Corporate governance system

Corporate governance system

RusHydro Group’s corporate governance seeks to make sure that the rights and interests of its shareholders are protected and its investor relations are based on mutual trust. The quality of corporate governance is the key driver behind growth of the Company’s value and dividend yields, contributing to a greater investment appeal.

RusHydro’s corporate governance system:

  • builds on compliance with the applicable Russian laws, Listing Rules of the London Stock Exchange and Moscow Exchange, and the U.S. OTCQX rules for international companies;
  • takes into consideration recommendations set out in the Corporate Governance Code of the Bank of Russia*;
  • seeks to incorporate best global and domestic practices.

Having the Federal Agency for State Property Management (on behalf of the Russian government) as the Company’s controlling shareholder exerting significant influence on the corporate management processes is the key distinctive feature of RusHydro’s governance framework. Certain procedures for the government to exercise its rights as a shareholder are stipulated by law and set out the proceedings through which the state can use its corporate rights to make and pursue decisions with respect to the Company.

Over the past five years, the Company’s corporate governance system has seen progressive improvements triggered by the implementation of the principles and guidelines set forth in the Bank of Russia’s Corporate Governance Code, including through the adoption of RusHydro’s own Corporate Governance Code*.

The Company’s corporate governance principles and procedures are laid out in its Charter and internal regulations, while the corporate practices are formalized in the Corporate Governance Code.

Andrey Kazachenkov
Member of the Management Board, First Deputy General Director

— RusHydro consistently implements a set of initiatives to improve the level of corporate governance: the Company has approved a roadmap for introducing the Corporate Governance Code, and its Long-term Development Program contains a special chapter dedicated to corporate governance.

Andrey Kazachenkov
Member of the Management Board, First Deputy General Director
— RusHydro consistently implements a set of initiatives to improve the level of corporate governance: the Company has approved a roadmap for introducing the Corporate Governance Code, and its Long-term Development Program contains a special chapter dedicated to corporate governance.

In 2019 some of the best practices were implemented in the Company: the electronic voting system at Shareholder meetings was introduced, a new dividend policy was approved, shareholders gained the right to request the convening of meetings of the Board of Directors, the quality and detalization of information disclosures were improved, the practice of preparing an integrated annual report was introduced, and the performance of the Board of Directors and the corporate governance system as a whole is now evaluated annually.

The level of progress in this sphere is perceived mainly through the assessments of external institutional stakeholders:

During the annual monitoring the Bank of Russia noted an increase in the level of implementation of the statements of the Corporate Government Code. At the same time, the share of principles fully observed in PJSC RusHydro has increased from 63% in 2016 to 95% in 2019;
In 2018 the Russian Institute of Directors (RID) upgraded the Company’s corporate governance rating to the level of "Advanced Corporate Governance Practice". Since then, PJSC RusHydro has held the bar high and is now the only Russian fuel and energy company with this rating;
In 2018 RusHydro entered the top 10 leaders of the National corporate governance index and has held its position ever since;
The Annual Report of PJSC RusHydro traditionally receives high awards in international and national competitions, including the Moscow Exchange, RAEX, LACP, ARC, ReportWatch, Corporate & Financial Awards, MarCom Awards, etc.
All internal corporate governance regulations adopted by PJSC RusHydro are available on the Company’s website at: http://www.eng.rushydro.ru/

Key principles [102−16]

Corporate governance structure [102−18]

Subsidiary management

PJSC RusHydro has stakes (including indirectly through its subsidiaries) in the authorized capital of companies engaged in electricity and heat generation and distribution, energy facilities design, construction, repair, maintenance, rehabilitation and modernization, and other activities.

RusHydro has, either directly or indirectly, 100% or majority (as the case may be) stakes in the authorized capital of most of the Group’s subsidiaries, which helps it pursue the Group’s strategy and corporate governance policies all across the controlled entities.

The Company contributes to subsidiaries' strategy delivery, stable economic growth and investment appeal, and protection of rights and interests of the shareholders of both the Company and its subsidiaries.

The Company manages its subsidiaries by being represented at general meetings of shareholders/participants, on boards of directors and in supervisory bodies of the subsidiaries.

Deciding on matters reserved to supreme governing bodies of the subsidiaries where PJSC RusHydro exercises the rights of the sole shareholder (participant) falls within the remit of the Management Board. Establishing the Company’s position on key matters regarding subsidiaries (reorganization, liquidation, increase of the authorized capital, approval of major transactions, participation of the subsidiary in other energy organizations, disposal of energy assets) falls within the remit of the Board of Directors. PJSC RusHydro’s position on other important matters regarding subsidiaries (KPI approval (adjustment), participation of the subsidiary in non-energy organizations, nomination of candidates to the subsidiary’s governance and supervisory bodies, etc.) is established by the Management Board.

In addition to that, the Company’s internal regulations formalize the right of the members of RusHydro’s Board of Directors to access documents and make inquiries on subsidiaries while also considering matters relating to material aspects of their business.

The regulations governing subsidiary relations include:

  • Charter of PJSC RusHydro;
  • Procedure for Interacting with the Organizations Where PJSC RusHydro Has an Interest.

Improving the corporate governance system

In 2019, the Company continued to implement the standards set forth in the Corporate Governance Code of the Bank of Russia (the “Code”) to improve overall corporate governance by consistently amending the internal regulations and applying the standards in the day-to-day operations.

The following key actions were taken in 2019:

  • The Company’s Board of Directors approved a new version of the Regulations on Dividend Policy and the Regulation on the Assessment of the Activities of the Board of Directors and the Board of Director Committees of PJSC RusHydro;
  • On June 28, 2019, the Company’s shareholders could for the first time vote at the Annual General Meeting of Shareholders using an electronic voting system, while also having an opportunity to benefit from a new forum on the meeting agenda;
  • With the adoption of a new version of the Internal Control and Risk Management Policy, the Board of Directors started playing a more prominent role in managing risks, including by approving Guidelines on RusHydro Group’s Risk Appetite;
  • The Company’s Charter and internal regulations were amended to include the following corporate governance enhancement clauses:
    • resolutions on critical matters set forth in recommendation 170 of the Code shall be passed by a majority vote involving all elected directors;
    • shareholders shall have access to the list of persons entitled to attend General Meetings of Shareholders as soon as such list becomes available to the Company;
    • material corporate actions involving a potential conflict of interest shall be assessed by independent directors;
    • shareholders holding collectively at least 2% of the Company’s voting shares shall have the right to submit proposals for the agenda of meetings held by the Company’s Board of Directors;
  • The quality and exhaustiveness of information disclosed in the Company’s annual report and on the Company’s website were improved;
  • Candidates to the Board of Directors were assessed to confirm they have the necessary experience and knowledge, good reputation and no conflict of interest, with the assessment results submitted to shareholders as part of the materials for the Annual General Meeting of Shareholders;
  • In April 2019, a meeting of the Board of Directors held in person reviewed results of the corporate governance practice assessment and self-assessment of the Board of Directors' performance, considered positive changes in the assessments of independent experts and took note of the proposals put forward to improve the Board’s performance*.

In addition to that, the reporting period saw election of the senior independent director, assessment of the risk management and internal control system efficiency, review of a report on progress in implementing the Information Policy Regulations, etc.

Improving the corporate governance system in subsidiaries

Over the reporting period, standardized subsidiary charters were adopted by the companies to ensure, among other things:

  • compliance with applicable laws;
  • harmonization of transaction approval approaches;
  • quicker turnaround for corporate procedures.

Corporate governance improvement prospects

Key areas for improvement as regards the Company’s corporate governance in 2020 include the following:

  • increasing the number of meetings held by the Board of Directors in person;
  • making arrangements for a comprehensive formal self-assessment of the Board of Directors and its committees with a focus on their performance as a single body and individual contributions of directors to the proceedings of the Board of Directors and its committees; drafting recommendations for the Board of Directors to improve the operating performance of the Board of Directors and its committees; and preparing a report on the results of the self-assessment exercise to be reviewed by the Board of Directors at a meeting held in person;
  • lowering the threshold applied to disclosures of material transactions on the Company’s website;
  • improving corporate governance performance in the ESG ratings.

Compliance with the Corporate Governance Code

As a result of corporate governance improvement efforts and implementation of the standards set forth in the Code, the share of principles fully observed by RusHydro increased from 92% in 2018 to 95% in 2019.

Compliance with the priciples and recommendations of the Corporate Governance Code, %
of the Corporate Governance Code’s principles recommended by Russian Central Bank are fully observed by PJSC RusHydro
For a detailed report on the Company’s compliance with the Corporate Governance Code principles and recommendations, see Appendix No. 1.

Compliance with the principles of the Corporate Governance Code*

Observance of standards and principles of the Code Observed Partially observed Not observed Total for 2019
Year 2017 2018 2019 2017 2018 2019 2017 2018 2019
Shareholder rights and equitable treatment of shareholders 11 12 12 2 1 1 - - - 13
The Company’s Board of Directors 23 32 34 10 1 3 3 1 36
The Company’s Corporate Secretary 2 2 2 —  —  —  —  —  —  2
Remuneration of the Company’s directors, executive bodies and other key managers 10 10 10 - - - - - - 10
Risk management and internal control system 6 6 6 - - - - - - 6
Disclosures and the Company’s information policy 6 7 7 1 - - - - - 7
Material corporate actions - 4 4 5 1 1 - - - 5

Corporate governance quality assessment

In the reporting period, RusHydro’s corporate governance quality was externally assessed by the Russian Institute of Directors (RID).

In September 2019, the RID affirmed the corporate governance ranking at 8 (“Advanced Corporate Governance Practice” according to the National Corporate Governance Rating (NCGR) scale).

The Company’s corporate governance practices were assessed based on four components, each including a set of criteria to reflect corporate governance policies, procedures and structures as required by applicable Russian laws, the Moscow Exchanges Listing Rules, recommendations of the Russian Corporate Governance Code and global best practices.

The RID concluded that the Company complies with the Russian legislative requirements imposed on corporate governance and observes many of the recommendations contained in the Russian Corporate Governance Code. In addition, the Company boasts a rather low risk of losses that might be incurred by owners due to corporate governance issues.

RusHydro is committed to further improving its corporate governance rating.

In addition to the external assessment, the Company runs annual corporate governance quality assessments by the Internal Audit Service. In 2019, the overall assessment grade was 92% out of 100% (vs 89% in 2018).

The assessment found the Company’s corporate governance system to be effective. At the same time, certain moderate gaps and areas for improvement were identified.

Corporate governance quality assessment by TopCompetence

In 2019, RusHydro engaged TopCompetence Corporate Development Center to undertake a comprehensive assessment of the corporate governance quality and draw comparisons between the Company and its peers.

The National Corporate Governance Index research published annually by TopCompetence focuses on Top 100 largest cap Russian companies listed on the Moscow Exchange to analyze key corporate governance trends, identify industry leaders and show a link between excellence in corporate governance and market indices.

In the 2019 research, RusHydro joined the ranks of the Top 10 Russian companies in terms of corporate governance quality.