Sunoco’s approach to governance is organized into three key segments: establishing the company’s strategic direction; executing the strategy and managing risks; and ensuring compliance with corporate policies, procedures and standards.

Sunoco published its first set of formal Corporate Governance Guidelines in 1998. Under the direction of the Board Governance Committee and the Chief Governance Officer, the Guidelines are reviewed and re-published yearly in the Sunoco proxy statement so that shareholders are informed regarding how the company is governed. Sunoco’s Corporate Governance Guidelines also are available on Sunoco's web site.

The Sunoco Board of Directors is structured to ensure that qualified persons are elected as directors, that – other than the CEO – all directors are independent, and that Board members are provided with complete and transparent information from management. The Board‘s function is to annually review and approve the three-year strategic plan and accompanying operations plan. In addition, the Board reviews and approves all major corporate activities and monitors political, economic and regulatory trends and issues that may affect the company.

The Board conducts its work through the following committees:

• Audit;
• Compensation;
• Executive;
• Governance; and
• Public Affairs.

The Public Affairs Committee has lead responsibility for most HES issues, with additional involvement by the Audit and Compensation Committees. The Board Compensation Committee reviews and approves the yearly HES Modifiers, which become part of the corporate success sharing targets. These targets are stretch targets designed to drive improvement over "best-ever" performance. Should we not meet the target, having them still drives us to improve. We believe that, if we always met our performance targets, then they have not been set aggressively enough.  

Board Committee descriptions and charters are available on the Sunoco, Inc. web site.

In addition to performing the detailed analysis that leads to recommended strategic directions and implementing the approved corporate strategy, Sunoco management is responsible for identifying potential risks to the corporation and managing them to ensure long-term financial stability. Sunoco employs integrated management systems to ensure that HES issues are being addressed in a systematic way and that all legal and corporate requirements are met.

Responsibility for HES performance is vested in each business unit. Corporate HES performance provides technical assistance to individual facilities and the business units to ensure consistency and to disseminate learning. HES Regulatory Affairs is responsible for identifying and analyzing strategic HES issues and for auditing performance and management systems. The Corporate HES Committee meets monthly.

Corporate Governance
Sunoco’s corporate governance practices are designed to ensure that qualified directors are elected, that -- other than the CEO -- Sunoco’s directors are independent directors, and that directors are provided with full and transparent information from management so that the Board can function at a high level. Corporate governance practices also help to ensure that full and transparent disclosures are made by Sunoco to its shareholders, the securities markets and the Securities and Exchange Commission.

Sunoco’s Board has been focused on corporate governance practices for many years. Sunoco published its first set of formal corporate governance guidelines in 1998 and has updated and republished these guidelines each year in its proxy statement so that its shareholders would be well informed as to the manner in which Sunoco is governed.

Sunoco’s Board has specifically charged its Governance Committee with the responsibility of keeping up with “best practices” in corporate governance so that Sunoco’s practices can continually be updated. Recognizing that corporate governance is of critical importance to the enterprise and thus merits adequate resources, the Board elected in 2002 a Chief Governance Officer -- a senior level executive whose job duties are dedicated to corporate governance and providing guidance with respect to compliance with the federal securities laws and the New York Stock Exchange Listing Standards. With respect to corporate governance matters, this executive reports directly to the Governance Committee and the full Board to help ensure that governance practices, consistent with Sunoco’s “best practices” philosophy, are implemented over time and in the context of an ever-changing and increasingly complex corporate environment.

The Sunoco Board of Directors consists of eleven members (one employee and ten outside members) who participate on five committees. The committees and their roles are:

• Assist the Board of Directors in its oversight of the:
  • Integrity of the Company's financial statements, and disclosure and other internal control processes;
  • Company's compliance with ethics and compliance policies, and legal and regulatory requirements;
  • Independent auditor’s performance, qualifications and independence; and
  • Performance of the internal audit function and independent auditors.
• Prepare the report of the Committee required to be included in the Company's annual proxy statement;
• Select, retain, compensate, oversee and evaluate the independent auditor;
• Select and evaluate the General Auditor; and
• Provide oversight on the Company's guidelines and policies with respect to business risk management and any other matters as the Board or the Committee deems appropriate.

Compensation Committee

• Reviews and approves Sunoco’s compensation philosophy;
• Reviews and approves executive compensation programs and awards;
• Reviews and approves, and makes recommendations to the Board with respect to Sunoco’s short- and long-term incentive plans;
• Determines and approves Chief Executive Officer ("CEO") compensation;
• Determines and approves non-CEO executive officer compensation;
• Produces an annual report on executive compensation in accordance with applicable rules and regulations of the Securities and Exchange Commission for inclusion in the Company's proxy statement; and
• Reviews Sunoco’s general employee pension benefit plans and other benefit plans as appropriate.

Executive Committee

• The Executive Committee, per the company’s by-laws, exercises all or any of the powers of the Board in the management of the business, affairs and property of the Company during the intervals between meetings of the Board.

Governance Committee

• Reviews the role, composition, and structure of the Board and its committees.
• Reviews and evaluates individual Board members each year prior to recommending the annual directors’ slate for election by the shareholders at the Annual Meeting.
• Identifies and reviews qualified individuals as potential new director candidates, consistent with criteria approved by the Board.
• Monitors and reviews corporate governance issues, emerging trends and “best practices” and has specifically been charged with recommending to the Board, on an on-going basis, a set of corporate governance guidelines; and
• Additionally, the Committee sets and administers policies governing the level and form of directors’ compensation.

Public Affairs Committee

• Reviews the Company's policies, practices and performance in the areas of environmental protection, health and safety, equal employment opportunity and diversity practices, government affairs, and corporate contributions;
• Assesses and evaluates the Company's performance as a responsible corporate citizen and keeps the Board apprised of the posture, integrity and propriety of the Company's relationship with its Constituencies;
• Reviews management's positions on Public Affairs developments and trends throughout the industries in which the Company operates;
• Reviews the Company's position regarding important Public Affairs issues;
• Assures that the Company addresses critical Public Affairs issues from a perspective that emphasizes the interests of various Constituencies, recognizing the long-term interests of shareholders; and 
• Assumes oversight responsibility for the resolution of significant complaints from shareholders, and the proper handling of shareholder proposals that concern topics within the purview of the Committee for inclusion in the Company's proxy statement.

To ensure compliance with its policies, standards, and procedures, the company has established a compliance program. The company’s policies include:

• Antitrust
• Code of Business Conduct and Ethics
• Conflict of Interest
• Insider Trading
• Prohibited Payments
• Risk Management
• HES Principles

Each year employees are required to take training in areas such as business ethics and conflict of interest. Computer-based training modules have been developed so the employees are able to take the training on-line and then are tested regarding their knowledge of the training.

Additionally, each year employees answer an online questionnaire to determine if they have any knowledge of possible breaches of policy. Responses are analyzed and followed up by the Chief Compliance Officer.

Employees always have the opportunity to report issues either through their supervisor or by means of the company’s compliance hotline. Employees are trained that they can report issues (anonymously if desired) involving business conduct, ethics, conflict of interest, discrimination, harassment, theft, fraud, financial integrity, etc.

ERM
Sunoco has initiated an effort to formalize and expand its focus on Enterprise Risk Management...
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