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Corporate Governance

: The Race to the Bottom

BP, the Dividend, and the Board (Part 1)

By J Robert Brown Jr.

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BP has been under pressure from the President, Barak Obama, to not pay a dividend. The decision is one that falls to the BP board. The board consists of 15 directors, five from management. The CEO and Chair are, as is typical, separated, with the current chair (Carl-Henric Svanberg) coming from the ranks of the non-executive directors.

Thus a majority of the directors are not members of management. This is consistent with Section 3.4.1 of the Company's governance policies. As the provision provides:

Over half of the directors, excluding the Chairman, will comprise Non-Executive directors who are determined by the Board to be independent in character and judgement and free from any business or other relationship which could materially interfere with the exercise of their judgement.

Are these directors independent in a manner consistent with US definitions? Unclear. As BP has described:

BP's board governance principles require that all non-executive directors be determined by the board to be 'independent in character and judgement and free from any business or other relationship which could materially interfere with the exercise of their judgement'. The BP board has determined that, in its judgement, all of the non-executive directors are independent. In doing so, however, the board did not explicitly take into consideration the independence requirements outlined in the NYSE's listing standards.

Certainly, with respect to fees, the board is not, by US standards, excessively paid. In 2009, most of the directors made somewhere in the vicinity of $150,000 (100,000 -110,000 pounds sterling), although the chair is paid 750,000L. See Form 20-F, March 3, 2010, at 88 ("Mr Svanberg received the basic non-executive director fee and transatlantic attendance allowance for the period between his appointment and his assumption of the role of chairman on 1 January 2010. On his appointment as chairman in 2010, the chairman's fee increased to £750,000.").

Carl-Henric Svanberg was appointed to the board in September 2009. At the time of his appointment, the remuneration committee looked at a comparison of remuneration for FTSE and international chairmen in determining his fee. The committee determined that in common with the previous chairman, he should receive the use of a chauffeured car, a maintained office for company business and security advice. In addition, the committee recognized that the appointment was to be Mr Svanberg's main commitment and as he would be performing a proportion of his duties from Sweden, limited but appropriate secretarial support in Sweden would be provided. Mr Svanberg is also eligible for a single relocation allowance of up to £100,000 to cover expenses incurred in relocating to London from Sweden.

Mr Svanberg received the basic non-executive director fee and transatlantic attendance allowance for the period between his appointment and his assumption of the role of chairman on 1 January 2010. On his appointment as chairman in 2010, the chairman's fee increased to £750,000.

Full post as published by The Race to the Bottom on June 16, 2010 (boomark / email).