Assessment of corporate governance level
According to the report of the 2019 National Corporate Governance Index, Inter RAO is among the top ten leaders in terms of managing the quality of information disclosed on the corporate governance principles that it follows.
An independent assessment of the performance of the PJSC Inter RAO Board of Directors in 2019 offered the following general description of corporate governance:
- The position of the major shareholders and management aims to support the public status of PJSC Inter RAO, which has a positive impact on the dynamics of its corporate governance practice
- The corporate governance system is well described in the Company’s internal documents, is regularly updated, and complies with the recommendations of the Corporate Governance Code
- The PJSC Inter RAO Board of Directors is represented by directors with extensive experience in managing business, investments, and a deep understanding of government tasks and priorities
- PJSC Inter RAO holds a leading position among Russian public companies in terms of corporate governance and ESG, as confirmed by the rating agencies ACRA (1st place) and Bloomberg (12th place)
PJSC Inter RAO carries out a self-assessment of its level of corporate governance each year according to the methodology of the Federal Agency for State Property Management approved by Order No. 306 of the Federal Agency for State Property Management dated August 22, 2014. The results indicate a systematic improvement in the quality of corporate governance. In 2019, the compliance rate was 89%.
Compliance with corporate governance principles
According to a decision adopted by the Board of Directors in 2014, the Company is guided by the recommendations of the Corporate Governance Code as the document that defines corporate governance standards.
Of the 79 principles of the Code, the Company complies with 76, or 96.2%, partially observes two of the principles, and does not observe only one of the principles. In 2018, two principles were not observed and three principles were partially observed. Thus, the Company complies to a varying degree with 78, or 98.7%, of corporate governance principles and increased the level of compliance with the recommendations of the Code compared with 2018.
Principles observed starting from 2019
The Company has observed the recommendation of clause 1.3.2 as regards its absence and abstention in voting with quasi-treasury shares (shares owned by subsidiaries) during the reporting period. In order to prevent any conflict of interest when voting with quasi-treasury shares, the PJSC Inter RAO Board of Directors issued a recommendation to the CEO of JSC Inter RAO Capital, a subsidiary that owns shares in the Company, to abstain from voting on the agenda of the Annual General Meeting of Shareholders (AGM), except for when there is no quorum for adopting a decision without taking into account the shares owned by JSC Inter RAO Capital. In the event of voting on the election of members of the Board of Directors in order to elect the required number of independent directors, it was recommended to vote for independent directors. Based on this recommendation, JSC Inter RAO Capital did not vote on any issue on the agenda at the AGM.
The Company’s Charter was amended in 2019 in accordance with recommendation 1, clause 2.1.1 of the Code on whether the Board of Directors has the power to appoint and dismiss the CEO.
Principles not observed
Principle 4.3.2 of the Code on the Introduction of a Long-Term Incentive Program for members of the executive bodies using the Company’s shares was not observed. This is a temporary issue. The previous Option program (long-term incentive system) approved by the Board of Directors on February 16, 2016Minutes No. 161 dated February 18, 2016. was executed in 2018. The basic principles of the new long-term incentive program are expected to be presented as part of the updated PJSC Inter RAO Strategy/Long-Term Development Program for a new medium-term/long-term period, which means that this discrepancy is limited in time.
The review of the updated Strategy/Long-Term Development Program is included in the work plan of the PJSC Inter RAO Board of Directors for May 2020. When developing a new long-term incentive program, the Company will consider the recommendations of the Code.
Partially observed principles
Recommendation 1 of clause 2.8.5 as regards the management of the Committees of the Board of Directors by independent directors, namely the Strategy and Investment Committee was partially not observed.
This Committee was created based on the need to achieve the Company’s strategic goals and to conduct a deeper analysis of issues falling within its competence, mainly at in-person meetings.
In 2019, the Strategy and Investment Committee, whose formation is not mandatory in accordance with Russian regulatory and exchange requirements, included three independent members of the Board of Directors. On May 20, 2019, a person who was not a member of the Board of Directors was elected as the Chairman of the Committee in order to ensure the most practical distribution of the resources of independent directors and provide them with the opportunity to focus on their work in the Audit Committee and the Nomination and Remuneration Committee. The fulfillment of this recommendation is scheduled for review in 2020-2021 following the election of the Board of Directors.
Recommendation 3 of clause 7.2.2 on the existence of an expanded list of grounds based on which members of the Board of Directors are recognized as interested parties in the Company’s transactions was partially not observed. In particular, the Charter stipulates that executive directors should not vote on matters related to their employment contracts and the determination of their remuneration.
As for other affiliation, in practice members of the Board of Directors do not vote if there is any conflict of interest that does not constitute interest within the meaning of Chapter XI of the Federal Law “On Joint-Stock Companies”. The question of expanding the list of grounds for recognizing interest may be considered during the next update of internal documents in 2020-2021.
A detailed Report on Compliance with the Principles and Recommendations of the Corporate Governance Code is provided in Appendix of this Report.