By Letter No. 06-52/2463 dated April 10, 2014, the Bank of Russia recommends the Corporate Governance Code (hereinafter referred to as the “Code”) to be applied by joint–stock companies whose securities are admitted to organized trading.
An effective corporate governance system is an effective tool for improving the efficiency of the company’s management, ensuring its long-term and sustainable development.
The concept of corporate governance
Corporate governance is a concept covering the system of relations between the executive bodies of a joint-stock company, its board of directors, shareholders and other parties concerned. Corporate governance is a tool for determining the company’s goals and means of achieving these goals, as well as ensuring effective control over the company’s activities by shareholders and other parties concerned.
Tasks of the Board of Directors
The Board of Directors carries out strategic management of the company, determines the basic principles and approaches to the organization of the risk management and internal control system in the company, controls the activities of the executive bodies of the company, and also implements other key functions.
The Board of Directors must establish the main guidelines for the company’s long-term activities, evaluate and approve the key performance indicators and the main business goals of the company, evaluate and approve the strategy and business plans for the main activities of the company. The Board of Directors should also monitor that the company’s executive bodies act in accordance with the approved development strategy and the main directions of the company’s activities.
The Board of Directors should be accountable to the shareholders of the company.
Composition of the Board of Directors
The composition of the Board of Directors should be balanced, including the qualifications of its members, their experience, knowledge and business qualities, and enjoy the confidence of shareholders.
It is recommended that independent directors make up at least one third of the elected board of directors.
It is recommended to develop and fix in the company’s internal documents the procedure for preparing and holding meetings of the Board of Directors, which provides members of the Board of Directors with the opportunity to properly prepare for its holding.
Decisions on the most important issues of the company’s activities are recommended to be taken at a meeting of the Board of Directors by a qualified majority or majority of votes of all elected members of the Board of Directors.
The Board of Directors should establish committees for preliminary consideration of the most important issues of the company’s activities:
- audit committee for preliminary consideration of issues related to the control over the financial and economic activities of the company.
- remuneration committee for preliminary consideration of issues related to the formation of effective and transparent remuneration practices.
- committee on nominations (appointments, personnel) for preliminary consideration of issues related to the implementation of personnel planning (succession planning).
- The strategy committee, corporate governance committee, ethics committee, risk management committee, budget committee, health, Safety and environment committee, etc. are created taking into account the scope of activities and the level of risk.
Remuneration to members of the Board of Directors
The level of remuneration paid by the company should be sufficient to attract, motivate and retain persons with the necessary competence and qualifications for the company.
Fixed annual remuneration is the preferred form of monetary remuneration for members of the Board of Directors. Payment of remuneration for participation in individual meetings of the board or committees of the Board of Directors is undesirable. The use of any form of short-term motivation and additional financial incentives is not recommended for members of the Board of Directors.
Long-term ownership of the company’s shares contributes most to the convergence of the financial interests of the members of the Board of Directors with the long-term interests of shareholders. At the same time, the conditionality of the right to sell shares by achieving certain performance indicators or the participation of members of the board of directors in option programs is not recommended.
Risk management and internal control system
The company should establish an effectively functioning risk management and internal control system aimed at ensuring reasonable confidence in achieving the goals set for the company.
The Board of Directors of the Company is recommended to take necessary and sufficient measures to ensure that the risk management and internal control system operating in the company complies with the principles and approaches to its organization defined by the Board of Directors and functions effectively.
For a systematic independent assessment of the reliability and effectiveness of the risk management system, internal control and corporate governance practices, the company should organize an internal audit.
Disclosure of information
The Company and its activities should be transparent to shareholders, investors and other interested parties.
The annual report, being one of the most important tools for informational interaction with shareholders and other parties concerned, should contain information that allows assessing the results of the company’s activities for the year.
Work of the Board of Directors
It is recommended that the Board of Directors hold a special meeting at least once a year to discuss the strategy, the progress of its implementation and updating.
One of the main forms of implementation of the function of determining the company’s strategy may be the annual approval by the Board of Directors of the financial and economic plan (budget) of the company, developed and submitted by the executive bodies of the company.
The Board of Directors should determine the principles and approaches to the organization of the risk management and internal control system in the company. The Board of Directors is recommended to assess both financial and non-financial risks to which the company is exposed, including operational, social, ethical, environmental and other non-financial risks, as well as to establish an acceptable amount of risks for the company.
The Board of Directors should play a key role in preventing, identifying and resolving internal conflicts between the company’s bodies, the company’s shareholders and the company’s employees.
In order to prevent corporate conflicts, the company is recommended to create a system that ensures the identification of transactions of the company made in conditions of a conflict of interests (in particular, in the personal interests of shareholders, members of the board of directors, other bodies or employees of the company). Such a system assumes the existence of procedures that ensure:
- timely receipt by the company of up-to-date information about related and affiliated persons of members of the board of directors, the sole executive body of the company, members of the executive body, other key executives and the conflict of interests of these persons (including the presence of interest in transactions);
- making decisions on transactions with a conflict of interest or exercising control over the terms of such transactions by persons who do not have a conflict of interest and are not influenced by persons with a corresponding conflict of interest.
The Board of Directors should exercise control over corporate governance practices in the company and play a key role in significant corporate events of the company.
The Company is recommended to establish a procedure (and provide for an appropriate budget), according to which members of the Board of Directors would have the opportunity to seek professional advice on issues related to the competence of the Board of Directors at the company’s expense.
Разрабатываем Стратегии для собственников бизнеса в целях оптимизации группы компаний, решения нестандартных задач и продажи активов. Оказываем услуги по сопровождению сделок M&A, управлению непрофильными активами и проектами в целом.
