Assessment of corporate governance quality

Performance Evaluation of the Board of Directors and Board Committees

In line with FPC’s Action Plan for the Integration of Key Provisions of the Corporate Governance Code, in October 2015, FPC’s Board of Directors approved the Regulations on Performance Evaluation of the Board of Directors and Committees of the Board of Directors of FPC.

The Regulations provide for a questionnaire-based survey into the following key aspects:

• Membership and structure of FPC’s Board of Directors;
• Quality of preparation and holding of meetings;
• Role and objectives of the Board of Directors and Chairman of the Board of Directors of FPC;
• Planning of activities of FPC’s Board of Directors;
• Performance of FPC’s Board of Directors Committees;
• Interaction between FPC’s Board of Directors and executive bodies;
• Activities of the Secretary of the Board of Directors (Corporate Secretary) of FPC;
• Evaluation of individual performance of each member of FPC’s Board of Directors.

The decision to conduct performance evaluation of the Board of Directors, committees of the Board of Directors and each member of the Board of Directors of FPC is made by the Chairman of FPC’s Board of Directors.

The Chairman of the Human Resources, Remuneration and Corporate Governance Committee of FPC’s Board of Directors is responsible for carrying out the evaluation, determining the evaluation timeline and methods and identifying the necessary resources.

The results of performance evaluation of the Board of Directors, committees of the Board of Directors and each member of the Board of Directors of FPC are discussed at relevant meetings of FPC’s Board of Directors and included in the annual report of FPC.

Assessment of Corporate Governance Quality

In 2015, the Board of Directors specifically focused on improvements to the Company’s corporate governance practice.

For example, a comprehensive self-assessment of FPC’s corporate governance system was run based on the results of a workshop on Integration of the Corporate Governance Code in RZD Holding held in Veliky Novgorod.

The self-assessment was carried out in line with the Methodology for Self-Assessment of Corporate Governance Quality in stated-Owned Companies approved by Order No. 306 of the Federal Agency for State Property Management dated 22 August 2014 and covered the following aspects of corporate governance: rights of shareholders; the board of directors; executive management; transparency and disclosure; risk management; internal control and internal audit; corporate social responsibility; business ethics; and compliance.

The self-assessment score is expressed as a percentage on a scale from

• 100% (excellent quality) to
• 0% (poor quality).

Based on the results of a comparative analysis, FPC’s Board of Directors approved the Action Plan for the Integration of Key Provisions of the Corporate Governance Code in 2015–2016 (the “Plan”).

In 2015, risk management and internal control systems existing in FPC were reviewed and assessed as part of the Plan’s implementation in the Company, and the Board of Directors drafted and approved a number of fundamental internal documents of the Company such as: Anti-Corruption Policy; Code of Ethics; Risk Management Policy; and Internal Control Policy.

As a result of measures taken under the Plan in 2015, corporate governance quality in FPC rose 13% to 63%.

Plans for 2016

• Have the Information Policy of FPC approved by the Board of Directors of FPC;
• Review the website of FPC to check whether it provides all necessary information, is regularly updated and whether disclosed information is easy to find. Prepare recommendations based on the results of the review;
• Review and assess the internal audit system existing in FPC. Based on the results of the review, draft an analytical report and recommendations on organisation of internal audits in FPC;
• Review and assess FPC’s motivation system for its executive officers and other key employees. Based on the results of the review, prepare an analytical report and present it to the Board of Directors of FPC. Update key performance indicators (KPIs) for executives employed on special remuneration terms;
• Have the Board of Directors of FPC draft and approve the Regulations on the Corporate Secretary of FPC;
• Have the Board of Directors of FPC draft and approve the Corporate Governance Code of FPC.

External Evaluation of Corporate Governance

Since 2013, the Company has been engaging RAEX (Expert RA) rating agency for an external evaluation of quality of its corporate governance.

In 2013, the rating assigned to the Company for its corporate governance practice was MQR5 Average Corporate Governance Practice: The company complies with the requirements of Russian corporate governance law, however, the initiatives aimed at introduction of basic recommendations of the Russian Corporate Code of Conduct are inadequate. The company has average risks of owner’s losses related to the quality of management.

In 2015, the rating agency reviewed FPC’s corporate governance practices for 2014 and assigned the Company rating A+.gq, Very High Level of Management Quality.

The management quality system greatly contributes to the promotion and protection of stakeholders’ rights.

The positive factors highlighted by the agency include:

• highly organised system for control over financial and business activities of the Company;
• high level of disclosure;
• high ownership concentration;
• highly organised risk management system;
• highly organised corporate social responsibility;
• highly organised activities of the Board of Directors’ committees;
• moderately high organisation of the Board of Directors;
• extremely high credit ratings of the Company; and
• high level of cooperation between the Company’s governance bodies and availability of an ISO 9001-2011 certificate.