Our approach to governance

GOVERNANCE STRUCTURE

The Company’s highest-ranking governance body is the General Meeting of Shareholders (GM). The Board of Directors reports directly to the GM. The primary focus of the Board itself is to steer and support the Company’s strategic development, with an emphasis on oversight in the implementing of strategic initiatives.

In accordance with Russian law, the Board of Directors is elected annually by the GM for a term of one year. The Board of Directors appoints the General Director and the Management board and determines the length of their terms. These executive bodies report directly to the Board of Directors, which is represented by the Chairman. The Board is also responsible for considerations relating to compliance with the UK and Russian Corporate Governance codes.

The Board of Directors works to a forward agenda that is updated annually. The schedule for a year includes six joint-presence meetings covering the issues that require substantive discussion. When necessary, additional meetings are held either by conference call or, for procedural issues, by absentee vote.

The Board considers all issues that are referred to it by law and the Company Charter. This includes key decisions for the production companies and exercising oversight down through the management structure.

The Corporate Secretary oversees all preparations for Board and committee meetings. All documentation for the Board of Directors and Board committees is prepared in both Russian and English, and synchronized interpretation is provided at meetings. These efforts allow each director to express their own opinion in his or her preferred language while putting aside any risk of misunderstandings.

SHAREHOLDER STRUCTURE

A company that holds business interests beneficially for Andrey Melnichenko and his family ultimately owns 92.2% of EuroChem Group SE, which owns 87.36% of EuroChem MCC. Dmitry Strezhnev, Chief Executive Officer of EuroChem MCC, is the beneficiary of the remaining 7.8% of EuroChem Group SE.

CHARTERED CAPITAL

EuroChem MCC, OJSC chartered capital equals RUB 6,800,000,000 (six billion eight hundred million). The EuroChem MCC, OJSC chartered capital has been divided into 68,000,000 (sixty eight million) common shares with a par value of RUB 100 (one hundred) each.

BOARD COMPOSITION

As of the beginning of the year, the Board consisted of eight members:
Andrey Melnichenko, Andrea Wine, Keith Jackson, George Cardona, Nikolay Pilipenko, Vladimir Stolin, Dmitry Strezhnev and Richard Sheath.

EUROCHEM SHAREHOLDERS

As at 31.12.2013

As at 31.12.2012

Shares
No.

Share capital
%

Shares
No.

Share capital
%

EuroChem Group SE

59,401,991

87.36

60,187,605

88.51

EuroChem Capital Management LTD

8,598,009

12.64

7,812,395

11.49

At the Annual General Meeting of shareholders in June 2013, six directors were re-elected to the board: Andrey Melnichenko, Andrea Wine, Nikolay Pilipenko, Vladimir Stolin, Dmitry Strezhnev, and Richard Sheath. An extensive search for new directors demonstrating the appropriate set of skills and experience was conducted to enhance the Board’s expertise as well as provide balance with respect to the variety of knowledge required for optimal performance.

Two candidates, Alexander Landia and Garth Moore, were elected to the Board on 12 December 2013, alongside Andrey Melnichenko, Andrea Wine, Nikolay Pilipenko, Vladimir Stolin, Dmitry Strezhnev, and Richard Sheath, who were all re-elected.

Thus, as of 31 December 2013, EuroChem’s board of directors comprised Andrey Melnichenko, Dmitry Strezhnev, Andrea Wine, Nicholai Pilipenko, Vladimir Stolin, Richard Sheath, Garth Moore and Alexander Landia.For more about our Board of Directors, click here.

COMMITTEES OF THE BOARD OF DIRECTORS

Since 2005, the Board of Directors has had three committees: the Audit Committee, the Strategy Committee, and the Corporate Governance & Personnel Committee.

The Committees perform detailed analysis of issues under the responsibility of the Board of Directors according to their specifi c terms of reference and competence. Thorough consideration of matters arising ensures that all the issues requiring the Board’s attention will be subject to scrutiny. The Committees report back to the Board on issues that they feel need to be brought to its attention, or decided at Board level.

The Board familiarises itself with the work of the Committees through planning (using approved annual plans by the Board and the Committees). Additionally, Committees provide recommendations throughout the year on issues that fall within their competence. The Reports of the Committees are provided as material for the annual report.

The work of the Executive Board is made transparent to the Board of Directors through reports distributed to all Directors.

BOARD MEMBERSHIP, COMMITTEES, AND ATTENDANCE

In 2013, the Board held six meetings in person and 16 meetings in absentia. The average member participation at these meetings was 100%.

Director

Board attendance
Committee attendance (meetings and teleconferences)
Attended
/ held in 2013*
In person In absentia Audit Corporate
Governance
and Personnel
Strategy

Chairman

Andrey Melnichenko

22/22

6/6

16/16

6/6

Executive director

Dmitry Strezhnev

21/22

6/6

15/168

Non-executive directors

George Cardona2

2/2

2/2

Nikolay Pilipenko

22/22

6/6

16/16

11/11

7/7

3/35

Independent non-executive directors

Richard Sheath

22/22

6/6

16/16

11/11

Vladimir Stolin

22/22

6/6

16/16

7/7

Andrea Wine

22/22

6/6

16/16

7/7

Garth Moore1

2/2

1/1

1/1

1/16

Alexander Landia1

2/2

1/1

1/1

4/47

Keith Jackson3

9/9

2/2

7/7

5/5

2/2

Richard Sanders4

7/7

2/2

5/5

2/2

2/2

  • *participated in/could have participated in, given his or her tenure period
  • 1 elected to the Board on 12 December 2013
  • 2 resigned from the Board on 25 February 2013
  • 3 resigned from the Board on 20 June 2013, stepped down from the Audit Committee and the Strategy Committee as well
  • 4 elected to the Board on 25 February 2013, resigned from the Board on 20 June 2013; was a member of the Strategy Committee and Corporate Governance & Personnel Committee during his tenure
  • 5 appointed to the Strategy Committee on 21 June 2013, stepped down on 13 December 2013
  • 6 appointed to the Strategy Committee on 13 December 2013
  • 7 appointed to the Strategy Committee on 21 June 2013 as an external expert, then re-appointed as a Board member on 13 December 2013 after his election to the Board on 12 December 2013
  • 8 Dmitry Strezhnev did not participate in one meeting in absentia to avoid a conflict of interes

 

2013 BOARD AGENDA

Key agenda items discussed by the Board of Directors during the year included:

Theme

Agenda items

Strategy and development

•EuroChem’s 2013-2017 general strategy and business valuation

•Segment and divisional strategies for 2014-2018:

– Development of Oil & Gas segment strategy

– Development of the mining division strategy

– Development of the mineral fertilizers division strategy

– Development of the Sales & Marketing development strategy

– Development of the Distribution strategy

– Development of the strategy for non-core assets

– Development of the IT segment

• Development of measures to improve the Group’s operating efficiency, optimise investment and contain costs.

Company performance review

• Results of operations as of the last period preceding the Committee meetings and year-to-date

• Status updates on investment projects

Investment activity

• Complement the investment process with additional components designed to further link the management and reporting of large investment projects with strategic and annual planning exercises

• Expansion of resource base

• Port facilities: investments and development

• International projects and M&A activity

• Analyse specific initiatives

• Approval of large-scale projects aimed at modernisation of the Group’s existing production facilities, or related to construction

of new production facilities

• Participation or increasing the Company’s stake in the equity capital of commercial organisations

Contemplated reorganisation of the Company

• Elaborate new economic model for the Company’s operating divisions

• Review of the new business planning model

• Review of the business operational model for 2014-2018

• Proposed changes to the management structure

• Reorganising the control functions and business processes

• Reorganising the Commercial Bloc’s business processes in 2014-2018

• Reorganising the Company’s functional management and business support unit

• EuroChem Group’s target legal structure

Financial reporting and budgeting

• Review and approval of annual and interim consolidated financial statements and auditor’s reports on the results of reviews

• Review of the 2013 budget execution of the Group and its subsidiaries based on the results of 1H2013 and budget review for

the second half of the year

• Review and approval of the 2014 consolidated budget for the Group and its subsidiaries

Risk management and internal control

• Development of the Company’s internal control system

Financing

• Approval of financing transactions

Industrial and environmental safety

• HSE status updates

• Development of the HSE functions

HR and motivation

• Evaluation and targets for top management

• Developing long-term incentives linked to project implementation

• Updating the list of positions on the Board’s required-approval list for which the Board must approve issues concerning hiring, termination, remuneration and incentives

• Key appointments within the new organisational structure

• Review of top management remuneration at EuroChem and its subsidiaries

Corporate governance

• AGM and relevant preparations: search and review of candidates for the EuroChem Board of Directors and Revision Commission, pre-approval of the Company’s 2012 Annual Report notice of extraordinary general meetings of shareholders

• Election of the Chairman of the Board, defining Committee membership, review and confirmation of the independent status of directors

• Assessment of the Board’s performance

• Stakeholder consultation to establish target profiles for new members of the Board of Directors as well as provide support in the search and selection process

• Approval of interested party transactions, such as for liability insurance for directors and officers of the Company and for voluntary medical insurance

• Approval of the report on potential conflicts of interests at CEO level

• Participation in the National Movement for Conservation Agriculture

• Exercising the Company’s shareholder rights in Lifosa, Phosphorit, Nevinnomyssky Azot, Novomoskovskiy Azot, Kovdorskiy GOK, EuroChem-BMU, EuroChem-VolgaKaliy, and Eurochem-Usolskiy Potash Complex)

• Establish a new planning method to better link the Board’s agenda to Company priorities, approval of the Board and Committees’ forward agenda for 2014

• Review of current practices and policies in a number of areas including information disclosure at Board level

• Approve auditor candidates for IFRS and RAS reporting, setting auditor fees

• Oversight of the preparation of the 2012 Annual Report

AREAS OF FOCUS FOR 2014

In 2014, the Board will continue to monitor issues related to health, safety and environment (HSE), both with regard to further developing the HSE function within the Company and overseeing current matters (every joint-presence Board meeting starts with the consideration of the HSE status report). HSE targets have been included in the key KPIs for executives and employees in 2014.

Development of the HSE function in 2014 will involve monitoring the implementation of the company-wide project aimed at improving the status of industrial health and safety and environmental protection, preventing workplaceincidents and increasing awareness among workers at all levels. Also, HSE function development will require approval of the new HSE Policy.

As we see our business expanding and the geographical scope of our operations widening, we have started a comprehensive reorganisation of the Company to improve its business model, making it more sustainable within a dynamic international environment. In 2013, the Board of Directors approved the first milestones of the project to develop the Company’s management system through re-engineering its business processes. It is planned that this project will require substantial attention from the Board and its Committees in 2014.

The following items are up for consideration in 2014:

  • The Company’s new economic model: pricing, the structure of financial accounting centres, cost and capital allocation
  • Strategic planning within the new economic model (such as long-term requirements, planning with a breakdown of cost centres, aligning investments with cost centres, automation issues)
  • The target state of and plans for reorganising the Sales, Logistics, and Purchasing business processes
  • Incentives programme and regular status updates for the project to develop the Company’s management system
  • Methodological issues related to the new economic model, such as target budget format (budgeting on the level of financial accounting centres), and investment project management
  • The Group’s legal reorganisation.

A significant share of the Board’s resources will continue to focus on strategic planning. With the Company’s plans to introduce five divisions based on business segments, long-term business plans will be considered within the respective divisional strategies. The following strategic items are planned for consideration:

  • Review of development strategies for five divisions/segments: Mining, Mineral Fertilizer Production, Oil & Gas, Logistics and Sales
  • Evaluation of EuroChem’s business and the Group’s general development strategy for 2014-2018
  • Review of IT strategy
  • Development strategy for non-core assets

The Board will continue to review budgeting and cash flow, including the review of budget execution after 1H2014, and approval of the 2015 budget (consolidated budget, investment budget, Board budget).

With regard to reporting, in 2014 the Board plans to consider, both external reporting (consolidated financial reports, annual and CSR reports for 2013) and internal reports (management accounts, flash reports, HSE status reports, reports on strategic investment projects implementation etc). Oversight of internal reporting helps the Board to stay up to date on key aspects of the Company’s activity.

The Board will continue to monitor HR-related matters, especially with regard to senior management, whose positions are on the Board’s required-approval list. The Board will continue to control the incentive programmes for top management to implement strategic projects. Moreover, the Board will track individual target achievements of top managers as well as set targets for 2015. In the framework of the project to develop the Company’s management system, and in light of the contemplated introduction of divisional structure, the Board will likely be involved in approval of appointments of upper-tier management for key divisional positions, such as the Head of Oil & Gas.

Within the terms of reference related to corporate governance procedures, the Board plans to consider the following:

  • Exercising shareholder rights in managed companies: allocation of profits, external auditor appointments
  • D&O liability insurance for EuroChem Board members and officers
  • Approval of a transaction with interest on the part of the members of the Board of Directors
  • Calling the AGM and respective preparations: review of the 2013 RAS reports, dividend recommendations, Board and Revision Commission nominations, Auditor candidates, and pre-approval of the 2013 Annual Report. Candidates to the Company’s Board of Directors and Revision Commission
  • Election of the Chairman of the Board, defining Committee membership, review and confirmation of the independent status of directors;
  • Assessment of the Board’s performance
  • The Board and Committee’s 2015 agenda harmonised with the Company’s priorities
  • Setting the Auditor’s fee
  • Providing recommendations to the management bodies of Group companies.
  • In addition to individual site visits, the Board of Directors plans to tour EuroChem Usolskiy Potash in 2014.

REMUNERATION

Issues concerning Board member remuneration are referred to the General Meeting of Shareholders. Remuneration is fixed and adjusted according to Committee memberships and Chairmanships; however, as set out in the Board Member Remuneration Regulations, only non-executive directors are entitled to remuneration.

The total amount of remuneration paid to Board members for their performance in 2013 amounted to RUB 38.5m, including RUB 2.3m in compensation for work-related expenses.

Directors’ remuneration, payment procedures and expenses compensation criteria are subject to the Board Member Remuneration Regulations,
which were approved at the General Meeting on 25 February 2009.

2013 RUBm

2012 RUBm

Total remuneration paid to the members of the Board

36.2

33.8

Total compensation for work-related expenses

2.3

2.1

DIVIDENDS

The Board of Directors recommends dividend payments taking into account the long-term development of the Company and interests of the shareholders. At the Annual General Meeting on 20 June 2013, it was agreed that the recorded profit of RUB 20,591,476,000 would be retained by the Company. The history of dividend payments and the company’s dividend policy can be found on our website at www.eurochem.ru/who-we-are/corp-gov/dividends/