This section sets out how Severstal has applied the principles of good governance during the year.
Corporate governance model
Severstal is listed on the “First Level” on MICEX and has a “standard listing” for its depository receipts on the London Stock Exchange. Accordingly, Severstal follows the provisions of the:
- Recommendations from the Corporate Governance Code (2014) approved by the Central Bank of Russia and recommended for application by the joint stock companies with listed securities – available on www.cbr.ru, and
- UK Corporate Governance Code (2016) – available on www.frc.org.uk.
Severstal’s Corporate Governance Code has been prepared following recommendations of the codes above and is based on the following main principles:
- A solid commitment to full alignment with shareholders’ interests;
- A unified, well-shaped business structure supported by a focused corporate strategy;
- A disciplined merger and acquisition strategy supported by a qualified majority of Board members;
- A reliance on a stable, deep-rooted and incentivised management team;
- Industry-leading disclosure practices and transparent corporate reporting; and,
- A solid platform for delivering superior, long-term returns for all our shareholders.
Along with Severstal’s Corporate Governance Code and the Charter of the Company (both available at www.severstal.com) the activities of Severstal’s management and supervisory bodies, as well as internal activities, are also governed by a set of internal corporate documents, which are also available online at www.severstal.com.
Severstal is a member of the Russian Institute of Directors, the leading expert and resource centre for corporate governance, established by the largest Russian companies to develop, incorporate and monitor standards of corporate governance in Russia.
Severstal is committed to continue developing and evolving its corporate governance practices. For example, although the minimum requirements for compliance for a “standard listing” for its depository receipts on the London Stock Exchange are relatively limited, Severstal continually monitors the requirements for those companies that have a “premium listing” and where it believes that these requirements will enhance transparency, they are adopted. For example, the publication in December 2017 of the UK’s proposed revisions to the UK corporate Governance Code will be actively considered during 2018 and debated by the Board.
Throughout the year Severstal complied with the requirements of a listing on the “First Level” on MICEX and a ‘standard listing’ for depository receipts on the London Stock Exchange, apart from the fact that Severstal has not entered into a relationship agreement with Alexey Mordashov, its majority shareholder.
The Board seeks to ensure that the interests of the minority shareholders in the Company are properly respected by and aligned with those of the majority shareholder. The Board has carefully considered whether there would be any benefit to the minority shareholders of the Company entering into a relationship agreement with the majority shareholder, however, the Board has decided that the existing arrangements and regulations that are in place, which endeavour to ensure that Severstal is capable of conducting its business independently of the major shareholder and his related companies, are satisfactory and that transactions with the controlling shareholder and his related companies are at arm’s length and on fair commercial terms. The principal safeguards may be summarised as follows:
- Half of the Board consists of Independent Non-Executive Directors and the Audit Committee and the Remuneration and Nomination Committee consist of and are chaired by Independent Non-Executive Directors.
- The majority shareholder exercises his voting rights, including those related to amending Severstal’s Charter, in a way which would not be prejudicial to the interests of minority shareholders.
- The majority shareholder does not vote on any resolution to approve a “related party transaction”. Severstal has established a process whereby, whenever required, and at least monthly, individual related party transactions are voted on by the other members of the Board, who have no involvement with those transactions, having been reviewed by the internal audit function to ensure that they have been recorded and valued appropriately. All related party transactions are also reviewed by the Audit Committee and by the external auditors and disclosed in the quarterly and annual financial statements in accordance with the requirements of IFRS.
- Shareholders have direct access to members of the Board and executive management at Severstal’s Annual Capital Markets Day and Annual General Meetings of Shareholders, which are held in person. The majority shareholder, as the Chairman of Severstal, will ensure that the interests of all shareholders continue to be aligned.
Each of the directors who is a director at the date of the approval of this Annual Report confirms that to the best of his knowledge:
- The Group financial statements are prepared in accordance with IFRS, give a true fair view of the assets, liabilities, financial position and profit of the Group;
- The Strategic Report includes a fair view of the development of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces;
- The Annual Report, taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy.
The Annual Report was approved by the Board of Directors on 1 February 2018.
General Meeting of Shareholders and supervisory bodies
The General Meeting of Shareholders (“GMS”) sits at the top of Severstal’s governance structure. Full information on the responsibilities of the GMS is available online at www.severstal.com, together with details of when the GMS is held and how shareholders are informed of an upcoming GMS and information on resolutions at GMS, including those resolutions of the GMS that were taken during 2017.
Severstal’s supervisory bodies are its Internal Audit Commission and its External Auditor.
Severstal’s Internal Audit Commission is a full-time internal control body that supervises the Company’s financial and business operations, to obtain adequate assurance that the Company’s operations are in full compliance with Russian law, to make sure the rights of the Company’s shareholders are observed, and the Company’s reports and accounts have no material misstatements. The Internal Audit Commission acts in the best interests of shareholders and reports to the GMS.
Our Internal Audit Commission comprises three persons who were re-elected by the AGM on 9 June 2017: Nikolay Lavrov (Chief Internal Audit Executive); Roman Antonov (Deputy Chief Internal Audit Executive); and Svetlana Guseva (Manager of Internal Audit). They are elected for a period until the next AGM. Members of the Internal Audit Commission cannot be members of the Company’s Board and occupy any other position in the Company’s management structure at the same time.
The activity of the Company’s Internal Audit Commission is regulated by Severstal’s Regulations for the Internal Audit Commission. These regulations are available at www.severstal.com.
An external auditor is appointed annually by the GMS. Its fee is subject approval by the Board.
The Board of Directors
Severstal’s Board of Directors is responsible for the review and approval of its strategy and business model, and closely monitoring its financial and business operations both by segment and as a whole. The Board is also responsible for approval of annual, half-year and quarterly results, the issue of any securities, establishing dividend policy and recommendation of dividends. It is also responsible for establishing Severstal’s risk appetite, system of internal control, governance, monitoring executive performance and succession planning. The Board reviews standards of ethics and policy in relation to health, safety, environment, social and community obligations. Full information on the responsibilities of the Board of Directors is available online at www.severstal.com.
The Board’s activity is regulated under Russian law, the Company’s Charter (2016) and Regulations for the Board of Directors (2014).
According to the Company’s Charter, Severstal’s Board comprises ten members. Severstal believes that maintaining a balance on the Board is a prerequisite for good decision-making and corporate governance and ensuring equal regard for the interests of all shareholders. Details of our Directors can be found in their biographies.
The Board reviews the independence of all Independent Non-Executive Directors annually, and has determined that all such directors are independent, in line with the UK Corporate Governance Code and have no cross-directorships or significant links, which could materially interfere with them exercising their independent judgment. The Company’s Independent Non-Executive Directors play a leading role in corporate accountability and governance through their membership and participation in the Board’s committees.
New directors to the Board participate in an induction programme when they take office. This includes details of the Company’s operations and procedures, as well as information on what is required from them in their role according to the Company’s internal corporate documents. This includes Severstal’s Corporate Governance Code, applicable corporate governance law, and descriptions of best practice to help ensure their early effective contribution to the Company.
Governance calendar for 2017
Overall calendar of General Meetings of Shareholders, in-person Board and its committees’ meetings are shown below:
Separation of the roles of Chairman and CEO
The roles of the Company’s Chairman and CEO are separate and their responsibilities are clearly defined in the Company’s organisational documents and are regulated by law.
Alexey Mordashov is the Chairman of the Board of Directors. The Board Chairman is elected from among its members by a majority vote.
The Board Chairman’s role is to:
– Lead the Board and with other members of the Remuneration and Nomination
Committee lead the recruitment of new directors;
– Ensure constructive relations between Executive and Independent Non-Executive Directors;
– Ensure that all Board members can maximise their contribution to the Board;
– Provide strategic insight from his wide-ranging business experience and contacts built up over many years;
– Provide a sounding Board for the CEO on key business decisions and challenge proposals where appropriate;
– Preside over the GMS, and,
– Meet with shareholders on governance matters and be an alternative point of contact to the CEO for shareholders on other matters.
The CEO’s role is to:
– Lead the business and the rest of the management team;
– Lead the development of the Company’s strategy with input from the rest of the Board;
– Lead the management team in company acquisitions and new build decisions;
– Ensure organisation, status and accuracy of the company’s accounting practices and the timely provision of appropriate authorities with financial reports;
– Bring matters of particular significance or risk for discussion and consideration by the Board, if appropriate;
– Be the principal public face of the company with shareholders, customers, suppliers and the industry in general; and,
– Cooperate with the company’s trade unions to protect the interests of the company’s employees and communicate with state and municipal authorities.
Sole Executive Body
The authority of the Company’s Sole Executive Body is exercised by the CEO of the Company.
Following the resolution of the Company’s shareholders dated 10 September 2014, the powers of Severstal’s CEO were transferred to the managing company, Severstal Management, with effect from 1 January 2015. This change was in line with the Company’s stated strategic focus of optimising its management structure and further enhancing management efficiency and transparency. Severstal Management achieved this by reducing management layers, centralising certain administrative functions and removing duplication.
The managing company has authority for managing all issues in the Company’s current operations, except for those issues specifically reserved for the Company’s GMS and the Board of Directors.
Alexander Shevelev was appointed CEO of Severstal Management with effect from 12 December 2016.
More details are available on www.severstal.com.
Board activity in 2017
In 2017, Severstal’s Board of Directors held four (4) meetings in person and eighteen (18) meetings in absentia.
The Board spent a considerable amount of time during 2017 discussing safety. In particular, the Board has reviewed safety throughout the business and its continuing initiatives to improve Severstal’s safety performance. It also discussed regularly the changing dynamics of raw material prices and the impact of the increasing rise in protectionism on Severstal’s business.
In addition to the matters described above, the Board also reviewed the following key matters:
– Health, safety and environmental issues;
– Severstal’s financial plan, financial performance and reporting;
– Issues relating to the strategic options facing Severstal;
– Risk and risk mitigation matters;
– Results of the external assessment for the Board and its committees performance;
– The composition of the Board and its committees and succession planning;
– External Auditor’s fee;
– Budget for 2018;
– Employee Code of Conduct, Anticorruption Policy, Code of Business Conduct, Terms of reference of the Ethics Committee of Severstal Group of Companies;
– Acquisitions and disposals;
– Transactions with related parties, etc.
The attendance of the Company’s directors at in-person meetings of the Board and its committees during 2017
1 means that the specified Director is not a member
of the Committee, although he attended the meeting at the invitation of the
Chairman of the Committee
2 Philip Dayer stepped down the Audit Committee on 9 June 2017 and Sakari Tamminen was elected as a new member of the Audit Committee on the same date
Moreover, Independent Non-Executive Directors meet separately as a group during the year. There were four such meetings in 2017.
Board self-evaluation results for 2017
The Board carries out an annual self-evaluation of its performance based on the individual contribution of each Board member, and has an external evaluation once every three years in accordance with the best corporate governance practice.
In 2017 the Board conducted its own self-evaluation. The self-evaluation process was based on a series of confidential and wide-ranging questionnaires with each Board member. Questionnaires were focused on evaluating the efficiency and performance of the Board and its Committees. The evaluation tested key areas of the Board’s operations including its participation in the formation of the Company’s strategy, succession and composition, boardroom interaction, culture, and the way the Board supervises business performance, risk, governance and operations in the interests of the Company as a whole.
The results of the Board self-evaluation were collectively discussed by the Board at its meeting in February 2018.
Firstly, the Board reviewed the progress on the implementation of the recommendations of the independent evaluation carried out in late 2016. The Board is satisfied that significant progress is being made on: learning the lessons from the Severnaya accident; developing Severstal’s longer-term strategy for value creation; the communication of Severstal’s values and principles throughout the organisation; ensuring that directors have sufficient information to support their decision-making activities; ensuring that the independent non-executive directors expand their programme of site visits; and increasing engagement with shareholders.
The progress on a number of these issues is included in this Annual Report. It also agreed that the independent directors’ involvement in the top-talent programme had increased both the quality of debate on succession planning and also increased their knowledge of the day-to-day issues facing Severstal’s businesses.
In its self-evaluation carried out from December 2017 to January 2018 the Board agreed actions in relation to continuing the evolution of the Board’s processes and discussions of the continuing journey towards best-in-class governance.
The Board underlined some areas for improvement for 2018, those are:
– the succession of Board members, CEO and key executives should be
considered in even greater depth than currently;
– the Board should continue considering the company’s strategy in detail and explore a wider range of alternative strategic options and scenarios;
– the Board should continue working on ensuring that its internal control and risk management systems are as robust and effective as possible.
Alexey Mordashov, Chairman of the Board of Directors has been named the Best 2017 Chairman of the Board of Directors: development of corporate governance at the Director of the Year Awards.
The Director of the Year awards are presented by the Association of Independent Directors and the Russian Union of Industrialists and Entrepreneurs, in partnership with the Moscow Exchange, PwC and Sberbank. The awards recognise the personal contribution of Board Directors to ensuring that Russian companies meet the highest standards of corporate governance. The award ceremony was held in Moscow on 28 November.
The winners are selected by a council of experts, comprising 22 representatives from national/international regulators, leading Russian corporations, the investment community, professional associations, and previous award winners. At the first stage, the lists for the 50 best independent directors, 25 best chairmen of directors and 25 best corporate secretaries are drawn up, from which the Expert Council shortlists candidates. When evaluating candidates for the Chairman of the Board of Directors award, the Expert Council looks at the nominees’ role on the board of directors, their company’s progress in corporate governance, the effectiveness of the organisation and their company’s transparency.
The Expert Council noted that in the role of the Chairman of the Board of Directors, Alexey Mordashov “established an effective working environment, ensured regular strategic discussions and introduced a client-oriented corporate culture. The Board of Directors is formed on the principles of independence and professionalism, and regular and effective communication of the Council and the company with investors.”
Alongside Alexey Mordashov, members of the Board of Directors, Alexander Auzan, Alun Bowen, Philip Dayer and Vladimir Mau, were also recognised. They were included in the list of Top 50 Independent Directors. Artem Bobulich, corporate secretary of Severstal, was included in the 25 best corporate secretaries.
Senior Independent Director
Sakari Tamminen is Severstal’s Senior independent director and Chairman of the Remuneration and Nomination Committee.
The Senior Independent Director’s role is to:
– coordinate communication of Independent Directors;
– liaise with the Chairman of the Board;
– act as an advisor for the Chairman to ensure efficient activity of the Board;
– ensure that appropriate succession planning procedures are in place in relation to the Chairman’s succession;
– meet annually with independent directors to appraise the Chairman’s performance, taking into account the views of Executive Directors, and on other occasions as are deemed appropriate; and,
– be available to shareholders if they have concerns which have not or cannot be resolved through contact with the Chairman or the Company’s executive body.
The Board makes considerable efforts to establish and maintain good relationships with shareholders and the wider investment community. There is regular dialogue with institutional investors during the year, primarily though the Head of Communications and Investor Relations and his team.
In November 2017, Sakari Tamminen led Severstal’s senior management team in London at the Company’s seventh annual Capital Markets Day. The meeting was also attended by certain Independent Non-Executive Directors in order that they could develop their own understanding of the views of institutional shareholders.
The Corporate Secretary ensures Severstal’s compliance with the requirements of applicable law, the Company’s Charter and internal documents regulating the needs and interests of the Company’s shareholders. The Corporate Secretary is responsible for safeguarding the rights and interests of shareholders, as well as establishing transparent and effective regulations to secure the rights of shareholders. Full information on the responsibilities of the Corporate Secretary is available online at www.severstal.com.
Artem Bobulich has been the Corporate Secretary of Severstal since 20 January 2014. Artem Bobulich (born in 1983) has worked in the Company’s Corporate Secretary Team of the Legal Affairs Directorate since 2007. He graduated from the Cherepovets State University with foreign philology specialisation and from the Moscow State Law Academy.
Severstal share capital comprises ordinary shares with a nominal value of RUB 0.01 each. The authorised share capital of Severstal as at 31 December 2017 comprises 837,718,660 issued and fully paid shares.
All Severstal shares carry equal voting and distribution rights. There are no restrictions or limitations on voting rights for holders of Severstal shares and GDRs.
* Through participating in Severstal’s privatisation auctions and other purchases, Alexey Mordashov had purchased shares in Severstal such that as at 31 December 2017 he controlled indirectly 77.03% of Severstal’s share capital.
Severstal operates a whistleblowing policy for employees to confidentially report concerns about any unethical business practices to senior management in strict confidence and without fear of recrimination through several routes. Severstal’s Ethics Committee is the executive body which oversees the firm’s whistleblowing activities and the Audit Committee receives details of whistleblowing reports.
Anti-bribery and anti-corruption measures
Severstal’s anti-corruption policy, which is available at www.severstal.com and supported by the Severstal Employee Code of Conduct and Severstal Code of Business Conduct, incorporates appropriate provisions to meet Severstal’s obligations under Russian legislation and the UK Bribery Act.
All individuals applying for employment with Severstal are screened for their attitude to corruption and risk. The applications of those employees who do not meet the expected standard are not proceeded with. A training and communication programme is in place for all employees to ensure that they understand Severstal’s requirements and related reporting procedures. Regular screening checks are also carried out for existing employees.
Arrangements with contractors and suppliers have been and continue to be reviewed to ensure full compliance with Severstal’s anti-corruption policy.
Oversight of the programme is the responsibility of the Ethics Committee, which reports regularly to the Audit Committee.
Payments to Governments
Severstal’s payments to Governments disclosure in the year ended 31 December 2017 can be found in the Investor Relations section of www.severstal.com.