Chapter 4
4.1. Corporate governance system
Events of 2015
- The second year of the highest corporate governance rating – 8
- Establishment of the Committee on Energy Development of the Far East
- The Board of Directors has approved an action plan (“roadmap”) for the implementation of key provisions of the Corporate Governance Code in the new edition
- “Association of Independent Corporate Directors” conducted an independent assessment of the Board of Directors.
4.1.1. Observance of the Corporate Governance Principles
RusHydro is one of the largest Russian utility holding companies with the State being the main shareholder of the Company. The total number of the Company shareholders exceeds 360 thousand. The Group’s corporate governance practices are based on the observance of the requirements of the Russian law and of the requirements set for the companies listed at Moscow and London stock exchanges. The Group also maintains balance of the interests of the State and of all stakeholders.
Further improvement of the corporate governance system is stated by the Long-term Development Programme of PJSC RusHydro as one of the key directions. The Company’s work and its result in the specified direction are much more significant due to the approval in 2014 of the Corporate Governance Code (The Code) which replaced the Corporate Code of Conduct 2002.
PJSC RusHydro’s rating is confirmed at level 8 “Best corporate governance practice”
According to the results of the monitoring conducted in 2015, the PJSC RusHydro rating was confirmed by the Russian Institute of Directors (RID) at level 8 “Best corporate governance practice” as per the scale of the National Corporate Governance Rating. At the present time, four Russian companies have the rating at this level 8: the PJSC RusHydro, OJSC Magnitogorsk Iron & Steel Works, OJSC Joint-Stock Financial Corporation “Sistema” and PJSC TransContainer.
Read more on the RID web-site.
And on the PJSC RusHydro web-site.
Compliance with the principles of the Corporate Governance Code*
| Section | The principles recommended by the Code | Principles, the Company fully observed | Principles, the Company partially observed | Principles, the Company are not observed |
|---|---|---|---|---|
| Shareholder rights and equality of shareholders in the exercise of their rights | 13 | 9 | 3 | 1 |
| Board of Directors | 37 | 12 | 8 | 7 |
| Corporate Secretary | 2 | - | 2 | - |
| The system of remuneration of members of the Board of Directors, executive bodies and other key management employees of the Company | 10 | 3 | 6 | 1 |
| Risk management and internal control system | 6 | 5 | 1 | - |
| Disclosure of information about the Company, the Company's information policy | 7 | 1 | 6 | - |
| Significant Corporate Actions | 5 | - | 4 | 1 |
| In total | 80 | 30 | 40 | 10 |
In the reporting year, PJSC RusHydro conducted works on updating the PJSC RusHydro’s Corporate Governance Code. Draft of the Code new version taking into account the specific character of the PJSC RusHydro’s activity, as well as the existing corporate governance practice, has undergone examination and was agreed upon by the key stakeholders of the Company, in particular, of the federal executive authorities, experts of the working group on creation of the international financial center in the Russian Federation, professional security market participants, rating agencies, and the operator of the Company depositary programme – The Bank of New York Mellon. The experts noted the positive fact of the Company intention to continue work on improvement of the corporate governance practice.
In the reporting year, PJSC RusHydro conducted works on updating the PJSC RusHydro’s Corporate Governance Code. Draft of the Code new version taking into account the specific character of the PJSC RusHydro’s activity, as well as the existing corporate governance practice, has undergone examination and was agreed upon by the key stakeholders of the Company, in particular, of the federal executive authorities, experts of the working group on creation of the international financial center in the Russian Federation, professional security market participants, rating agencies, and the operator of the Company depositary programme – The Bank of New York Mellon. The experts noted the positive fact of the Company intention to continue work on improvement of the corporate governance practice.
A report on the observance by RusHydro of principles and recommendations of the Code of Corporate Governance approved by the Bank of Russia and the British Code of Corporate Governance compliance report is to be found in the Supplement to the Annual Report. The observance of corporate governance principles by RusHydro was assessed by comparing each Code provision with the Company’s corporate governance practices, taking into account confirming internal documents.
In 2015 the Board of Directors approved:
- Regulations on enhancement of the investment and operating efficiency and cost reduction,
- Regulation on internal audit,
- Regulation on Quality Management System,
- Regulation on Risk Management System.
Standard regulations are introduced in all subsidiaries and dependent companies, complying with requirements of the applicable law, as well as unified standards according to the following areas of activity:
- procurement policy,
- credit policy,
- internal control and risk management,
- insurance,
- business planning, etc
4.1.2. Corporate Governance Structure
The Group’s highest governance body is the General Meeting of Shareholders which provides for the implementation of shareholders’ right to participate in corporate governance. The Board of Directors is responsible for the development of the strategy and control over the executive bodies, providing for the observance of rights and legitimate interests of the Company shareholders. To facilitate the development of the most efficient solutions the Board of Directors has five committees, with two of the committees – the Audit Committee and the HR and Remuneration Committee consisting exclusively of independent directors.
The Management Board is responsible for achieving goals, implementing development strategies and managing the Company’s daily operations. The work of the Management Board is organized by the Chairman, the Chief Executive Officer, who is the sole executive body of the Company.
Internal Policies and Procedures regulating the process of report preparation
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Order on Annual Report preparation and Corporate Social Responsibility and Sustainable Development Report for the year 2015
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Code of Corporate Ethics of PJSC RusHydro
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Internal Audit Policy of PJSC RusHydro (New version)
-
Internal Audit Policy and risk management of PJSC RusHydro
Liability insurance of the corporate body members and officials
Insurance of liability and financial risks of directors, officials and the Company (according to the international classification – Directors & Officers Insurance, D&O) is used while defending the Company (which refers to the Company and its subsidiaries) and members of its corporate bodies against possible third parties’ suits which may arise as a result of the professional activities of the Company’s directors and officials. D&O insurance is “Best Practices” for the companies entering the markets of foreign capital and is used as additional defense when adding the company shares to the listing of the most foreign stock exchanges.
An open tender is carried out each year to select an insurance company for the D&O insurance contract. The insurance contract, which is concluded for a one-year term, implies a six-year period for the disclosure of insurance claims against the officers who have resigned. Coverage for the insurance event amounts to 30 mn US dollars, the additional insurance coverage 1 mn US dollars is fixed for the independent director, and total additional insurance coverage for the independent directors is 2 mn US dollars.
The liability coverage for the members of the governing bodies complies with the international insurance standards in terms of the volume of the insured risks, the limits of indemnity, and other insurance conditions.
Corporate Governance Structure
4.1.3. Governance over the Company’s Subsidiaries
JSC RusHydro has its share in the chartered capital of the companies engaged in design, construction, repair, service, rehbilitation and modernisation of power facilities, as well as in production and electricity sales.
The Company interacts with subsidiaries and dependent companies for the purpose of implementing its strategy and ensuring sustainable economic development and investment attractiveness, as well as protecting the rights and interests of the Company and its subsidiaries and dependent companies.
The Company exercises governance over the dependent companies via its representatives at the general meetings of shareholders and in the Boards of Directors and control bodies of said dependent companies. The governance is exercised in accordance with the Articles of Association and the Interaction Policy of PJSC RusHydro with organisations in which the Company has its interest.
Making decisions relating to governance over dependent companies 100%-owned by PJSC RusHydro is within the framework of reference for the Company’s Management Board. The Company’s position on strategic issues relating to the activities of the dependent companies (concerning re-organisation, liquidation, changes in the charter capital, approval of major transactions, the interest of a dependent company in other organisations) is determined by the Company’s Board of Directors.
PJSC RusHydro pays significant attention to improving corporate governance concerning its subsidiaries and dependent companies, implementing initiatives to increase the level of transparency of the dependent companies and controlling the adherence of the dependent companies to legal requirements pertaining to mandatory information disclosure.