Severstal first published its Corporate Governance Code in October 2006, which was approved by the Board. This Code has been prepared following the recommendations of the Code of Best Practice set out in section 1 of the Financial Reporting Council’s Code on Corporate Governance. Please refer to www.frc.org.uk for more details.

Severstal’s Corporate Governance Code adheres to the following main principles:
–– Seek to ensure efficient and transparent mechanisms for guaranteeing its shareholders’ rights and interests conferred by law, the company’s Charter and other regulatory documents, and also those recommended by international corporate governance standards.
–– Maintain a policy of equal treatment of all shareholders, irrespective of their nationality, jurisdiction of incorporation, or the size of their shareholding.
–– Seek to guarantee implementation of shareholders’ rights to participate in company governance by allowing them to take part in meetings, vote on meeting agendas, and obtain timely information about the company’s operations, its management bodies and supervisory or auditing bodies.
–– Regard increasing the market value of the company’s shares (capitalization) as one of its principal goals.

As well as the Corporate Governance Code and Charter of the company, the activities of Severstal’s management and supervisory bodies are also governed by other corporate documents, such as the General Shareholders’ Meeting Regulations, Board of Directors Regulations, Board Committees Regulations, Internal Audit Commission Regulations and General Director Regulations. All the principles and rules presented in the company’s documents are largely compliant with the UK Corporate Governance Code 2010. Severstal has a ‘standard listing’ of its depositary receipts on the London Stock Exchange.

In the Board’s opinion, the Company meets the disclosure and governance standards requirements of the UK Corporate Governance Code 2010 applicable to such listings. Visit www.severstal.com (About Severstal > Corporate Governance > Company documents) for more information.

Severstal complies with Russian corporate governance law requirements and meets the corporate governance mandatory requirements of MICEX and RTS (Russia) for the Russian listed ‘B’ companies, which in turn follow the recommendations of the Russian Corporate Behaviour Code issued by the Russian Federal Securities Commission. The Code is available at www.fkcb.ffms.ru.

Table of compliance status with MICEX and RTS mandatory requirements for inclusion and maintenance of shares in the quotation lists of MICEX and RTS, as of the end of 2010:

Description of the composition and operation of the Issuer’s administrative, management and supervisory bodies and their committees (as required under DTR 7.2.7) is reviewed below.

General Shareholders’ Meeting

The company’s General Shareholders’ Meeting is the supreme governing body of Severstal.

The General Shareholders' Meeting has authority over:
–– changes and addenda to the company's Charter, or approval of a new Charter
–– reorganisation of the company
–– liquidation of the company, appointment of the liquidating commission and approval of intermediate and final liquidation balance sheets
–– the number of members of the company's Board of directors, election of the Board's members and the early termination of their authority
–– the quantity, face value and category of the declared shares – and the rights given by these shares
–– increases in the share capital of the company by increasing the face value of shares or by placing additional shares – only in cases, when pursuant to applicable law, the share capital may be increased by placing additional shares. This is also the General Shareholders’ Meeting’s decision
–– reduction of the company’s share capital by reducing shares’ face value or by acquiring a part of shares with a view to reducing their total quantity, or through redemption of the shares the company acquires or buys
–– formation of the executive body of the company and early termination of its authority
–– election of the company's Internal Audit Commission’s members and the early termination of its powers
–– approval of the company's auditor
–– approval of annual statements, annual accounting and reporting documents, including reports on the company’s profit and loss accounts
–– distribution of profit, including disbursement of dividends, with the exception of profit distributed as dividends of the results of the first three quarters of the year, and distribution of the company's loss at the end of the fiscal year
–– the procedure for a General Shareholders' Meeting
–– split and consolidation of shares
–– adopting decisions on approval of transactions in the cases stipulated by applicable law
–– adopting decisions on approval of major transactions in the cases stipulated by applicable law
–– the company’s acquisition of the placed shares
–– decision on participation in financial and industrial groups, associations and other commercial corporations
–– approval of internal documents regulating activities of the company's bodies
–– other matters stipulated by the Federal law ‘On Joint Stock Companies’ and the company’s Charter.

Severstal’s shareholders have the right to:
–– participate in the management of the company
–– participate in General Shareholders' Meetings and vote on all questions within its remit and authority
–– receive dividends from the company's activities (provided a relevant decision is taken by the shareholders in a General Shareholders’ Meeting)
–– receive a part of the company's assets in the event of a liquidation of the company.

Shareholders owning at least 2% of the company’s ordinary registered shares can propose items for the Annual General Shareholders’ Meeting agenda and nominate candidates for the Board of Directors. Such proposals must be submitted to the company within 60 days of the financial year-end.

Shareholders owning 10% or more of the company’s ordinary registered shares can ask the company’s Board of Directors to hold an Extraordinary Shareholders’ Meeting.

Shareholders exercise their rights relating to the company’s management by voting at General Shareholders’ Meetings.

In 2010, Severstal held one Annual and one Extraordinary General Shareholders’ Meetings. Please visit www.severstal.com (About Severstal > Corporate Governance > Shareholder Rights) for more information.

The Board

According to the company’s charter, the Board will comprise ten members. The current structure of the Board represents a balance between a Non-Executive Chairman and five Non-Executive Directors – of which four are Independent Directors – and Executives. Balance on the Board is a prerequisite for good decision-making and governance.

The proportion of Independent Directors on the Board guarantees equal regard for the interests of all shareholders. The Board considers all its Independent Directors to be independent, in line with the UK Corporate Governance Code, 2010.

Severstal’s Board comprises Non-Executive Chairman, Christopher Clark; four Independent Directors – Ronald Freeman, Doctor Peter Kraljic, Martin Angle, and Doctor Rolf Stomberg; one Non-executive Director, Mikhail Noskov; and three Executive Directors – Alexey Mordashov, Sergei Kuznetsov and Alexey Kulichenko.

Board meetings and attendance

Attendance by individual directors at the personal meetings of the Board and its Committees in 2010:

Member of the Board	Number of Board meetings possible2	Number of Board meetings attended	Audit Commiteee meetings attended (out of 4 meetings)	Remuneration and Nomination Committee meetings attended (out of 3 meetings)
Christopher Clark	5	5	41	3
Ronald Freeman	5	5	4	31
Peter Kraljic	5	5	4	31
Martin Angle	5	5	4	31
Rolf Stomberg	5	5	41	3
Alexey Mordashov	5	5	-	3
Mikhail Noskov	5	5	21	-
Anatoly Kruchinin	4	4	-	-
Sergei Kuznetsov	5	5	-	-
Alexey Kulichenko	5	5	41	-

¹ means that the specified Director is not a member of that Committee, although he attended the meetings at the invitation of the Chairman of the Committee;
² one of the meetings was held via conference call.

Board and Committee members have direct and continuous access to Board and Committee materials via a dedicated electronic system, which also serves as an archive of Board and Committee materials – and as a way to vote in Board meetings where members may be participating remotely.

Role of the Severstal Board

Severstal's Board of Directors is responsible for the general management and performance of the company’s operations, including discussion, review and approval of its strategy and business model, and closely monitoring its financial and business operations by segment and as a whole.

The Board’s main objective is to run the company in a way that increases shareholder value in the medium and long term. Short-term financial and operational issues, such as debt levels and costs, also receive close attention.

The Board’s decisions are based on the best interests of all stakeholders. This can mean making difficult decisions in complex situations.

The Board is also responsible for disclosure and dissemination of information about the company’s operations, and for implementing the company’s information policy.

The Board has authority in decisions concerning major aspects of Severstal’s activity, except in matters within the jurisdiction of the General Shareholders’ Meeting.

Key duties:

1. Responsibility for the company’s strategic direction.
2. Reviewing the consolidated budget and submitting appropriate recommendations.
3. Reviewing the appointment and compensation policy applicable to the company’s senior executives, and making recommendations regarding such a policy.
4. Dividend policy.
5. Approving transactions with interested parties (as this term is defined in accordance with Russian Law) with the value for each such transaction not to exceed 2% of the book value of Severstal’s assets on the date such a transaction is agreed.
6. Approving transactions of values exceeding 10% of the book value of Severstal assets on the date such a transaction is agreed.
7. Approving transactions to acquire:
–– (i) shares or participation interests, o r rights to manage such shares or participation interests
–– (ii) fixed or intangible assets if the amount of the transaction specified in sub-clauses (i) or (ii) exceeds the equivalent of US$500 million. A resolution on the matters set out in clauses 2 and 7 requires a 2/3 majority vote of all members of the Board of Directors.

Board effectiveness

The roles of Chairman and Chief Executive Officer are separate and their responsibilities are clearly defined in the company’s statutory documents and regulated by Russian law. The role of the Chairman is to organise, lead and manage the Board and to convene and preside over Board meetings.

Directors new to the Board are given background information on the company when they join. This includes details of its operations and procedures, as well as information on what is required from them in their role according to the company’s statutory documents. This includes Severstal’s Corporate Governance Code, and applicable corporate governance law, best practice to help ensure their early effective contribution to the company.

The Board performed a self evaluation of its performance in 2010 based on the individual contribution of the Board members. Such evaluation helped to identify the areas for development and more close attention as well as the strengths of the Board.

The performance evaluation questioner contained three sets of questions relating to Board composition and structure, Board meetings and core processes and Board engagement with the company’s business issues. The overall results for the evaluation conducted proved to be positive and inspiring. The Board members mentioned several strong characteristics of the Board performance in 2010, those are: appropriate number of the Board members and sufficient individual contribution from the Board members, effective relationship between Chairman and CEO, important contribution by committees to the Board, value of boardroom discussions including those related to financial performance of the company.

There were some areas for improvement underlined i.e. Board succession planning and extension of more close communication of the Board members outside the Board meetings.”

Company Secretary

Oleg Tsvetkov (PhD, MBA) became company Secretary of Severstal in 2006 after its listing in London. Oleg was awarded Corporate Governance Director – Corporate Secretary in 2008 and also headed the list of Directors on Corporate Governance 2010 in the steelmaking sector.

The company Secretary’s office is responsible for the Board of Directors’ activities, preparing and holding the General Meetings and meetings of the Board of Directors, disclosure of information, corporate governance advice, communications with shareholders and GDR holders – as well as relations with Russian and foreign stock market regulators. The company Secretary is responsible for ensuring the company, its management and officers comply with applicable corporate law, the company’s charter and internal documents.

Non-executive Directors

The Board reviews the independence of all Independent and Non-executive Directors annually and has determined that all such directors are independent and have no cross-directorships or significant links that could materially interfere with them exercising their independent judgment. The Independent and Non-executive Directors play a leading role in corporate accountability and governance through their membership of the Remuneration and Nomination and Audit Committees.

Senior Independent Director

Rolf Stomberg is Severstal’s Senior Independent Director and is also Chairman of the Remuneration and Nomination Committee. His responsibilities include meeting major shareholders and chairing meetings of the Independent and Non-executive Directors when the Chairman is not present.

Terms of appointment

Members of the company's Board of Directors are elected by the shareholders at their General Meeting and remain members until the next Annual General Meeting. If a Board Member elects to terminate his office the whole body of the Board of Directors is re-elected at a General Shareholders Meeting. Those elected to the company's Board of Directors may be re-elected an unlimited number of times.

Meetings of Non-executive Directors

The Independent and Non-executive Directors meet separately during the year. There were four such meetings in 2010.

Company Charter

Severstal’s Charter, and any other internal document regulating the activities of the Company's bodies, can be amended or adopted in the new edition by the resolution of the General Shareholders’ Meeting only, as required by applicable Russian law and the Charter of the company. Decision on the company Charter amendement or adoption in the new edition is taken by a ¾ qualified majority shareholder vote at the General Shareholders’ Meeting.

Share capital

OAO Severstal share capital comprises ordinary shares with a nominal value of RUR 0.01 each. Authorized share capital of Severstal at December 31, 2010, 2009 and 2008 comprised 1,007,701,355 issued and fully paid shares.

All shares carry equal voting and distribution rights. There are no restrictions or limitations on voting rights for holders of OAO Severstal shares and GDRs.

Equity capital structure as of 31.12.2010:

	Share, % Shareholders equity capital
Alexey Mordashov*	77.97
Institutional investors and employees	22.03
Total	100

* Through participating in Severstal’s privatization auctions and other purchases, Alexey Mordashov (the “Majority Shareholder”) had purchased shares in Severstal such that as at December 31, 2010 he controlled indirectly 77.97% of Severstal’s share capital and had an option to purchase another 4.96 percent (at December 31, 2009 and 2008 he controlled, directly or indirectly, 82.37% of Severstal’s share capital)

Key Committees

The Board's key committees are consultative and advisory bodies that deal with issues raised by the Board. Committees may not act on behalf of the Board of Directors and are not management bodies of the company. They have no powers in relation to managing the company.

Committee meetings are held as and when necessary, but at least three times a year. Committee decisions are made by a majority vote of all committee members taking part in the meeting. Each member has one vote, and the Committee Chairman has no casting vote in the event of a vote tie.

The Audit Committee

The Audit Committee monitors and reviews risk management processes and supervises the company’s financial performance and business operations. The Audit Committee assists the Board of Directors in:
–– monitoring the timeliness, completeness and reliability of financial and other reporting
–– the preparation and submission process
–– risk management, internal control and corporate governance systems.

The Audit Committee consists of three Independent Directors, currently Martin Angle, Chairman of the Audit Committee, Ronald Freeman and Dr. Peter Kraljic. In accordance with its terms, the Committee has sufficient recent relevant financial experience, and the overall skills required for financial statements, business risk analysis and financial management skills. No Senior Executive of the company is a member of the Audit Committee. The Audit Committee met four times in 2010. The Chairman of the Audit Committee is continuously in touch with the Chairman, the external audit lead partner, the company CFO and Head of Internal Audit.

The Audit Committee:
–– evaluates candidates put forward as the company’s external auditors, developing recommendations for the Board regarding the selection of the external auditors
–– develops recommendations for the Board of Directors regarding external auditors’ fees
–– supervises the scope and results of the auditors’ work (including the evaluation of the auditors’ opinion) and its efficiency and objectivity – monitoring the independence of the external auditor, taking into account the applicable requirements of professional and regulatory bodies in Russia and the UK
–– reviews the company’s regular financial statements and analyses changes in accounting policies and practices, as well as material adjustments based on the audit’s findings
–– analyses the company’s annual report and any other published financial information before submission for approval to the Board of Directors and publication
–– analyses official statements relating to the company’s financial performance and reviews of any opinions concerning significant aspects of financial reporting
–– monitors the effectiveness and efficiency of risk management, internal control and corporate governance systems
–– monitors and controls the efficiency of the internal audit function
–– develops and implements an ethical compliance policy for auditors supplying non-audit services, taking into account relevant ethical restrictions applicable to such activities and risk management, internal control and corporate governance systems
–– analyses material changes to existing legislation that affects the company’s financial statements, and any findings of supervisory authorities and court proceedings.

The Audit Committee also prepares its own evaluation of the auditors’ opinion on financial statements and provides this evaluation to the Board of Directors and the Annual Shareholders’ General Meeting.

To ensure the company’s financial and business operations are monitored efficiently, the company employs external auditors with no interests in the company verify and approve of the accounts. The Audit Committee monitors the auditor’s independence. The KPMG – external auditor lead partner always participates in meetings of the Audit Committee, reviewing the company’s quarterly and annual results. Audit Committee members regularly meet with the external auditor, without management, to discuss matters arising from the audit and review process. There were four of such meetings in 2010.

The company’s books and records are audited in compliance with the requirements of statutory law and International Standards on Auditing, issued by the International Auditing and Assurance Standards Board (IAASB), with respect to financial statements prepared under the International Financial Reporting Standards (IFRS).

Such an audit takes place annually and, as of the first quarter of 2007, the company’s interim condensed financial statements, prepared in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting, are also reviewed in accordance with International Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity.

The Remuneration and Nomination Committee

The Remuneration and Nomination Committee’s role is to help the company engage qualified professionals to manage the company, and create the incentives necessary to ensure their successful work for the company. It also reviews the remuneration and compensation for senior managers of the company and Independent Board members.

The Remuneration and Nomination Committee consists of three members. At least two members, including the Chairman of the Committee, are Independent Directors who are not senior executives of the company.

The Remuneration and Nomination Committee:
–– develops general recommendations for the Board of Directors on selecting nominees to the Board of Directors, proposed by the Board of Directors
–– conducts preliminary evaluations of potential nominees to the Board of Directors and provides the Board of Directors with recommendations
–– informs the Board of Directors of any potential nominees to the Board of Directors it is aware of and recommends individual persons for nomination or election to the Board of Directors
–– issues an opinion as to whether a person nominated to the Board of Directors qualifies as an Independent Director
–– develops the system of remuneration and other payments made by the company or at the company’s expense (including life and health insurance, and pension plans) for Board members of the company
– based on members’ personal contributions to the company’s strategic objectives
–– prepares and submits the appointment and remuneration policy for senior executives of the company, including its Chief Executive, as well as providing recommendations on the terms of the contract signed with the Chief Executive
–– reviews Board members’ performance, including the advisability of nominating respective Board members for another term in office
–– provides recommendations to the Board of Directors regarding material terms of the General Director’s contract
–– reviews information given by Board members –to be disclosed in accordance with the existing legislation or the Charter – for establishing whether such Board members have an interest in any decisions of the company, as well as information related to the circumstances preventing the aforementioned officers from efficiently discharging their duties as members of the Board – and any circumstances entailing their loss of independence as a member of the Board of Directors.

The Remuneration and Nomination Committee comprises Doctor Rolf Stomberg (Chairman of the Committee), Christopher Clark and Alexey Mordashov.

The Remuneration and Nomination Committee met three times in 2010. The Chairman of the Remuneration and Nomination Committee is in regular contact with the Company CEO and Head of Human Relations.

Remuneration of Severstal's key managers

Remuneration of the key managers of Severstal totalled US$52.8 million in 2010. This includes salaries, bonuses for 2010, as well as the change in accrued provisions under the long-term incentive programmes. These changes are subject to further adjustments, depending on a range of financial indicators of Severstal and its industry peer group. As at 31 December 2010, those accrued provisions amounted to approximately US$20 million. Remuneration of the Severstal's key managers in 2009 was US$19.6 million, while bonuses were minimal and no reserves were made under the long-term incentive programmes.

Sole Executive Body

The authority of the Sole Executive Body of the company is exercised by the Chief Executive Officer, who must be appointed by the General Shareholders’ Meeting of the company for a three-year period and can be re-elected an unlimited number of times. Alexey Mordashov was re-appointed Chief Executive Officer at the Annual General Shareholders’ Meeting of OAO Severstal on June 11, 2010.

Refer to www.severstal.com (About Severstal > Corporate Governance > Shareholder Rights>Voting results report) for more information. The General Shareholders’ Meeting can, at any time, adopt a resolution on early termination of the Chief Executive Officer’s authorities.

Chief Executive Officer, among other things, acts on behalf of the company, represents its interests, commits transactions, approves manning schedules, and issues orders and instructions obligatory for all the company’s employees.

The Chief Executive Officer carries out the day-to-day management of the company and ensures its efficient operation by performing the tasks set by the Board of Directors. The Chief Executive is responsible for the organisation, status and accuracy of accounting practices, timely provision of financial reports to appropriate authorities, and timely provision of information regarding the company’s operations to shareholders, creditors and the media. The Chief Executive also cooperates with trade unions to protect the interests of company employees and communicates with government and municipal authorities.

Internal Control and Risk Management Systems

The information required by DTR 7.2.5 regarding the company’s Internal Control and Risk Management Systems in relation to the financial reporting process, is included in OAO Severstal Risk Management section.