The Statement of PAO TMK’s Board of Directors on Compliance with the Corporate Governance Principles set out in the Corporate Governance Code Recommended by the Bank of Russia to Issuers of Publicly Traded Securities
To incorporate the Code recommendations and comply with the new regulatory requirements we revised PAO TMK’s Articles of Association, Regulations on the General Meeting of Shareholders, Regulations on the Board of Directors, Policy on Remuneration of Members of the Board of Directors, and Policy on Remuneration of Key Executives in 2017. We also updated the Regulations on the Dividend Policy, the Regulations on the Information Policy and drafted a Long-Term Top Management Incentive Program, which were adopted by the Board of Directors after the reporting date.
The Company carries out annual performance assessments of the Board of Directors, its Committees, and individual Directors. In late 2015, our corporate governance framework including the Board of Directors’ performance, was assessed by an independent auditor. At the end of the 2016/2017 corporate year, PAO TMK’s Board of Directors ran a self-assessment of its performance, as guided by the Nomination and Remuneration Committee. Its results were reviewed at the meeting of the Board of Directors held in person on 27 April 2017.
This Annual Report summarizes the most significant elements of PAO TMK’s corporate governance model and practices, including the Corporate Governance Code Compliance Report (attached hereto). The compliance with the Russian Corporate Governance Code was assessed as recommended by the Bank of Russia (Letter of the Bank of Russia No. IN-06-52/8 dated 17 February 2016).
When assessing compliance, the Board of Directors applied a substance-over-form approach and concluded that the Company was in full compliance with the vast majority (91.1%) of the Russian Corporate Governance Code recommendations and in partial compliance with 100% of the recommendations. The Board of Directors notes the progress made in incorporating the Russian Corporate Governance Code recommendations.
The reasons for non-compliance with certain recommendations of the Code, the alternative options used by the Company and our plans to incorporate the missing recommendations are detailed in the Corporate Governance Code Compliance Report.
According to the National Corporate Governance Index annual survey run by the Russian National Association of Corporate Directors and supported by the Moscow Exchange and the Russian Union of Industrialists and Entrepreneurs, TMK ranked among the Top 20 Russian companies with the best corporate governance disclosures in 2017. When compiling the rankings, experts looked at the degree of compliance with the national corporate governance principles outlined in the Code.
According to the National Corporate Governance Index annual survey, TMK ranked among the Top 20 Russian companies with best corporate governance disclosures in 2017.
Shareholders of PAO TMK may exercise their rights as set out in the Company’s Articles of Association by participating in the General Meeting of Shareholders. The Annual General Meeting of Shareholders is held on an annual basis. In addition, extraordinary meetings may be held, if so resolved by the Board of Directors or requested by the Revision Committee, auditor or shareholder(s) holding at least ten percent of shares. We comply with all recommendations on material corporate actions, which allows us to protect the rights of shareholders and ensure equitable treatment.
Over the past six consecutive years, Directors of PAO TMK have been consistently recognized among the best professionals in corporate governance by the Director of the Year National Awards.
As at 31 December 2017, the members of the Board of Directors held no interest in affiliated companies.
In 2017, the Board of Directors held 23 meetings, including six meetings in person.
In accordance with the legislation of the Russian Federation, the General Meeting of Shareholders may resolve to pay to members of the Board of Directors remuneration reflecting the time and effort commitment of directors to the preparation of, and participation in, meetings of the Board of Directors and its Committees.
Under the Policy, the amount of remuneration depends on the performance by a director (who is not an executive director of the Company) of the main and additional duties of the Chairman of the Board of Directors, or the Chairman or a member of a Board Committee.
Remuneration is payable to Board of Directors members who have attended over 75% of total meetings held. Remuneration is paid to Board of Directors members pro-rata to the time spent on the Board of Directors during the reporting year (time spent acting as Chairman of the Board of Directors and/or member of a Committee and/or Chairman of a Committee). A Board of Directors member sitting on several Committees is remunerated separately for acting as a member of each Committee.
To distinguish between the principles and structure of remuneration for non-executive members and executive members of the Board of Directors and top managers of the Company, the following remuneration components are not used in the remuneration structure for non-executive members of the Company’s Board of Directors:
Remuneration sizes and forms of accrual, as well as the size of reimbursable expenses are subject to preliminary approval by the Board of Directors taking into account recommendations of the Nomination and Remuneration Committee of the Board of Directors.
Directors’ attendance at meetings of the Board of Directors and relevant Board Committees during 2017
This report details the performance of the Audit Committee of PAO TMK’s Board of Directors (the “Committee”) in 2017 and between 01 January 2018 and 31 March 2018.
Питер О'Брайен признан лучшим председателем комитета по аудиту совета директоров в рамках XII национальной премии «Директор года», которая ежегодно проводится Ассоциацией независимых директоров, РСПП и PwC.
In 1H 2017, the Committee’s members included:
In 2H 2017 and between 01 January 2018 and 31 March 2018, the Committee’s members included:
In 2017 and between 01 January 2018 and 31 March 2018, the Committee addressed the following key issues:
Based on the results of its oversight of the external audit exercise, the Audit Committee concluded that the audit had been carried out to professional standards.
The Audit Committee reviewed PAO TMK’s accounting (financial) statements for 2017 prepared under the Russian Accounting Standards (RAS) and the consolidated IFRS financial statements of PAO TMK for 2017, and recommended that the Board of Directors approve them.
The Committee’s main role is to lead the process for management appointments and succession planning, as well as improve the corporate governance system and bring it in line with international best practice.
In 1H 2017, the Committee’s members included:
In 2H 2017, the Committee’s members included:
The Committee’s roles include making recommendations to the Board of Directors on the Company’s business priorities and growth strategy.
In 1H 2017, the Committee’s members included:
During the election of the new Committee in June 2017, a decision was made by the Board of Directors to expand its membership to five members. In 2H 2017, the Committee’s members included:
We have been performing assessments of our corporate governance framework and the Board of Directors’ performance since 2006.
PAO TMK’s day-to-day operations are managed by the CEO and the Management Board. The CEO also acts as the Chairman of the Management Board. Following the proposal of the Chief Executive Officer, the Board of Directors elected eight members of the Management Board.
In 2017, the composition of TMK’s Management Board was changed as follows: Vyacheslav Popkov, First Deputy CEO (Industrial Engineering Unit) of PAO TMK, was elected to the Management Board, and Alexander Lyalkov, former First Deputy CEO of PAO TMK, terminated his membership of the Management Board (due to retirement).
As at 31 December 2017, the Management Board membership was as follows:
The Policy on Remuneration of Key Executives of PAO TMK, adopted by the Board of Directors in April 2017, is focused on stimulating employee motivation to deliver on tasks and action plans, ensuring the Company’s financial stability and continuity of its business and development.
Remuneration is accrued upon review by the Board of Directors of the Company’s performance in the past year.
When summarizing its annual performance, the Company uses the reporting data submitted by financial services, including EBITDA, product shipments, sales revenue, delivery of the investment program, etc.
In addition to these performance indicators, managers’ performance can also be assessed based on their performance against expense budgets, as well as qualitative indicators, including project management, management of subordinate units, management assessment of performance within their area of responsibility, etc. All this data may be decomposed by top managers’ responsibility areas into divisions, sections, individual assets, or business lines.
For key executives, bonus KPIs include business targets approved as part of the Company’s plans and budget for the reporting period.
Basic remuneration and a set of KPIs are individually determined for each manager, which is included in a short-term incentive program. Each KPI has a certain weight assigned to it. Based on the full-year results, the weights of quantifiable KPIs are adjusted subject to the actual performance against such KPIs, measured on the approved scale.
During 2017, the Board of Directors and the Nomination and Remuneration Committee developed a long-term share-based incentive program for members of executive bodies and other key executives of the Company. The program was adopted after the reporting date.
Our information policy is based on the principle of improving transparency and maintaining continuous interaction with shareholders, investors, and other stakeholders.
Since TMK’s securities are listed on the Moscow Exchange and the London Stock Exchange, information is disclosed
Risk management, internal control, and internal audit systems in place at TMK are formalized and based on generally accepted international standards.
Risk management at TMK is a process designed to identify, assess, manage, and control potential risk events or situations to provide reasonable assurance that the Company’s goals and objectives will be achieved.
These tasks are fully in line with the Russian Corporate Governance Code.
TMK’s internal controls are a system of control bodies and procedures (methods) aimed at covering the risks impeding the Company’s business growth.
In line with the COSO model, TMK fosters a control environment, maintains a risk assessment system, and implements control procedures.
The Company has developed a system that ensures the use of controls at every management level based on centralization, delegation, and role distribution principles. TMK’s executive bodies ensured the distribution of functions and powers related to risk management and internal controls between the managers of business units accountable to them.
The purpose of TMK’s internal audit is to assist the Board of Directors (Audit Committee) and executive bodies in improving the management of the Company and its financial and business activities, including through systemic and consistent analysis and assessment of risk management, internal controls, and corporate governance.
Based on the audits conducted in 2017, the IAS expressed the opinion that overall, internal controls, risk management, and corporate governance in place at TMK Group are able to guarantee the achievement of the Company’s business targets and fair presentation of the accounting and reporting information of the Company’s business units and TMK Group entities.
In line with TMK’s Strategy to 2027 and strategic priorities for 2018–2022, as well as following the risk analysis and assessment, the following business processes of the Company’s business units and TMK entities were included in the IAS’s Audit Plan for 2018:
The Revision Committee controls TMK’s financial and business performance and the Company’s compliance with the Russian laws and regulations on financial and business performance and decision-making of management bodies.
The Company engages an external auditor on an annual basis to independently assess the reliability of the accounting (financial) statements prepared in accordance with RAS and IFRS.
The Company engages an external auditor on an annual basis to independently assess the reliability of the accounting (financial) statements prepared in accordance with RAS and IFRS. section9.path7.lead.2
The Company seeks to maintain the balance between the interests of shareholders and the management who are committed to high confidence, ethical business practices and standards.
Acting reasonably and in good faith, directors pass resolutions on a fully informed basis, with no conflict of interest, subject to equal treatment of the Company’s shareholders, and assuming normal risk levels.
No conflicts of interest were identified with either members of the Board of Directors or members of the Management Board of PAO TMK in 2017.
TMK implements initiatives to create an environment of zero tolerance for any form of corruption
Compliance with applicable laws, corporate documents, professional excellence, and honesty are mandatory for all TMK’s employees.
The Company has in place the Information Security Policy of TMK Group Russian Entities (new version dated 08 July 2016, the CEO’s Directive No. 264) developed in line with the applicable information security laws, including those restricting or prohibiting the sharing of certain information in Russia (restricted information).