5.1 CORPORATE GOVERNANCE PRINCIPLES

The Company is committed to upgrading its corporate governance system, aiming to enhance our investment appeal and to reduce the risk of crisis situations. The integrated corporate governance system encompasses relationships with stakeholders and subsidiary and dependent companies (SDCs), internal control, risk management and internal audit.

The cornerstone of the Company’s corporate governance system is its corporate governance principles, which were outlined by the Corporate Governance Code of the Federal Commission for Securities Market, the Company's Code of Corporate Governance, as well as acclaimed global best practices, such as the Principles of Corporate Governance of the Organization for Economic Co-operation and Development (OECD).

Corporate Governance Principles

Transparency. The Company promptly discloses all significant facts related to our operations, including our financial standing, social and environmental performance, operational results, ownership structure and corporate management. The Company makes this information accessible to anyone who might be interested.

Accountability. The Board of Directors is accountable to all shareholders for full compliance with all applicable legislation.

Fairness. The Company is committed to defending shareholders’ rights and to treating all shareholders equally. The Board of Directors effectively defends all shareholders in case any of these rights are violated.

Responsibility. The Company recognizes the rights of all stakeholders, as provided for by applicable legislation, and aims to cooperate with them, helping to grow the Company and ensure its financial sustainability.

The Company is liable for its obligations to the full extent of property it owns.

The Company and the Company’s registrar STATUS are jointly liable for losses incurred by shareholders as a result of a loss of shares or the inability to exercise rights documented by shares as a result of improper compliance with the Company’s shareholder registry maintenance and development procedures unless due compliance is deemed impossible as a result of force majeure or actions (lack of actions) on the part of shareholder that requires compensation for losses, including as a result of the shareholder failing to take reasonable measures to reduce such losses.

Responsibilities of the Company’s management bodies:

In exercising their rights and carrying out their duties, members of the Board of Directors, the Chairman of the Management Board and members of the Management Board act in the best interests of the Company, display integrity and wisdom in exercising their rights and performing their duties with respect to the Company and will be held liable to the Company if it incurs losses due to their wrongdoing (or inaction).

Members of the Board of Directors, the Chairman of the Management Board and members of the Management Board will be held liable to the Company and/or its shareholders for losses incurred by their wrongdoing (or inaction) which violate the Company’s share acquisition procedure. Members of the Company’s Board of Directors and the Management Board who voted against the decision that incurred losses for the Company and/or its shareholders or who did not take part in the voting are not held liable.

The Company implements the above-mentioned principles by doing the following:

  • Generating profit and increasing share value;
  • Complying with existing legislative norms and meeting best international practices in corporate governance;
  • Ensuring that shareholders and other stakeholders have access to information about the Company’s outlook, the objectives it pursues, the timeline and its methods of achieving them and possible risks and influences from the outside environment;
  • Maintaining a long-term focus in its operations;
  • Making major decisions about the Company’s operations with the involvement of shareholders who vote at shareholders meetings;
  • Providing shareholders with the opportunity to vote at a meeting either in person or by proxy;
  • Providing shareholders with the information they need to exercise their voting right at the Company’s shareholders meetings;
  • Offering equal rights on the same type of shares;
  • Providing shareholders with the opportunity to exercise their voting right at the Company’s shareholders meetings based on the “one share, one vote” principle;
  • Ensuring the Company’s transparency: functions and competencies of each management body must be clearly defined and outlined in writing;
  • Disclosing significant information about its operations;
  • Providing precise, unbiased, timely and accessible information that is suffcient to make a balanced decision;
  • Maintaining ongoing close relationships with shareholders and providing them will all necessary information and documents;
  • Carrying out audit inspections and examinations by the Audit Commission;
  • Stipulating that members of the Board of Directors display integrity, wisdom, fairness and loyalty;
  • Ensuring environmental protection, labor safety and social guarantees for its employees.

Internal Documents

Corporate governance structures, procedures and practices are regulated by the following internal documents:

  • Articles of Association;
  • Regulations on the Procedure for Preparing and Holding the General Shareholders Meeting;
  • Regulations on the Management Board;
  • Regulations on the Audit Commission;
  • Regulations on Compensation and Remuneration to Members of the Audit Commission;
  • Regulations on the Board of Directors;
  • Regulations on Compensation and Remuneration to Members of the Board of Directors;
  • Regulations on Remuneration to Members of the Committees of Board of Directors;
  • Code of Corporate Governance;
  • Regulations on the Information Policy;
  • Regulations on the Dividend Policy;
  • Regulations on the Insider Information;
  • Regulations on the Audit Committee of the Board of Directors;
  • Regulations on the HR and Remuneration Committee of the Board of Directors;
  • Regulations on the Investment Committee;
  • Regulations on the Strategy Committee;

To access the full texts of the above-mentioned documents, please visit our corporate web site: http://www.fsk-ees.ru/eng/investors/corporate_governance/corporate_documents/

The new version of the Company’s Articles of Association was approved in 2010, to align the text withchanges in legislative requirements, to adjust the competencies of the Company’s management bodies and to include corporate changes that had taken place earlier (for example, changes in the share capital and the Company’s placed and authorized shares).

Changes in legislative requirements were reflected in the new Regulations on the Procedure for Preparing and Holding the General Shareholders Meeting.

The supreme management authority of Federal Grid Company is the General Shareholders Meeting. The Board of Directors outlines the general focus for the Company’s development and supervises operations of the Company’s Management Board, which is responsible for managing the Company on a day-to-day basis. The Management Board is elected by the Company’s Board of Directors. The sole executive body is the Chairman of the Management Board, who is elected by the General Shareholders Meeting.

Managing SDCs is based on Regulations on Subsidiary and Dependent Companies’ Management. The Regulations outline the way that the Company implements the rights of shareholders (participants) to ensure the e? ective performance of corporate representatives at General Shareholders (participants) Meetings, on the Board of Directors and the Audit Commissions of SDCs, and sets the general framework for corporate interaction between the Company and its SDCs related to corporate planning, organization and the control of corporate activities in the decision-making of SDCs bodies with respect to issues that under the Articles of Association require that Federal Grid Company state its position.

Organizational Structure of Management Bodies


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