the continual of accomplishment of the Company. The Chief Executive and Chief Financial Officer offer presentations on the periodical results in gatherings with company investors, market analysts as well as the media. This information is furthermore within reach by webcast along with teleconferences. Right the way through the year, there is regular discourse with shareholders in the course of meetings, presentations also road shows. All the way through 2012, Executive Directors as well as members of the GEC met up with shareholders in the United Kingdom (UK), United States of America (USA), France, Brazil and Australia. This integrated overt 30 road shows, 100 meetings with attendance at 11 conferences. The Chairman and Non-Executive Directors, together with the Senior Independent Director, are free to assemble with institutional shareholders to talk about any matters as regards BG Group’s governance plus strategy. BG Group’s website has information of importance to both institutional and individual shareholders, plus explicit information for individual shareholders concerning the management of their shareholdings. 6.2 Constructive use of AGM The AGM will be convened on 23 May 2013 and offers an opening for shareholders to make their choice on certain aspects of BG Group. It is as well an occasion for those shareholders who are able to be present at the AGM to enquire directly about the Board of Directors, together with the Chairmen of the Audit, Remuneration, Sustainability and Nominations Committees, as well as the Company Secretary. The Notice of AGM is mailed to every one shareholder who has asked for hard copy documents from the Company. 7.0 Conclusion and Recommendations BG Group’s Board has observed and adhered to the stipulations set out in the UK Corporate Governance Code of 2012 as regards their Corporate Governance Structure. The company has met up most of the requirements even though the New Code was to be effected as of 1 January 2013. In addition, the Board has provided clear assurance that it is willing to incorporate whatever is missing if future. This information has been presented to assist shareholders in assessing Board. Therefore, in future years, the Company may change the information presented in order to comply with the finalised regulations and provide meaningful information to shareholders. It is recommended that the company meets up the regulations especially as regards the company remuneration framework. 8.0 References Abdullah, SN 2004, 'Board Composition, CEO Duality and Performance among Malaysian Listed Companies, ' Corporate Governance, vol. 4, no. 4, pp. 47-61 Abhayawansa, S 2008, 'An Overview of Corporate Governance Regulations in Sri Lanka ', Law and Society Trust Review, vol. 18, no. 242, pp. 26-46 Adams, RB & Mehran, H 2005, 'Corporate Performance, Board Structure and its Determinants in the Banking Industry ', viewed 4th September 2008, . 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