Good governance is about developing and sustaining a culture that guides expected behaviour and encourages our staff to conduct business ethically and legally, which is fundamental to generating long-term shareholder value.
Recognizing the importance of a strong Board of Directors
Our Board of Directors oversees our governance practices, processes, controls and policies to help make sure we live up to our purpose, promise and commitments, maintain our relationships and protect our ability to grow our business. Simply put, good governance is necessary to keep our business running effectively.
One of the Nominating and Corporate Governance Committee’s primary duties and responsibilities is to identify individuals qualified to become Board members and recommend to the Board proposed nominees for election. The committee seeks to make sure there is a sufficient range of skills, expertise and experience on our Board. It also reviews and evaluates suggestions for candidates from individual Directors, the President & Chief Executive Officer and professional search organizations.
The skills matrix on page 10 of our 2016 Management Information Circular illustrates the breadth of skills and experience of our current Board members, including government and stakeholder relations, governance, safety, environment and health. These skills and experience were identified as being important to Cenovus following a review of recommended best practices, the Board mandate, the Board Diversity Policy, Cenovus’s long range outlook and peer group disclosure.
In 2016, Richard Marcogliese and Rhonda Zygocki were elected to our Board of Directors at our annual meeting of shareholders. Our Board Diversity Policy includes an aspirational target to have women make up at least one-third of the independent members of the Board by 2020. The election of Ms. Zygocki increases our percentage of female Directors to 18 percent.
Safety, Environment and Responsibility Committee
The Safety, Environment and Responsibility (SER) Committee of the Board oversees and reviews significant matters relating to our corporate responsibility policy which includes safety, social, environmental, economic, business conduct and ethical considerations. The Committee is made up of independent directors and meets at least three times per year to review the following:
- Our safety, regulatory and environmental performance, benchmarked against our peers based on injury frequency, greenhouse gas emissions, regulatory compliance, spills incidents and reclamation and abandonment activity
- Persistent trends and high-risk observations from our internal operations assurance program and inspection results from the provincial regulator
- Reports on the Cenovus Operations Management System (COMS)
- Compliance with our Code of Business Conduct & Ethics and our actions on reported incidents
- Our political contributions
- Emerging federal and provincial legislation, regulations and decisions impacting the environment, fiscal structure and market access
The Leadership Team conducts educational sessions each year for the Board members, focused on enhancing their understanding of our assets and building awareness of emerging trends. Learn more about the SER Committee.
Risk and compliance
Cenovus is exposed to a number of risks as we work to meet our strategic objectives, some of which impact the oil and gas industry as a whole and others that are unique to our operations. Our approach to risk and compliance is focused on a number of elements, including:
- Driving the identification, measurement, prioritization and management of risk across Cenovus through our Enterprise Risk Management program
- Helping ensure the integrity of our people through our Code of Business Conduct & Ethics and other related policies to guide the behaviour we expect from our Directors, Leadership Team, employees and contractors
- Fostering compliance by assessing our projects, facilities and activities against applicable laws and regulations and our commitments, and considering whether to go beyond regulatory requirements where appropriate
Committing to our policies
In 2015, every employee was required to complete an online training course to confirm their commitment to our key policies, which include:
- Alcohol & Drug
- Code of Business Conduct & Ethics
- Corporate Responsibility
- Disclosure, Confidentiality & Employee Trading
- Intellectual Property
- Records & Information Management
The training is designed to enhance employee understanding of the policies and provide practical examples of how to apply them in everyday business situations. We look at trends and issues across the company to determine which policies we’ll educate staff on each year.
In 2015, we updated our Conflict of Interest Practice and declaration form and developed a guidance document to provide examples of conflicts of interest and actions that can be taken to mitigate conflicts.
We began development of an anti-corruption practice in 2015 which will apply to our operations in North America and any activities outside of North America. The new practice will prohibit soliciting, accepting, offering or paying bribes to public officials and will also address trade laws such as export and import control laws, anti-money laundering, economic sanctions and anti-boycott laws.
Addressing concerns about our work
Our Code of Business Conduct & Ethics applies to all officers, employees, contractors, consultants and Board members of Cenovus. Our code outlines our position on a number of issues including fraud, conflict of interest, political activities, whistleblower protection, use of the company’s assets and harassment in the workplace. We update the code regularly to reflect societal changes as well as best practices in our business.
Any concern associated with our oil and natural gas operations or with the behaviours of the people who work for us is something we take very seriously. We have a number of channels for staff and our stakeholders to let us know about any issues with how we conduct our operations.
For staff, concerns can be communicated either to their leaders or human resources, or through more formal channels like our Integrity Helpline or Investigations Committee. Residents in the communities near our operations can also raise concerns with their local community relations representative or through the Integrity Helpline or Investigations Committee, which are both listed on our company’s website.
The Integrity Helpline is an anonymous and confidential option for our staff as well as members of the public to let us know about potential ethical, financial or workplace issues related to how we conduct our business. We follow up on all inquiries, either through the Investigations Committee or other appropriate channels across the company.
The Investigations Committee looks into violations relating to compliance with laws and regulations, conflicts of interest, fraud, confidentiality and disclosure, and other potential breaches of our policies and practices. The outcome of an investigation may result in disciplinary action, up to and including termination of employment or service agreements. The activities of the Investigations Committee are reported to the Leadership Team and to the Safety, Environment and Responsibility and Audit Committees of the Board of Directors.
In 2015, the Investigations Committee initiated investigations on 27 new complaints. Those complaints included issues of potential harassment, conflict of interest, acceptance of gifts and fraud. Twenty of the complaints are closed, seven remain ongoing, and the most serious consequences included termination of employment or of contract for services, and initiation of legal proceedings.
We encourage people to call the Integrity Helpline so we can address any concerns. In 2015, we launched a monthly Business Conduct & Ethics awareness program in Calgary and at our field locations, including camps. The program highlighted the Integrity Helpline through posters, desk cards, messaging on our intranet and on TV screens located in coffee stations. The number of calls we received to the Integrity Helpline last year decreased to 117 calls, down from 161 in 2014.
Our compensation programs
Our compensation programs are designed to align employee interests with the interests of our shareholders, attract and retain high-performing employees, reward strong performance and manage excessive risk taking that could have a material adverse effect on the company. For more information on our key governance practices for compensation, refer to the Compensation Governance at a Glance section on page 31 of the 2016 Management Information Circular.
We pay for performance, reflecting both individual and corporate performance, as well as expected behaviours. Our total compensation package provides a level of fixed compensation, such as base salary, while allowing for the ability to reward strong performance through variable compensation components like the annual performance bonus and long-term incentive awards. The annual performance bonus reinforces a focus on safety, operational performance, environmental actions, consolidated financial performance and strategic accomplishments, as outlined in our corporate scorecard. The components of our compensation program are outlined in detail beginning on page 36 of our 2016 Management Information Circular.
Our Human Resources and Compensation Committee provides oversight with respect to executive compensation with emphasis on compensation risk management, executive talent management, retention, corporate performance, pay for performance and say on pay.
To give our shareholders a say on pay, a non-binding advisory vote on our approach to executive compensation is held every year as part of our annual meeting of shareholders. It’s intended to further enhance transparency regarding the Board’s philosophy, principles and approach to executive compensation.
Standardizing our approach to operations management
At Cenovus, we believe that to achieve industry-leading results, we need to execute on our strategy safely, consistently and reliably. Our Cenovus Operations Management System (COMS) provides a consistent framework for assessing, managing and optimizing business processes, operations risk, safety, environment and operating performance. It helps ensure we have processes and controls in place to grow as an organization in a controlled and deliberate manner. COMS is an operations excellence management system – a type of system that’s used across many industries. COMS has been reviewed against other management systems across our industry and, like similar systems such as ISO, COMS defines a minimum standard to which the organization must adhere. We have also received assurance from two third-party firms to confirm it meets the standards of global management systems. We are currently in the process of implementing COMS across all areas of the company.
To support the effectiveness of COMS to manage risk and continuously improve operational performance, we conduct independent assurance activities. The COMS Assurance team is responsible for conducting engagements around the requirements within the management system and providing independent and objective feedback.
In 2015, we conducted an engagement on the implementation of COMS across our business. The engagement found that the implementation process promoted effective collaboration and sharing of best practices between teams and that there was a high level of commitment displayed by the leaders who assisted in the implementation of COMS.
There were also learnings that came out of the engagement which have led to a number of improvements, including:
- Further educating operations leaders on the behaviours required to sustain a management system. In 2016, we will be operationalizing the leadership element of our management system, which includes standards on developing goals and targets and business plans based on our strategy. It also includes the identification of core behaviours required of staff to promote our desired culture and operate successfully within a management system.
- Creation of a plan to help ensure that our process for managing and sustaining corrective actions is clear
As part of the continuous improvement cycle of our management system, we’ve aligned the elements of COMS into a logically sequenced framework that can guide work at any level of the organization. Our framework has seven elements so it’s easy for staff to adopt and implement into their work. Each expectation within the seven-element framework describes key processes that Cenovus expects the operations teams to meet.
COMS in action during the Bruderheim terminal acquisition
In 2015, we acquired a crude-by-rail loading terminal at Bruderheim, northeast of Edmonton. We used the COMS framework at Bruderheim to get the facility up and running and to ensure it aligned with Cenovus’s standards. An implementation road map was developed based on our COMS standards to ensure the right people and skills were at site and to assess and prioritize the risks associated with the facility. By using COMS as a guideline, we were able to leverage best practices from other areas of the company and avoid duplicating work, while reducing risk.