A Strategic Business Analysis
BP, p.l.c., as the focus of this strategic analysis, is one of the four largest oil concerns in the world along with Shell, ExxonMobil, and ChevronTexaco, and it can best be described as an integrated oil concern, which has vertically integrated all aspects of its production and distribution processes including exploration, drilling, refining, marketing, and transportation to its global customers. The petroleum industry is a highly successful market generating profits in the billions and although oil is the most traded commodity in the world, with record prices being set daily, geologists are predicting that world supplies will run dry within the next two centuries1, creating the need to search for alternative forms of energy today2. As a market leader, BP recently added BP Alternative Energy, focused on new sources of fuel, to its renewables division, which makes up one third of its core business units along with exploration & production, and refining & marketing divisions. As part of my analysis of the company and the industry as a whole, I believe BP should expand its current exploration and production into new areas such as the gulf of Mexico to capitalize on the current record prices and focus an equal amount of its efforts on making alternative energy more accessible to consumers and make plans to eventually divest its self from declining oil fields and later new oil fields, which will become obsolete once all oil, a non-renewable resource, has been processed. Even though this eventuality is one to two centuries in the future it behooves BP to anticipate the changing marketplace of increasing exploration and extraction costs and be a pioneer in the alternative energy markets today.
Board of Directors - BP’s style of corporate governance allows the board to act as an advocate for BP’s shareholders, focusing its efforts on promoting the interests of its shareholders such as monitoring the activity and results of the business and providing input into its strategies. This governance role is independent from that of BP’s lead management team. The board’s charter states that the purpose of BP as a business is to maximize the value of the shareholders on a long-term basis and the authority to pursue this goal is given to the group chief executive (GCE) and those to whom he delegates as his operatives. Currently the board consists of 17 directors, ten of whom are categorized as non-executive directors as per BP’s policy stating that non-executives must comprise a majority of the board. The board empowers committees to monitor the performance of the GCE in pursuing the goals set to him and ensures that the post does not exceed its executive limitations. These committees are made up of independent non-executive directors only, which are presumed to be free of any conflicting interests that might arise from having a management role. This framework enables the board of directors to maintain a high level of independence and oversight freeing them from internal pressures in filling the precepts of its office. BP’s concerns are long-term business strategies with global scale and scope and the membership of its board is structured to reflect this in terms of skills as well as in terms of tenure where preset limits on the duration of one members occupancy of a seat at the table may not be in the best interest of the company. For this reason BP has required that all non-executive directors be subject to annual re-elections by shareholders and their proxy votes since 2004. This action has created an incentive for the board members to maintain their objectivity and independence when making decisions as to the strategies to be followed. Ownership Structure – BP is a large multinational corporation with over thirteen million customers and thousands of businesses being served by its many units. It has vertically integrated all steps of the oil production...