Corporate governance

RusHydro Group’s corporate governance aims to protect the rights and interests of the shareholders, build and maintain trusted relationships between the Company and its investors, and grow the Company’s value and dividend yields.

It complies with applicable laws and reflects today’s trends and best practices, while fulfilling the requirements associated with the listing of shares on the Moscow Exchange and of depositary receipts on the London Stock Exchange and on the U.S. OTCQX over-the-counter market.

RusHydro Group has the state as its controlling shareholder, which has, due to its majority stake in the authorized capital, significant power with respect to corporate governance. However, this power is corporate rather than administrative by nature. Certain procedures for the state to exercise its rights as a shareholder are stipulated by law, setting out the process for the government to make decisions as regards the Company using its corporate rights.

The Group’s corporate governance principles and procedures are laid out in the Company’s Charter and internal regulations. The corporate practices are formalized in the Corporate Governance Code.

Its adoption confirms the Company’s commitment to complying with the best corporate governance practices, including the recommendations of the Bank of Russia’s Corporate Governance Code.

Key principles [102–16]

Corporate governance structure [102–18]

Subsidiary management

RusHydro (including indirectly through subsidiaries) has stakes in authorized capital of companies engaged in electricity and heat generation and distribution, energy facilities design, construction, repair, maintenance, rehabilitation and modernization, and other activities.

The Company contributes to subsidiaries’ strategy delivery, stable economic growth and investment appeal, and protection of rights and interests of the shareholders of both the Company and its subsidiaries.

The Company manages its subsidiaries by being represented at general meetings of shareholders/participants, on boards of directors and supervisory bodies of the subsidiaries.

Deciding on matters reserved to supreme governing bodies of the subsidiaries where the Company exercises the rights of the sole shareholder (participant) falls within the remit of the Management Board. Establishing the Company’s position on key matters regarding subsidiaries (reorganization, liquidation, increase of the authorized capital, approval of major transactions, participation of the subsidiary in other energy organizations, disposal of energy assets) falls within the remit of the Board of Directors. The Company’s position on other important matters regarding subsidiaries (KPI approval (adjustment), participation of the subsidiary in non-energy organizations, nomination of candidates to the subsidiary’s management and supervisory bodies, etc.) is established by the Management Board.

In 2018, aiming to improve the quality and transparency of the corporate governance with respect to subsidiaries, the Company’s internal regulations were amended to provide members of RusHydro’s Board of Directors with the right to access documents and make inquiries as regards subsidiaries and to go into matters relating to material aspects of their business.

Improving the corporate governance system

In 2018, the Company continued to implement the standards set forth in the Code and aimed at corporate governance improvement by consistently amending the internal regulations and applying the standards in the day-to-day operations.

The following key actions were taken in 2018:

  • the Company’s internal regulations were amended to include standards on:
    • development of an onboarding program for first-time elected members of the Board of Directors;
    • prevention and resolution of conflicts of interest on the Board of Directors;
    • engagement by the Board of Directors of independent external experts (advisors) to work on matters within its remit;
    • improvement of the Board of Directors’ performance through offering educational and professional development opportunities for its members;
    • recommendations regarding material corporate actions by independent directors before their approval by the Board of Directors;
    • access by the Company’s shareholders and members of the Board of Directors to the documents containing information on the Company’s subsidiaries;
  • candidates to the Board of Directors were assessed with respect to necessary experience and knowledge, good reputation and absence of conflict of interest, with the results of the assessment included in the materials for the Annual General Meeting of Shareholders;
  • the Board of Directors’ performance was independently assessed, with the results reviewed by the Board of Directors at a meeting held in person;
  • the number of meetings of the Board of Directors held in person was increased;
  • the quality and level of detail of information disclosed in the Company’s annual report and on the Company’s website were improved;
  • the Information Policy Regulations were updated to reflect global and Russian best practices;
  • policy on Rotation of Auditors and Policy on the Ownership of Shares in PJSC RusHydro and Shares (Interests) in PJSC RusHydro’s Subsidiaries by Members of the Board of Directors and Management Board were approved by the Board of Directors.

In addition, the Company was fully committed to compliance with the Corporate Governance Code over the reporting period: Senior Independent Director was elected; performance of the Company’s risk management and internal control system was assessed; corporate governance practices in the Company were discussed; report on the implementation of the Company’s Information Policy Regulations was reviewed; etc.

Compliance with the Corporate Governance Code

As a result of corporate governance improvement efforts and implementation of the standards set forth in the Code, RusHydro came to observe 92% of the principles in 2018, compared to 63% in 2016.

Compliance with the Corporate Governance Code, %
Compliance with the principles of the Corporate Governance Code Compliance with the principles of the Corporate Governance Code was assessed based on the Bank of Russia’s methodology and reporting recommendations with respect to such compliance (annex to Bank of Russia letter No. IN-06-52/8 dated February 17, 2016). For a full report on the Company’s compliance with the principles and recommendations of the Corporate Governance Code, including explanation of deviations from the compliance assessment criteria, see Appendix X to RusHydro’s annual report.
Observance of standards and principles of the Code Observed Partially observed Not observed Total 2018
Year 2016 2017 2018 2016 2017 2018 2016 2017 2018
Shareholder rights and equitable treatment of shareholders 10 11 12 2 2 1 1 0 0 13
The Company’s Board of Directors 20 23 32 12 10 1 4 3 3 36
The Company’s Corporate Secretary 2 2 2 0 0 0 0 0 0 2
Remuneration of the Company’s directors, executives and other key managers 10 10 10 0 0 0 0 0 0 10
Risk management and internal control system 5 6 6 1 0 0 0 0 0 6
Disclosures and the Company’s information policy 3 6 7 4 1 0 0 0 0 7
Material corporate actions 0 0 4 4 5 1 1 0 0 5

Corporate governance quality assessment

In 2018, corporate governance quality was externally assessed by the Russian Institute of Directors (RID).

In September 2018, the RID increased RusHydro’s corporate governance rating according to the National Corporate Governance Rating (NCGR) scale from level 7++ to level 8 “Advanced Corporate Governance Practice”.

The Company’s corporate governance practices were assessed based on four components, each including a set of criteria to reflect corporate governance policies, procedures and structures as required by applicable Russian laws, the Moscow Exchange’s Listing Rules, recommendations of the Russian Corporate Governance Code and global best practices.

The RID has concluded that the Company complies with the Russian legislative requirements with respect to corporate governance and observes many of the recommendations of the Russian Corporate Governance Code. In addition, the Company runs a rather low risk of losses to owners due to corporate governance issues.

Corporate governance improvement prospects

Key areas for improvement as regards the Company’s corporate governance in 2019 include the following:

  • Amend the Company’s Charter and internal regulations to reflect the following standards:
    • resolutions on critical matters set forth in recommendation 170 of the Code to be passed by a qualified majority of at least three-quarters or a majority vote involving all elected directors;
    • shareholders to be granted the right to access the list of persons entitled to attend General Meetings of Shareholders from the date following the date they submit their request to the Company (from the date the list is drawn up if the request is submitted beforehand);
  • Enable shareholders to vote at Annual General Meetings of Shareholders via an electronic voting system;
  • Arrange for a comprehensive formal self-assessment of the Board of Directors and its committees with a focus on their performance as a single body and individual contributions of directors to the proceedings of the Board of Directors and its committees; draft recommendations to the Board of Directors to improve the operating performance of the Board of Directors and its committees; and prepare a report on the results of the self-assessment exercise to be reviewed by the Board of Directors at a meeting held in person;
  • Disclose in the Company’s annual report the amount of remuneration of each member of the Board of Directors.