"Corporate governance is about managing the business in order to create long-term sustainable value for the benefit of all of our stakeholders. It means striking the right balance between entrepreneurial risk-taking and prudent risk management."
Simon R. Thompson, Chairman
Your Board is committed to maintaining high standards of corporate governance. As Tullow continues to grow in size and complexity, one of the greatest challenges that we face is to ensure that we have in place the right people and processes to manage risk and opportunity effectively, without stifling the agility, innovation and sense of personal initiative and commitment that have underpinned the Group's success to date.
During the year, the Board reviewed the new UK Corporate Governance Code. In particular, we looked at the principles of the Code and how best to implement them in practice. In this 'Introduction to Corporate Governance' I will touch on how some of the specific principles are applied by the Tullow Board, but ultimately good governance depends upon the values and behaviours of every employee. At Board level, we seek to provide strong leadership, to set the tone for the organisation, and to continuously improve the way we work together as a collaborative team, to ensure that we maintain and enhance the culture and values of the entire Group.
In 2011, your Board set objectives in six key areas. How we performed in each area is outlined in Board performance and objectives. Overall, we achieved most of our objectives but some will be carried over into 2012. The successful launch of the new Tullow Code of Business Conduct was a particularly important achievement. It has been rolled out to all employees and contractors and embedded in our supplier contracts. Seven training sessions for employees have been completed and the awareness and training programme will continue in 2012. We are also undertaking bribery and corruption training with our suppliers in an effort to ensure good practice throughout the supply chain.
As part of my induction for the role of Chairman, I conducted the Board evaluation this year. Last year's externally facilitated process provided a good baseline against which to measure progress. Part of the purpose of the 2011 evaluation was for the Board to collectively agree a work programme that will enable the Board to lead Tullow through the next phase of its development. The process consisted of a questionnaire, one-to-one structured interviews with each Director, and a full Board discussion of the conclusions and recommendations. The exercise has resulted in an action plan and a 12 month rolling agenda to ensure that the Board addresses all of the key issues identified.
The evaluation showed that we are building from a strong base, with an informal, engaged and supportive working climate on the Board, coupled with a healthy level of challenge and debate. Relations between Executive Directors and non-executive Directors are good and there is a remarkable degree of alignment on the areas requiring attention over the coming year as part of the Board's commitment to continuous improvement.
Risk management processes are generally robust and well embedded in the corporate culture, but some improvements to the quality of Board reporting were identified in relation to political and economic risk analysis, the competitive landscape and industry benchmarking.
In order to provide the human and financial resources needed to meet Tullow's growth ambitions, talent management, organisational design, succession planning, portfolio management and medium-term cash flow forecasting were identified as areas requiring particular focus over the coming year. We also identified a number of topics where outside speakers and other external resources will be accessed as part of a continuing programme of Board development and education.
The 2011 Board evaluation informed the 2012 Board objectives which are outlined in Board performance and objectives. I will undertake a mid-year review of progress in each area with Graham Martin, General Counsel and Company Secretary, the nominated Executive Director with responsibility for Board matters.
In 2011, the Board comprised the non-executive Chairman, the Chief Executive Officer, four Executive Directors and six non-executive Directors. At the beginning of 2012, I replaced Pat Plunkett as non-executive Chairman and during the course of the year two other non-executive Directors, Steve McTiernan and David Williams, will leave the Board. Steve McTiernan, the Senior Independent Director, has agreed to remain on the Board until the end of the year, notwithstanding the fact that he has been on the Board for more than 10 years. In my judgement, he continues to act wholly independently and will provide very valuable continuity as the Board is refreshed. In March 2012, the Board approved the appointment of Steve Lucas as a non-executive Director with effect from 14 March 2012.
We have carried out an analysis of the knowledge and experience required by the Board and will conduct the searches for the two new non-executive Directors sequentially to ensure that they collectively bring the desired blend of personal attributes, background and skills.
In accordance with the new UK Corporate Governance Code, all the Directors, with the exception of David Williams who is retiring from the Board, will stand for re-election at the AGM. The 2011 Board evaluation confirmed that each Director continues to provide the Board with valuable knowledge and expertise and to devote sufficient time in support of the Group. I strongly recommend their re-election.
Until May 2011, Tullow had two female directors, representing 16% of Board membership. However, Clare Spottiswoode retired at the 2011 AGM, reducing our membership to one. For a Group whose business activities are mainly outside the United Kingdom, international experience is as important as gender diversity. We will seek to increase both as we refresh the Board over the coming year.
Almost 27% of the Group's workforce are female, which is a relatively high level for the oil industry, and we are particularly pleased to have achieved a high representation in some of our areas of operation where female employment offers real empowerment and emancipation. 17% of our managers are female. This number is growing steadily and now includes one of the three Regional Business Managers, one of the most senior positions in the Group. The pipeline of younger talent within the Group is also diverse and bodes well for the future.
Tullow has a very active investor relations programme through which the CEO, the CFO, the other Executive Directors and Senior Management regularly meet major shareholders. In 2011, 370 investor meetings were held, presentations were made at 15 international conferences and 18 broker sales team briefings were conducted. In addition, over 30 news releases were issued. In 2010, we conducted a capital markets perception survey which was reported to the Board. We will conduct a similar survey this year.
Part of my role as Chairman is to ensure that the Board is kept fully informed of shareholder views. Over the past few months I have met several major shareholders, investor associations and stockbroking analysts. I also participated in the recent review of our corporate broking arrangements. These interactions have enabled me to gain a clearer understanding of investors' views on Tullow, its management and its strategy. I am looking forward to meeting many more shareholders over the coming months and would encourage as many as possible to attend the AGM.
Tullow's remuneration policy seeks to align the interests of Executive Directors and shareholders and is structured to enable the Group to attract, motivate and retain the talent required to deliver the business strategy. In 2011, certain changes were made to the remuneration packages of the Executive Directors following an extensive review of our market positioning and consultation with the Group's major shareholders. The changes reflect the successful growth of our business and the reduced competitiveness of the remuneration of the Executive Directors, whose salaries had fallen well below the median. The Remuneration Committee is cognisant of the current sensitivity relating to executive director remuneration but believes that a strong emphasis on long-term performance-related pay continues to be appropriate and helps ensure that Tullow's remuneration policy does not encourage inappropriate risk-taking. Full details are set out in the Remuneration Committee report.
Uganda took up a considerable amount of the Board's time again during 2011, as would be expected given the strategic importance of this major project. Corporate responsibility – governance, environment, health and safety, human resources and stakeholder management – took up a third of the Board's time, which underlines the importance of our wider social and environmental responsibilities. Strategy and risk management are core elements of the Board's activities and in 2012 we will seek to increase the amount of time we spend preparing for the future and discussing the major opportunities and challenges that the Group faces.
2011 Board time
I am delighted to have taken on the role as Chairman of Tullow and welcome shareholder feedback. If you have any comments or observations please feel free to email me at firstname.lastname@example.org.
Simon R. Thompson
13 March 2012