Corporate Governance Report
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
In 2017, we continued consistent and systemic efforts to improve our corporate governance practices by incorporating provisions of the Corporate Governance Code recommended by the Bank of Russia (Russian Corporate Governance Code) and delivered on all our commitments.
As an issuer of shares included into the A1 quotation list of the Moscow Exchange, PAO TMK ensured that all of its five independent directors comply with the new independence criteria (effective from 01 October 2017) co-ordinated by the Moscow Exchange with the Russian Corporate Governance Code. The tighter criteria apply to all independent director relationships: with the issuer, with a substantial shareholder, with the issuer’s substantial counterparties, competitors, and with the government.
As at the year-end, PAO TMK fully adhered to all corporate governance rules of the Moscow Exchange, with its ordinary shares remaining on the A1 quotation list.
We also confirm that the Company’s corporate governance framework complies with the Corporate Governance Code of PAO TMK (TMK’s Corporate Governance Code) adopted by us as a company on the standard listing segment of the London Stock Exchange.
TMK’s corporate governance framework follows the Russian Corporate Governance Code.
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.
incorporation progress at PAO TMK
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.
We reaffirm our commitment to the Russian Corporate Governance Code and will continue to make consistent efforts to fully incorporate them to the benefit of all stakeholders.
Benefits from the rollout of the Unified Remuneration System
- Ability to maintain competitive pay levels to recruit and retain best talent
- Improved incentive tools to motivate employees to raise productivity and product quality levels
- Transition to uniform principles of employee compensation at Russian pipe plants, optimization of salary structure
- Increased agility of the incentive system for plant employees to changes in operational and strategic objectives; correlation between employee performance against their individual KPIs and their salaries
- Simplified payroll administration, making it transparent for plant employees
- Establishment of a platform for subsequent digitalization of HR management processes.
According to the National Corporate Governance Index annual survey, TMK ranked among the Top 20 Russian companies with best corporate governance disclosures in 2017.
The Articles of Association provide that the General Meeting of Shareholders is PAO TMK’s supreme governing body, with key management roles delegated by shareholders to the Board of Directors. In order to ensure the Company’s day-to-day management, the Board of Directors elects the CEO and approves candidates to the Management Board as advised by the CEO. The Board of Directors also proposes candidates to executive bodies and to entities controlled by the Board of Directors.
It establishes committees whose resolutions are of an advisory nature.
To ensure efficient control over the Company’s financial and business operations, as well as compliance with Russian laws and regulations, the General Meeting of Shareholders elects the Revision Committee and approves the Company’s auditor.
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.
Shareholders owning at least two per cent of shares may put forward proposals as regards the agenda for the Annual General Meeting, propose candidates to the Board of Directors, the Revision Committee, and the Counting Commission, as well as convene Board of Directors’ meetings.
In 2017, the Annual General Meeting of Shareholders was held, along with one extraordinary meeting. The meetings’ agenda included, inter alia: approval of the revised Articles of Association, approval of the revised regulations on the General Meeting of Shareholders, the Board of Directors, and the Revision Committee, distribution of profits for 2016, election of the Board of Directors and the Revision Committee, auditor approval, and approval of related-party transactions.
Dividend Policy
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.
Composition of the Board of Directors
With the Company’s shares included in the prime listing on the Moscow Exchange, the composition of our Board of Directors is subject to strict requirements, in particular regarding the adequate number of independent directors (at least three). The independence criteria have been gradually tightened and brought into full compliance with the Russian Corporate Governance Code as from 01 October 2017. In addition, the effective strategic management of TMK, one of the world’s leading producers of tubular products, requires highly professional directors committed to ethical principles of business conduct.
Members of the Board of Directors of PAO TMK are individuals capable of making independent judgements; they are distinguished for their impeccable business and personal reputation and possess all required skills: more than half of the eleven directors have higher academic degrees, including four doctors of sciences; about half of the directors are independent directors. Nine directors have economic degrees, with three of them also holding engineering degrees. One director has a degree in management, and two directors have engineering degrees. Five directors have government awards – Orders of the Russian Federation.
Directors
Directors
Directors
Over the past six consecutive years, members of TMK’s Board of Directors have been consistently recognized among the best professionals in corporate governance by the Director of the Year National Awards held annually by the Independent Directors Association, Russian Union of Industrialists and Entrepreneurs, and PwC, jointly with the Moscow Exchange and Sberbank.
Peter O’Brien, independent director who has led TMK’s Audit Committee over the past six years, was named the best audit committee chairman of a board of directors by the judging panel of the 12th Director of the Year National Award in 2017. Members of TMK’s Board of Directors Mikhail Alekseev, Peter O’Brien, and Alexander Shokhin were ranked among the Top-50 Independent Directors Dmitry Pumpyanskiy, Chairman of TMK’s Board of Directors, was included in the Top-25 ranking of Board of Directors Chairmen.
Starting from 2006, the Company has maintained liability insurance for its directors and officers. Liability insurance covers the insured persons against any possible damage caused by unintentional errors (or omissions) in the course of managing the Company. The terms and conditions of insurance contracts, including risk coverage, comply with the international best practice of insurance against similar risks.
The following changes were made to the membership of the Board of Directors in 2017: by resolution of the General Meeting of Shareholders dated 08 June 2017, Alexander Pumpyanskiy, Managing Director of Lera Capital SA, was elected Non-Executive Director. Igor Khmelevskiy, Non-Executive Director, stepped down from the Board of Directors.
PAO TMK’s Board of Directors has eleven directors, i.e. the optimal number for public companies.
As of the Annual Report date, five out of the eleven directors were considered independent, i.e. did not depend on the Company’s officers, affiliates, significant counterparties or competitors, or governmental agencies that might influence their objectivity. The directors are considered independent as per the criteria set out both in PAO TMK’s Corporate Governance Code and the Russian Corporate Governance Code. In particular, Paragraph 109 of the Russian Corporate Governance Code specifies that the Board of Directors may recognize a Director as independent even if the Director has signs of affiliation with the issuer. Alexander Shokhin, who has been on the Board of Directors for over nine years, is recognized as independent because he has an established reputation in the investment community, and independence of his position does not raise any doubt. This decision is disclosed on our website.
The independent status is to be confirmed by the Nomination and Remuneration Committee each time a Director is elected to the Board.
As at 31 December 2017, following the Annual General Meeting of Shareholders of 08 June 2017, PAO TMK’s Board of Directors was composed as follows:
Pumpyanskiy
Born in 1964
Graduated from Kirov Urals Polytechnic Institute in 1986. PhD in Technical Sciences, Doctor of Economics. Beneficial owner of TMK. Member of the Board of Directors since 2004, Chairman of the Board of Directors since 2005. Mr. Pumpyanskiy was awarded a second-class Medal of the Order for Merit to the Fatherland, a fourth class Order for Merit to the Fatherland, and Order of Honour, is a Russian Government prize winner in Science and Technology, was conferred with the title of Honoured Metallurgist and declared the winner of the 6th “Director of the Year” National Award in the Chairman of the Board: Contribution to the Development of Corporate Governance category in 2011.
At present, he is extensively involved in public activities aimed at promoting the Russian metals industry. Fields of interest: metals industry economics and physics of metals. Author of four monographs and over 70 scientific papers.
Principal employment: President of JSC Sinara Group.
Relevant experience in the last five years:
Alekseev
Born in 1964
Member of the Board of Directors since 2011. Graduated from Moscow Finance Institute in 1986 and received a postgraduate degree as a Doctor of Economics from the same institution in 1989.
Principal employment: Chairman of the Management Board of AO UniCredit Bank.
Relevant experience in the last five years:
Kaplunov
Born in 1960
Has been with TMK since 2001, member of the Board of Directors since 2005. Graduated from Moscow Finance Institute in 1982 and later completed a postgraduate degree program there, PhD in Economics. Commended by the Ministry of Industry and Trade of the Russian Federation.
Principal employment: First Deputy CEO of PAO TMK.
Relevant experience in the last five years:
Kravchenko
Born in 1960
Member of the Board of Directors since 2016. Graduated from Moscow Auto mechanical Institute in 1982 as a Doctor of Engineering and a Professorship. Decorated with the Order of Friendship.
Principal employment: President of Boeing Russia and CIS.
Relevant experience in the last five years:
O’Brien
Born in 1969
Member of the Board of Directors since 2012. Graduated from Duke University (USA) in 1991 and obtained an MBA from Columbia University Business School in 2000. Took a course in AMP (Advanced Management Program) at Harvard Business School in 2011. In 2008, Mr. O’Brien won the National Award of the Independent Directors Association in the Contribution to the Improvement of Corporate Transparency special category, and in 2017, he won the National Award of the Independent Directors Association as the best Chairman of the Audit Committee of the Board of Directors.
Relevant experience in the last five years:
Papin
Born in 1955
Member of the Board of Directors since 2005, member of the Nomination and Remuneration Committee. Graduated from Donetsk Polytechnic Institute in 1977. Mr. Papin was awarded a Badge of Honour and a Certificate of Merit from the Ministry of Industry and Energy of the Russian Federation.
Principal employment: Vice President of JSC Sinara Group.
Relevant experience in the last five years:
Foresman
Born in 1968
Member of the Board of Directors since 2012. Graduated from Bucknell University (USA) in 1990 and Harvard University Graduate School of Arts and Sciences in 1993. Obtained a certificate from Moscow Power Engineering Institute in 1989.
Principal employment: Vice Chairman of UBS Investment Bank.
Relevant experience in the last five years:
Pumpyanskiy
Born in 1987
Member of the Board of Directors since 2017. Graduated from the University of Geneva with a degree in Business Management, and obtained Master’s degree in Economics at the University of Geneva in 2015.
Principal employment: Vice President of Sinara Group’s Moscow Branch.
Relevant experience in the last five years:
Chubais
Born in 1955
Member of the Strategy Committee, member of the Board of Directors since 2015. Graduated from the Palmiro Togliatti Leningrad Institute of Engineering and Economics in 1977 and the School of Advanced Training of Moscow Power Engineering Institute in 2002, Candidate of Economics (PhD). Decorated with the Order for Merit to the Fatherland, the Medal for Merit to the Chechen Republic, and a first class Medal for Special Contribution to the Development of Kuznetsk Basin. Three times commended by the President of Russia (1995, 1997, and 1998).
Principal employment: Chairman of the Management Board of RUSNANO Management Company LLC.
Relevant experience in the last five years:
Shiryaev
Born in 1952
Has been with TMK since 2003, member of the Board of Directors since 2005. Graduated from the Sverdlovsk Institute of National Economy in 1991. Mr. Shiryaev was awarded by the Sverdlovsk Region with a second and third class Badge of Merit and an Honored Metallurgist title.
Principal employment: CEO of PAO TMK.
Relevant experience in the last five years:
Shokhin
Born in 1951
Member of the Board of Directors since 2008. Graduated from Lomonosov Moscow State University in 1974. Doctor of Economics, Professor. Mr. Shokhin was awarded a third and fourth class Orders for Merit to the Fatherland, Order of Alexander Nevsky, Order of Honor, and a number of public and government awards, including second class Order of Holy Prince Daniel of Moscow and a medal in commemoration of the 850th Anniversary of Moscow. In 2008, won the National Award of the Independent Directors Associations in the Independent Director category.
Principal employment: President of the Russian Union of Industrialists and Entrepreneurs.
Relevant experience in the last five years:
As at 31 December 2017, the members of the Board of Directors held no interest in affiliated companies.
In 2017, members of the Board of Directors entered into transactions to dispose of shares in PAO TMK:
A member of the Board of Directors Andrey Kaplunov disposed ordinary registered shares in PAO TMK on 29 December 2017: 70 000
A member of the Board of Directors Sergey Papin disposed ordinary registered shares in PAO TMK on 29 December 2017: 108 697
Kurbatov
Born in 1967
Graduated from Kirov Urals Polytechnic Institute, the Academy of National Economy under the Government of the Russian Federation, and Moscow State Law Academy. Has been with TMK since 2002. Headed the CEO’s Executive Office and the Corporate Governance function.
Has been the Secretary of the Board of Directors since 2005.
In 2017, the Board of Directors held 23 meetings, including six meetings in person.
The most important matters discussed at the meetings of PAO TMK’s Board of Directors included:
- Approval of TMK Group’s Strategy
- Progress on TMK Group’s Investment Program for 2016
- Investment program for 2018
- Tmk’s target organizational structure for 2018
- Consolidated budget for 2018
- Management reports and consolidated financial statements
- Performance of the Board of Directors Committees’
- Remuneration of the Company’s managers for 2016, key performance indicators and remuneration arrangements for 2017
- Approval of PAO TMK’s internal documents: policies on remuneration of Members of the Board of Directors and other key managers
- Establishment of TMK’s Corporate University
- Recommendations for the General Meeting of Shareholders on the final dividend for 2016
- Selection of the Company’s auditor
- Results of the Board of Directors’ and its committees’ self-assessment of performance
- Election of the Chairman of the Board of Directors, the Corporate Secretary, and members of the Board of Directors Committees; approval of the Company’s management bodies
- Schedule of activities for the Company’s Board of Directors
- Implementation of the Board of Directors’ resolutions
- Performance of the Internal Audit Service in 2017
- Approval of Series 001R Exchange-Traded Bond Program
- Performance of the Company’s divisions in 2017
- Hse situation at TMK’s facilities
- Business situation in the large diameter pipe production and sales segment
- Performance of the Company’s American division in 2016 and in 1H 2017.
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.
The Company’s Policy on Remuneration and Compensation of the Board of Directors of PAO TMK, adopted by the Board of Directors in April 2017, is aimed at:
- Supporting an independent approach to decision-making, expected from every member of the Board of Directors
- Reflecting the scale of the Company’s operations and the complexity of managing its business
- Factoring in the accountability of members of the Board of Directors, as well as their roles and time required for making reasonable and effective decisions related to TMK’s business
- Incorporating the global best practices in corporate governance and remuneration of members of the Board of Directors.
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.
Criteria for determining the amount of remuneration for a member of the Board of Directors:
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:
- Bonuses linked to the Company’s operational results;
- Options;
- Additional privileges, including any forms of insurance, except for liability insurance for members of the Board of Directors and insurance covering business trips of Directors as part of their duties;
- Retirement benefits and any payments related to the change of the Company’s owner;
- Pension schemes and plans.
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.
The remuneration paid to members of the Board of Directors includes:
- A fixed base remuneration of the Chairman or a member of the Board of Directors, payable on a monthly basis, in the amount of 1/12 of the fixed annual amount
- Additional remuneration for the performance of their duties by the Chairman or a member of the Board of Directors’ Committee, payable every six months, in the amount of 1/2 of the approved annual additional remuneration.
on the Board
of Directors
and its CommitteesReimbursement of expensesOther remuneration
The Board of Directors has three standing committees: the Audit Committee, Nomination and Remuneration Committee, and Strategy Committee.
The committees have been formed in compliance with PAO TMK’s Corporate Governance Code, which specifically requires that the Audit Committee and the Nomination and Remuneration Committee include independent directors only, or, where it is not reasonably possible, comprise independent directors and non-executive directors only.
Audit Committee:
Alexander Pumpyanskiy was elected to the Committee, Igor Khmelevskiy stepped down.
Nomination and Remuneration Committee:
Alexander Pumpyanskiy was elected to the Committee, Sergey Papin stepped down.
Strategy Committee:
Sergey Papin and Alexander Shiryaev were elected to the Committee.
Directors’ attendance at meetings of the Board of Directors and relevant Board Committees during 2017
Audit Committee
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.
Key Roles:
- review completeness, accuracy and reliability of consolidated and standalone financial statements of PAO TMK.
- assess the Company’s external auditors for independence, objectivity and absence of conflicts of interest; oversee external audits and audit quality.
- monitor the risk management and internal control system for reliability and effectiveness.
- safeguard the independence and objectivity of internal audits of the Company, internal control issues, and performance assessment of the internal audit function.
- monitor the effectiveness of the Company’s whistleblowing system (including failures to comply with the anti-corruption policy and insider laws).
Composition
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:
Each Committee member has the knowledge and experience required to perform their duties. Peter O’Brien, Chairman of the Audit Committee, and Mikhail Alekseev and Alexander Pumpyanskiy, Members of the Audit Committee, comply with the Russian Corporate Governance Code recommendations for the reporting review and assessment competencies.
Assessment
Performance of the Committee has been assessed by the Board of Directors as part of its self-assessment exercise. The Board of Directors has concluded that the Committee’s performance improved over the past few years, and its key priorities on the annual agenda are properly addressed.
Meetings
The Audit Committee held eleven meetings in 2017 and between 01 January 2018 and 31 March 2018, of which nine meetings were held in 2017. Members of the Committee also had several meetings with the head of the Internal Audit Service, and the leader of the external audit team, held without participation of the Company’s executives.
Key Activities
In 2017 and between 01 January 2018 and 31 March 2018, the Committee addressed the following key issues:
- Review of the Company’s accounting (financial) statements for completeness, accuracy and reliability.
- Review of the plans and reports of the Internal Audit Service, performance assessment of the internal audit function.
- Cooperation with the Revision Committee.
- Review of the audit plan and scope, pro-active information sharing with the external auditor on matters arising out of the audit, review of the terms of audit services for 2018–2020.
- Performance assessment of TMK’s risk management and internal control systems, and the internal audit function.
The Committee reviewed the following key matters regarding the preparation and audit of PAO TMK’s consolidated and separate accounting (financial) statements:
- Preparation of the audit plan for the consolidated financial statements of PAO TMK and its subsidiaries under the International Financial Reporting Standards (IFRS).
- Status and results of an audit of consolidated financial statements of PAO TMK and its subsidiaries under the International Financial Reporting Standards (IFRS), and PAO TMK’s accounting (financial) statements prepared under Russian laws.
- External auditor’s recommendations on PAO TMK’s accounting (financial) statements based on the results of the annual audit; assessment of the Company’s existing controls for the preparation of accounting (financial) statements.
- Performance assessment of the external auditor and quality of audit services.
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.
Nomination and Remuneration Committee
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.
The Committee helps attract the best talent to management positions across the Company and create necessary incentives for their performance.
Composition
In 1H 2017, the Committee’s members included:
In 2H 2017, the Committee’s members included:
In 2017, the Committee held six meetings, at which it reviewed and made recommendations to the Board of Directors on the following key issues:
- Remuneration of the Company’s managers for 2017, key performance indicators and remuneration arrangements for 2018.
- Performance assessment of the Board of Directors in the corporate year.
- the Policy on Remuneration and Compensation of the Board of Directors, and the Policy on Remuneration of Key Executives of the Company.
- Directors’ independent status.
- Performance Report of the Committee for 2016/2017 corporate year and the Committee’s plan of activities for 2017/2018 corporate year.
- The Company’s draft HR Strategy.
- TMK Group’s labor-related indicators for 2018.
- Establishment of TMK’s Corporate University.
- Role of HR in ensuring health and safety across TMK Group’s facilities.
- Headcount and payroll indicators for TMK’s 2018 budget.
- Results of the corporate 2017 Horizons Youth Forum.
As part of its performance self-assessment, the Committee made the following conclusions regarding its performance:
- The Committee helped attract and retain the best talent for management positions across the Company and create necessary incentives for their performance.
- The Committee has the optimal number of members and is well-balanced in terms of professional experience and expertise of its members in the areas critical to its roles.
- The Committee members were actively involved in its activities and regularly attended its meetings. Attendance of the Committee meetings by other Board Members led to their better involvement in the discussion of the matters at hand, and did not result in any conflict of interest.
- The matters reviewed by the Committee over the year were in line with its objectives and profile, action plan, and instructions from the Board of the Directors, both in form and format.
- The Committee’s recommendations aided the Board of Directors in making well-informed decisions supported by effective implementation and control tools.
- The cooperation between the Committee and the Company’s management and business units can be described as constructive.
The Committee prepared and implemented a performance assessment procedure to evaluate the Board of Directors’ performance.
Additionally, the Committee made recommendations to the Board of Directors on electing the Chairman and members of the Board and its Committees for 2017/2018 corporate year, and confirmed the independent status of the Company’s independent directors.
In its activities during the reporting period, the Committee was guided by the approved Regulations on the Nomination and Remuneration Committee and the Plan of Activities, which was duly amended on an as-needed basis to match the Company’s priorities.
The Committee meetings were regularly attended by TMK’s top executives and top managers, which facilitated efficient communication and resulted in more balanced and constructive recommendations.
The Committee did not commission services from third-party organizations during 2017; no costs associated with such services or with technical support for the Committee’s activities were incurred.
Strategy Committee
The Committee’s roles include making recommendations to the Board of Directors on the Company’s business priorities and growth strategy.
The Committee is governed by the Regulations on the Strategy Committee of PAO TMK
Composition
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:
In 2017, the Committee held five meetings and reviewed and made to the Board of Directors recommendations on the following key matters:
- Analysis of the Company’s strategic risks.
- Business situation in the large diameter pipe production and sales segment.
- Key indicators for TMK Group’s 2018 budget.
- TMK Group’s target structure for 2018.
- TMK Group’s management reports.
- Recommendations on dividend distribution in line with the Company’s dividend policy.
- Positions on voting issues at annual general meetings of shareholders/members of controlled entities.
We have been performing assessments of our corporate governance framework and the Board of Directors’ performance since 2006.
In December 2015, such assessment was carried out for the first time by an external organization, which found that the performance of the Board of Directors in general and in particular the performance of the Chairman of the Board was satisfactory.
The Company has all the key elements of effective corporate governance in place and functioning in concert: a Board of Directors with a considerable number of independent directors, pro-active Board Committees, an effective internal audit function, independent external audit, and disclosure procedures. Non-executive directors are generally adequately compensated under the relevant remuneration and cost compensation framework for their service on the Board of Directors and Board Committees.
In April 2017, the Board of Directors and its Committees ran what was essentially a self-assessment of their 2016/2017 corporate year performance via a questionnaire-based survey.
In line with the corporate governance practice, performance assessment (self-assessment) was focused on the following aspects:
- The overall Board of Directors’ performance.
- The Chairman’s performance.
- The Board Committees’ performance.
- The Corporate Secretary’s performance.
- General matters and proposals concerning the Board of Directors’ performance assessment.
Summary of the findings from the Board of Directors’ 2016/2017 performance assessment
- The current Board of Directors is well balanced in terms of knowledge, skills, and personal experience of its members
- The Board of Directors pays sufficient attention to matters put on its agenda
- The procedures of the Board of Directors and the practice of submitting materials and information for the Board of Directors’ meetings are found satisfactory, with the quality of materials being reasonably high
- The Corporate Secretary’s performance is found satisfactory
- Performance of each of the Board Committees is found satisfactory, and their composition is well-balanced
- All the Board Committees devote sufficient time to discussing agenda items
- The practice of submitting materials and information for the Board Committees meetings is found satisfactory overall
- The Chairman of the Board’s performance of his duties is described as effective across all his roles
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.
Composition 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:
Shiryaev
Zimin
Born in 1980.
Graduated from the Moscow State Institute of International Relations in 2003. Has been with TMK since 2004.
Relevant experience in the last five years:
Kaplunov
Klachkov
Born in 1957.
Graduated from the Moscow Institute of Steel and Alloys in 1979. PhD in Technical Sciences, a Russian Government prize winner in Science and Technology, also awarded a Certificate of Merit from the Ministry of Industry and Energy of the Russian Federation, an Honoured Metallurgist.
Relevant experience in the last five years:
Oborsky
Born in 1961.
Graduated from Frunze Kiev Higher Combined-Arms Command Academy in 1982 and Frunze Military Academy in 1994, obtained an MBA from International University in Moscow in 2009. PhD in Economics. Decorated with a Medal for Battle Merit and an Order of Military Merit, awarded a Certificate of Merit from the Ministry of Industry and Trade of the Russian Federation.
Relevant experience in the last five years:
Petrosyan
Born in 1968.
Graduated from Yerevan State University in 1993. Awarded a Certificate of Merit from the Ministry of Industry, Science and Technologies of the Russian Federation.
Relevant experience in the last five years:
Popkov
Born in 1965.
Graduated from Kirov Urals Polytechnic Institute in 1992 and Financial University under the Government of the Russian Federation in 2011. Obtained an MBA after professional retraining in 2009. Decorated with a second class Medal of the Order for Merit to the Fatherland, awarded Certificates of Merit from the Ministry of Industry and Trade of the Russian Federation and the Ministry of Industry and Science of the Sverdlovsk Region, an Honorary Diploma of the Sverdlovsk Region Government; an Honoured Metallurgist and Honorary TMK Employee.
Relevant experience in the last five years:
Shmatovich
Born in 1964.
Graduated from Moscow Finance Institute in 1989 and the University of Notre Dame, USA, (MBA) in 1993. Awarded a Certificate of Merit from the Ministry of Industry and Trade of the Russian Federation and a Tsiolkovsky Medal. Has been conferred the titles of OJSC Udmurtneft’s Honoured Oil Specialist title and Honorary TMK Employee.
Relevant experience in the last five years:
As at 31 December 2017, the members of the Management Board held no interest in affiliated companies.
Andrey Kaplunov, a member of the Management Board, disposed of 70,000 ordinary registered shares in PAO TMK on 29 December 2017.
Remuneration of Members of the Management Board and other Key Executives
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.
For each reporting year, the Company approves a list of officers eligible for its financial incentive scheme/program as follows:
- Top managers – members of the Company’s executive bodies are approved by the Board of Directors based on a proposal by the CEO and the Nomination and Remuneration Committee
- Other key executives are approved by the CEO, based on proposals by Deputy CEOs for different lines of business, Managing Directors of plants, and heads of TMK’s Divisions and sections
Remuneration payable to the CEO, the members of the Management Board, and key executives of PAO TMK comprises:
- The fixed part (official salary) is determined in accordance with their employment contracts and payable on a monthly basis. The salary reflects the position and relevant responsibilities
- The variable part, which includes a bonus is determined based on performance in the reporting period and, in certain cases, a bonus for effective implementation of certain tasks, targeted programs, or projects, or for other achievements
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.
PAO TMK’s CEO and Management Board remunerations, m $
Our information policy is based on the principle of improving transparency and maintaining continuous interaction with shareholders, investors, and other stakeholders.
Our public experience has shown that access to capital for the Company is directly related to our willingness to be sincere and transparent with the market about the specifics of our business, our performance results and future plans, material corporate events, risks, problems, and measures we take to prevent or resolve them.
Since TMK’s securities are listed on the Moscow Exchange and the London Stock Exchange, we are guided by the provisions of the Federal Law on Joint Stock Companies, Federal Law on the Securities Market, and Listing Rules of the Moscow Exchange, and comply with the Disclosure and Transparency Rules of the UK Financial Conduct Authority, and the LSE Listing Rules.
We learn from the experience of leading-edge international companies and consistently implement the best practices in information disclosure, improve our information distribution channels and methods.
- Uniform information policy, internal rules and regulations
- Strict compliance with all regulatory and stock exchange requirements
- Disclosures in Russian and in English
- Quarterly publications of IFRS and RAS statements
- Quarterly press releases containing performance reviews and forecasts
- Quarterly financial and operating performance presentations
- Quarterly calls for investors and analysts to discuss the Company’s results and outlooks
- Capital Markets Days
- Participation in investment and industry conferences
- Site visits to TMK’s facilities for investors and analysts
- Section for investors on TMK’s website
- Feedback
Since TMK’s securities are listed on the Moscow Exchange and the London Stock Exchange, information is disclosed
TMK publishes on its website quarterly IFRS consolidated financial statements (eng / рус); and press releases describing its operating and financial performance, offering market reviews and forecasts, and organizes conference calls with the Company’s senior executives for investors, analysts, and media.
In line with the best international practices, we hold Capital Markets Days where the Company’s top managers report on TMK’s results, present new strategic initiatives, and talk about the Company’s prospects. Live audio webcasts and records of the Capital Markets Days are available on the Company’s website. The website’s section for investors features an IR calendar, presentations for investors and analysts, press releases on events that may influence an investment decision, information on the Company’s equity capital and outstanding debt securities.
In addition, we arrange site visits to the Company’s facilities for investors and analysts, to give them a direct experience of TMK’s production process and products. In our opinion, this promotes a deeper understanding of the Company’s business and, accordingly, helps improve the quality of analytics.
Disclosure and coordination of the Company’s divisions and entities in preparing relevant information for disclosure are governed by the Regulations on the Information Policy and other internal regulations derived from this Policy. The Company’s dedicated units monitor the development and implementation of a uniform information policy and control compliance with insider laws and regulations.
Risk management, internal control, and internal audit systems in place at TMK are formalized and based on generally accepted international standards.
These systems are a set of procedures conducted by the Board of Directors, executive and supervisory bodies, officers and employees to ensure a true and fair presentation of the Company’s state and future prospects, risk exposure, reliability of all types of reporting, and compliance with laws and internal regulations.
The Board of Directors has determined the principles of, and approaches to, its risk management, internal controls, and internal audit incorporated, into TMK’s approved corporate policies and internal documents
The Audit Committee monitors the fair presentation of financial statements, reliability and effectiveness of risk management and internal controls, safeguards the independence and objectivity of TMK’s internal audit, carries out performance assessments of the internal audit, and monitors the effectiveness of the management information system used to report irregularities in the Company (including failures to comply with the anti-corruption policy and insider laws).
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.
TMK’s risk management framework is based on the Company’s Risk Management Policy and includes management and control bodies, executive management, and tools to develop, implement, monitor, review, and constantly enhance risk management processes.
Strategic decisions on risk management are made by the Board of Directors. The CEO, via the Risk Management Committee, is in charge of the day-to-day risk management aimed at mitigating TMK’s risks through building a uniform policy to manage risks, develop and implement risk identification, assessment, and management guidelines. The Committee performs risk analysis which includes risk identification, assessment of the potential damage that the risk may cause if realized, and the probability/frequency of such events. The Committee also sets relevant measures to mitigate risks and minimize their probability/frequency.
The Committee’s Chairman regularly reports to the Audit Committee on risks realised.
TMK’s executive managers identify, assess, and manage business process risks and focus on risk mitigation and control procedures at all management levels.
A dedicated unit coordinates risk management processes and cooperation between the Company’s business units by:
- Consolidating information on TMK’s risk exposure, analysing the impact of key risks on the cash flow, and compiling the corporate risk register, risk map, and risk management report to be discussed by the Risk Management Committee.
- Coordinating the development of action plans to reduce potential losses from the realization of key risks; monitoring the risk mitigation activities and analysing the progress on a quarterly basis – this process also drives changes in TMK’s risk map.
- Ensuring cooperation between TMK’s business units, developing recommendations on risk management tools.
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.
TMK’s Board of Directors and executive management strive to incorporate internal control elements into every stage of the Company’s management processes, while maintaining the impartiality and transparency of management methods and procedures across all of TMK’s functions, as required by the Internal Control – Integrated Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
This section contains a detailed description of TMK’s internal controls which reasonably assure the reliability of all controls, including financial and operational controls, as well as compliance with laws and regulations.
In line with the COSO model, TMK fosters a control environment, maintains a risk assessment system, and implements control procedures.
- Clear uniform role distribution guide
- Controls focused on key real risks
- Prompt improvement of controls
- Identification of areas for continuous monitoring
- Timely correction of deficiencies and failures of controls
- Automated controls (minimized manual controls)
- Access controls
- Customized controls
- Focus on key business processes and risk-oriented controls
- Supervision of remedial measures and initiatives to improve controls
Risk controls at TMK Group
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.
Three Lines of Defence
- Day-to-day functioning of internal control processes and systems
- Initial risk identification and assessment
- Risk management / day-to-day implementation of controls aimed at risk coverage and mitigation
- Establishment and implementation of procedures based on the policies, regulations, and standards
- Expert perspective on risk and independent risk assessment
- Engagement in / supervision over the development of risk controls, policies, regulations, and procedures
- Audit of the operational efficiency of implemented controls
- Business process risk management
- Reporting on the compliance with policies, regulations, and standards
- Independent audit of the internal controls and risk appetite
- Performance assessment of control procedures and improvement recommendations
- Monitoring the implementation of policies, regulations, and standards
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.
The reliability and effectiveness of TMK’s internal controls, risk management, and corporate governance are assessed by the Internal Audit Service.
The Internal Audit Service (IAS) is an independent business unit administratively subordinated to the CEO and functionally reporting to the Board of Directors via the Audit Committee, which ensures its independence and objectivity.
It has regional units across TMK’s geography (at TMK’s divisions), which use a shared planning and reporting system and ensure a prompt response to any changes in business processes and operations at TMK entities. TMK’s top management puts a strong focus on auditors’ independence, including the absence of conflicts of interest.
The IAS organizational structures across all divisions of the Company are guided by uniform standards of planning their activities, the audit procedure and report, the internal audit follow-ups, quality control, and performance assessment, which are determined in the Guidelines on Internal Audit at TMK Group (TMK’s Order No. 408 dated 30 November 2015).
During the year, the IAS conducted systemic and consistent internal audits of business processes, risk management, internal controls, and corporate governance at TMK Group, in line with the annual risk-focused audit plan approved by the Board of Directors and the Company’s CEO.
The goal of such audits is to obtain assurance, through using an objective approach, that risk management and controls are efficient and as effective as possible.
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.
TMK’s management promptly responds to gaps in controls identified by the internal audit through introduction of the required changes to risk management and internal controls, which helps enhance the corporate governance processes and quality.
The IAS controls the implementation of planned actions and recommendations on the elimination of gaps identified by internal audits, oversees the compliance by the Company’s management bodies, officers, and employees with insider information laws and regulations, and reports to the Audit Committee on a regular basis and to the Board of Directors – at the end of each year.
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 IAS’s Audit Plan for 2018 was reviewed at the Audit Committee meeting on 13 December 2017, approved by the Board of Directors on 21 December 2017 and by the Company’s CEO.
TMK’s management is responsible for implementing and maintaining adequate internal control over the Company’s financial reporting to ensure:
- The compliance of the accounting policy with national and international accounting standards (RAS and IFRS).
- The completeness and accuracy of accounting records, prompt identification of errors.
- The reliability of financial statements.
- The conformity of financial statements with law, national and international accounting standards (RAS and IFRS).
- The timely preparation of financial statements.
TMK’s internal control over financial reporting includes control procedures both at standalone and consolidated levels of financial statements. Centralised development of RAS and IFRS accounting policies provides for uniform accounting for, and recording of, similar transactions.
All employees engaged in the preparation of standalone and consolidated financial statements of TMK Group entities have accounting or finance degrees and regularly enhance their qualifications. PAO TMK’s Chief Accountant and head of the department engaged in the preparation of IFRS consolidated financial statements are members of the Association of Chartered Certified Accountants (ACCA). The preparation of TMK Group’s consolidated financial statements involves regular exchange and thorough centralized verification of the financial information provided by subsidiaries.
We automated the preparation of the Company’s consolidated financial statements by the adoption of modern standards, which helped significantly increase its efficiency, in particular, by accelerating the preparation of the consolidated statements, optimizing the allocation of roles, increasing flexibility in preparing the consolidated financial statements in two currencies, minimizing technical errors, and implementing formalized data match controls.
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 Revision Committee is elected annually by the General Meeting of Shareholders; its activities are regulated by the Articles of Association and the new version of the Regulations on the Revision Committee approved by the resolution of TMK’s Annual General Meeting of Shareholders dated 08 June 2017.
The Revision Committee delivers its opinion to the General Meeting of Shareholders on PAO TMK’s annual report and annual accounting (financial) statements, and confirms the accuracy of information reported on the Company’s related-party transactions.
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 External Auditor verifies and confirms that the Company’s financial statements are in line with the applicable accounting rules and national and international financial reporting standards (RAS and IFRS), and expresses its opinion on the reliability of the financial statements following their audit.
The Audit Committee reviews the completeness, accuracy, and reliability of consolidated and standalone accounting (financial) statements of the Company, assesses the Company’s external auditors for independence, objectivity, and absence of conflicts of interest, oversees the external audit, evaluates its quality, and reviews the external auditor’s opinion.
An external auditor to conduct an independent audit of the Company’s RAS statements is proposed by the Board of Directors and approved by PAO TMK’s General Meeting of Shareholders.
The following procedures are in place to ensure the auditor’s independence and objectivity:
- The Company holds a tender to select an auditor pursuant to the terms and conditions approved by the Board of Directors based on the Audit Committee’s proposal. The Audit Committee also organizes the tender and summarizes its results.
- The Audit Committee is entitled to request an early tender following the assessment of the auditor’s performance and its compliance with the independence requirement .
- The auditor is selected from among internationally recognized independent auditors and approved by the Board of Directors.
To mitigate the risk of any long-term relationship compromising the external auditor’s independence and objectivity, members of audit teams and the lead partner responsible for the audit are subject to rotation.
PAO TMK appointed Ernst & Young, a member of the Self-Regulated Organization of Auditors, Russian Union of Auditors (Association) (RUA), as the external independent auditor of its 2017 and interim consolidated and standalone financial statements.
In 2017, the auditor’s remuneration for auditing the annual financial statements and the interim reviews (including standalone statements of individual TMK entities) was $2.15 million and $0.21 million for non-audit services. The remuneration for reviewing Form S-1 registration statements for IPSCO’s initial public offering was $2.20 million.
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.
The Company’s corporate ownership is transparent, the rights and obligations of shareholders as well as regulations on their power of disposition are set out clearly in the Articles of Association and the Company’s internal documents, all relevant information being publicly available.
The Company is committed to equal treatment of shareholders and protects their voting rights as set out in its internal documents.
TMK prevents shareholder conflicts of interests mainly through:
- adhering to the order of, and procedure for, passing resolutions on most material matters
- compliance with the voting procedure for related-party transactions
- ensuring absolute transparency and openness when preparing and holding Meetings of Shareholders, and prompt information disclosures on the resolutions passed by the Board of Directors
- disclosing related-party transactions
- engaging external auditors from the Big Four accounting firms
- deploying dilution of value prevention tools. The process of selecting vendors of goods, works, and services is organized in accordance with the Company’s approved standards regulating open competitive procurement procedures.
Preventing Conflicts of Interest Involving BoD Members
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.
The Company has conflict of interest managing tools which provide a reasonable assurance that a Director’s conflict of interest situation is resolved at an early stage and the Company’s interests are not impaired.
In accordance with the Regulations on the Board of Directors, members of the Board of Directors are to refrain from actions that will or may result in a conflict between their interests and those of the Company, and should such a conflict arise, they will promptly disclose to the Company any relevant information: notify the Board of Directors of TMK securities owned by them and transactions with such securities, disclose their equity interests in controlled entities, contemplated transactions in which such members of the Board of Directors could be deemed interested (with the existing interest and its grounds to be promptly disclosed); notify the Board of Directors of their intention to serve on the management bodies of other entities (apart from the entities controlled by the Company) and of being elected (appointed) to such bodies
Resolving Conflicts of Interest within Executive Bodies
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.
The Company places a strong focus on preventing and minimizing the effects of potential conflicts of interest among members of its executive bodies. The Company developed and approved the Regulations on the Conflict of Interest (TMK’s Order No. 385 dated 31 December 2014) to identify, regulate, and prevent conflicts of interest for TMK’s employees including members of executive bodies. The key objective of these Regulations is to limit the influence of personal interests of employees on their functions and business decisions and to maintain and comply with high corporate governance standards in terms of openness, transparency, and predictability.
TMK implements initiatives to create an environment of zero tolerance for any form of corruption
TMK is committed to high ethical standards and practices of business openness and transparency.
The Company developed and approved:the Code of Ethics, the Corporate Governance Code, the Anti-Corruption Policy, the Ethics Policy for Business Trips of TMK Group Employees, the Regulations on the TMK Policy on the Acceptance/Offering of Gifts, the Regulations on the TMK Policy on Business Hospitality (Entertainment), the Regulations on the TMK Charity Policy (Endowments, Donations).Compliance with applicable laws, corporate documents, professional excellence, and honesty are mandatory for all TMK’s employees.
TMK compliance documents:
- Code of Ethics
- Corporate Governance Code
- Key Compliance Risk Principles
- Anti-Corruption Policy
- Ethics Policy for Business Trips of TMK Group Employees
- Regulations on the TMK Policy on the Acceptance/Offering of Gifts
- Regulations on the TMK Policy on Business Hospitality (Entertainment)
- Regulations on the TMK Charity Policy (Endowments, Donations)
- Guidelines for Countering Embezzlement, Corporate Fraud, and Corruption at TMK Group Entities
- Regulations on the Conflict of Interest
- Guidelines for Mitigating Antitrust Risks
The Company has a clearly structured and independent compliance framework which ensures compliance with legal and ethical standards. It integrates preventive measures, detection of, and sanctions for, violations and is based on vertical and horizontal interactions. This process is coordinated by the CEO’s Committee on Regulating Compliance Risks and its regional subcommittees at TMK’s divisions, and is governed by the Company’s Key Compliance Risk Principles and Anti-Corruption Policy
Key elements of TMK’s compliance system
- codes, policies, guidelines
- control by the Board of Directors
- CEO’s Committee on Regulating Compliance Risks
- Deputy CEO for Corporate Compliance Risks
- Compliance Risk Department
- employee training
- transactions monitoring
- hotline
- compliance associations membership
TMK implements initiatives to create an environment of zero tolerance for any form of corruption. TMK counters and prevents corruption when engaging with partners and counterparties through monitoring transactions for conflicts of interest within counterparties’ ownership chain, and through introducing anti-corruption clauses and other mandatory conditions in their contracts. The Company developed and approved the Guidelines for Countering Embezzlement, Corporate Fraud, and Corruption at TMK Group’s Entities (TMK’s Order No. 381 dated 09 December 2013).
In 2017, the Committee on Regulating Compliance Risks held four meetings, two of which were dedicated to compliance with the antitrust laws.
In September 2017, members of the Board of Directors attended an Overview of New U.S. Sanctions against Russia and Changes in Sanctions against Iran workshop organized by Dentons, the world’s largest law firm. In December 2017, a three-day comprehensive workshop entitled Challenges in Implementing Antitrust Laws and Communicating with the Federal Antimonopoly Service was organized at TMK by FAS Russia Center for Education and Methodics (Moscow). The Company’s managers were educated on identification, assessment, and management of compliance risks at TMK Group entities. Sales managers and procurement officers were provided with the Guidelines for Mitigating Antitrust Risks. TMK held a total of 49 training sessions on compliance risk identification, assessment, and management in 2017, covering 1,506 employees.
To enable public control, TMK has been operating a hotline since 2012, using a full range of communications channels such as telephone lines and e-mail 8072@tmk-group.com, which can be used by the Company’s employees, investors, clients, and other stakeholders to report any known abuse or violations. 704 phone calls were received in 2017 (up 15% year-on-year), ten of which reported serious issues that were investigated; 827 messages were received at 8072@tmk-group.com (flat year-on-year), 52 of which were followed by relevant measures.
TMK is a member of the Anti-Corruption Charter of the Russian Business developed by the Russian Union of Industrialists and Entrepreneurs, which assures TMK’s intention to promote the fair business and corporate governance best practices and encourage fair competition and sustainable economic growth in Russia. Since 2012, TMK has been a corporate member of the International Compliance Association (ICA); the Company won the ICA Compliance 2015 award in the Compliance Leadership category.
Pursuant to Article 13.3 of Federal Law No. 273‑FZ On Counteracting Corruption, a dedicated unit, Compliance Risks Department, was set up to support the standing compliance function. In 2017, this function received more prominence following the introduction of a special position of the Deputy CEO for Corporate Compliance Risks (TMK’s Order No. 305 dated 29 August 2017) who regularly attends international and Russian conferences as a corporate member of the International Compliance Association in order to promptly respond to changes in both Russian and foreign legal environments.
TMK Group’s 2017 anti-corruption report was discussed at the meeting of the Audit Committee on 13 December 2017 and received a positive assessment.
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).
TMK Group’s Information Security Management System (ISMS) relies on:
- establishment of a single management centre and regional units
- development of baseline (general) requirements to information security
- reasonable and adequate protection, reserved only for essential information objects
- uniform management requirements to information security breaches and unified reporting
- rights and responsibilities allocation to the ISMS roles
- utilization of the dedicated data movement tracking software, ensuring its integrity and security
All of TMK Group information is grouped as follows:
- public information which may be freely published and shared
- internal business information which may not be freely shared with third parties
- restricted information (trade secrets, personal data, insider information, information subject to banking secrecy, medical confidentiality, etc.)
Information security organization and compliance are the responsibility of PAO TMK’s Economic Security Service and of Economic Security Departments at the TMK regional entities, with technical support provided by PAO TMK’s Information Technology Department.
TMK Group deploys a corporate malware (anti-virus) protection system to manage identified information security risks through employing the protection software against state-of-the-art targeted attacks and relevant threats included in the Unified Registry of Russian Computer Programs and Databases and implementing a set of measures to secure process control systems against external and internal threats.