What matters to us

When it comes to governance, what matters is how it works in practice. Having the right structures and processes in place is only part of the story: we aim to make sure our governance helps us run the business successfully and safely.

Applying our experience

The quality and character of the members of the Board of Directors are crucial to sound governance.

We have in place a Board that has now been stable for three years. This means that our Directors have had time to:

• Build a good knowledge of our business and industry. They have been involved in management briefings and strategic decision-making covering all of our production activity, major investment projects and development of our distribution network. They have set management targets based on a good understanding of the drivers of our business and helped management explain our operations and strategic plans externally. The Directors have also visited several operating units.
• Develop good communication channels with management. Good information flows and dialogue between the non-executive Directors and management is essential. Working together over the past two years, this is now firmly grounded on a basis of trust and understanding. This has not necessarily been easy and is still developing – it would be naïve to suggest that it is easy for non-executive Directors and management to establish an easy working relationship in any business culture. But information flows are good and management prefer to be open and provide full information. Our task is now to help management understand better the Directors’ needs so that the timeliness of regular reporting to the Board can be improved further and the amount of detail can be reduced so that the key issues are more immediately clear.
• Be in a position to hold management accountable. As this Board has directly taken decisions affecting most of the current management execution activity, it knows what was intended and agreed. It has also been involved in agreeing both short-term and long-term senior management targets, annual budgets and strategic plans. This direct, first-hand knowledge means the Directors are in a better position to assess management’s approach and its performance.

This stability is crucial to good governance and we aim to maintain the current Directors as the core of our Board for the foreseeable future.

It has also enabled us to benefit more fully from our Directors’ experience. We expect our non-executive Directors, while assiduously maintaining their independence, to help us both have a clear strategic direction and also oversee the strengthening of our internal operations. So for them it is not just a question of attending Board meetings. We need them to use their experience to help us make solid progress across many aspects of our work. We believe that the way they step up to the mark is key in achieving governance that is increasingly strong in practice, not just in form.

Top row from left: George Cardona, Nikolay Pilipenko, Andrey Melnichenko,
Dmitry Strezhnev, Vladimir Stolin
Second row from left: Richard Sheath, Keith Jackson, Charles Adriaenssen

Charles Adriaenssen is particularly active in helping oversee issues around executive reward and development. He was a director of Interbrew (now Inbev). A former diplomat, Charles has a good knowledge of Russia and is a consultant on corporate governance and public affairs.

George Cardona is guiding the development of our strategic and investment analysis. As Chairman of the Strategy Committee, he ensures that a rigorous approach is taken to analysing strategic options, thinking through the options and risks, and presenting them to the Board. He is well positioned to do this as the former Head of Strategy at HSBC Group.

Keith Jackson is helping to ensure the development of our financial management as well as bringing focus to health & safety and environmental issues. He has had a 32 year career with the major international mining company, Anglo American plc. Keith was Chairman of Cleveland Potash Ltd, one of the three European potash producing companies, and has served as finance director of Petrosur SA, an Argentine urea fertilizer company. Most recently he was CFO of Anglo Industrial Minerals, a division which included Copebras, a significant Brazilian fertilizer company.

Andrey Melnichenko has been Chairman of the Board since 2007 and was first appointed to the Board of Directors in 2004. He was involved in the creation of EuroChem and since 2007 a company that holds Andrey’s business interests has owned 95% of MCC Holding Public Limited (Cyprus), EuroChem’s parent company. Andrey has played a significant role in building some of Russia’s most successful private corporations, including MDM Bank, the Siberian Coal and Energy Company (SUEK) and TMK. Andrey’s knowledge of Russian business is both broad and deep, and he currently also sits on the bureau of the management board of the Russian Union of Industrialists and Entrepreneurs.

Nikolay Pilipenko brings a detailed knowledge of EuroChem’s operations and financial management, having been Finance Director until December 2008. He may not be fully independent but his past knowledge and experience from working at ABB is helpful to the current financial management team and he is well positioned to provide insightful challenge.

Richard Sheath is focusing on giving guidance to management in their development of risk management and internal control. As Chairman of the Audit Committee, he is also overseeing improvements in external reporting as well as giving advice on strengthening EuroChem’s corporate governance. He has extensive experience in corporate governance and risk management, heading up a boutique governance consultancy which advises many leading companies on the effectiveness of their governance structures; he has particular expertise in risk governance and audit committees. As former risk management partner with PricewaterhouseCoopers, he has a good knowledge of Russia having been based here for six years.

Vladimir Stolin, as a leading adviser on human resource management, motivation and development, has been guiding in particular the development of EuroChem’s executive reward schemes and HR strategy. As Chairman of the Corporate Governance & Personnel Committee, he has provided an expert response to management proposals on incentivisation and people risk management. He is the founder and Chairman of a leading Russian company advising on personnel development.

Dmitry Strezhnev has been CEO of EuroChem since 2004. He owns 5% of EuroChem’s shares and Dmitry gained a wealth of experience in the management of large Russian industrial companies before joining EuroChem, holding executive positions at the Likinskiy Bus Manufacturing Plant, the auto manufacturer GAZ and a number of other smaller companies.

Full CVs are provided in Appendix 1.

Being well informed

To do a good job, the Directors need to be well-informed. We achieve this through:

• Board and committee meetings. A minimum of six board meetings are held every year. All directors have an exemplary attendance record – we believe it is important that the directors meet together and discuss issues face to face. We aim to avoid meetings by phone unless it is about a specific issue that cannot be delayed.
• Directors receive, in advance, board papers which provide full details on the issue under discussion. In the meeting, this information is supplemented by additional comments from the CEO or CFO and, at times, from the Management Board member responsible.
• Informal discussions. Outside the board meetings directors are able to meet with senior managers on any issue. These discussions take place regularly across all aspects of management activity including investment analysis, risk management, security and HR.
• Site visits. The non-executive directors visit at least one site a year. In September 2009 they visited Novomoskovskiy Azot and were given a full presentation and tour of the plant. This year a visit to the site of our Gremyachinskoe potash deposit operation is scheduled.
• Interim information. Between meetings, directors receive flash reports with month end figures. They have full access online to the management accounts at any stage. They also regularly receive frequent updates on sell-side analyst coverage of our company and the global industry

Acting with independence and influencing

Our directors have free access to information and management. In board and committee meetings the discussion is open and wide-ranging. Board meetings typically last from 4 to 6 hours with much of this time given to discussion rather than management presentation. The non-executive directors are free to express their views on any subject at any point and do so constantly with encouragement from the Chairman.

As the Board generally aims to act on the basis of consensus, the non-executive directors have a definite influence. If the Chairman sees that a consensus is lacking, management are asked for further information or to reconsider their proposal or possibly withdraw it. The Board, usually as a result of committee discussions, can also make specific requests of management to investigate issues or to consider developing a new approach. They also, not infrequently, ask management for updates on investment or development projects and will actively question the responsible managers to hold them accountable. The CFO attends all meetings, giving the directors ample opportunity to seek explanations or information.

Four of the six non-executive directors excluding the Chairman, (half of the eight-strong Board) are fully independent. One of the other two, Nikolay Pilipenko, was formerly the EuroChem CFO and brings a wealth of knowledge to the Board and the other, George Cardona, is Advisor to the Chairman. Although they are not formally independent, it is the Board’s view that they are consistently independent in mindset, robustly questioning management and providing the necessary amount of challenge to proposals and performance.

The board committees play a major role as forums for the independent directors. The time spent in committee provides the directors with ample opportunity to exercise oversight in more detail and to provide more specific challenge. A key oversight role is that played by the Audit Committee in ensuring the objectivity and accuracy of externally reported information to help strengthen trust in the company’s reporting and control systems. The role of the Corporate Governance & Personnel Committee is equally important. While EuroChem is not yet a listed company, the Committee has pushed forward a process aimed at transparent governance, sound reward systems and planning management and director succession. The Strategy Committee helps ensure that management proposals and investment analyses are thoroughly considered before they are presented to the full Board.

Showing leadership

As a Board, we aim to ensure that the company has clear direction both strategically and in how it is developing as an organization. Over the past two years EuroChem’s strategy has become clearer and the Board is confident that this can now be set out and explained effectively to external stakeholders, management and employees. We are also aiming to show leadership in setting out what EuroChem stands for: its social role in the communities where it is operating, the behaviour of its management and employees toward each other and outside parties, and in ensuring appropriate business behaviour through compliance with business and legal norms. We recognise that some standards are easier to achieve than others and may require cultural change that takes time – but we also recognise that the Board has a role to play in setting and communicating standards. During 2010 we will be taking further steps to extend the reach of our Code of Ethics and to ensure that it is well-understood.

Furthermore, EuroChem expects its non-executive directors to show leadership by setting out the direction of the company’s continuous improvement, in part with an eye to ensuring that EuroChem is well-positioned to meet the expectations of the international capital and debt markets. This work is often done by the board committees. For example, the Strategy Committee has been working with management to develop better analysis of the portfolio of capital investment projects; the Corporate Governance and Personnel Committee has been setting out its expectations around executive reward systems and performance evaluation; the Audit Committee has been focusing on the strengthening of risk identification and mapping risks to controls. EuroChem aims to achieve international standards across its operations and sees its non-executive directors as playing an important role in that push.