In 2016, significant changes occurred both in the composition of shareholders, and on the Board of Directors and management team of Uralkali.
The increase in the number of independent directors on Uralkali’s Board of Directors demonstrates the Company’s commitment to the best corporate governance practices.
In June 2016 at the Annual General Meeting of Shareholders (hereinafter referred to as the AGM), Luc Maene was elected to the Board of Directors as an independent director, and in September Dmitry Razumov and Michael Sosnovsky left the Board of Directors. By decision of the Extraordinary General Meeting of Shareholders (hereinafter referred to as the EGM) held on 27 September, Dmitry Lobyak and Dimitry Tatyanin joined the Board of Directors.
Thus, despite the fact that the amount of free-floating shares decreased significantly and fell below 6% of share capital by the end of 2016, the number of independent directors at the Company increased to four. This demonstrates the Company’s commitment to the best corporate governance practices, respect for the experience and professionalism of independent directors and recognition of their importance to the Company.
The Board of Directors’ composition and role
As of 31 December 2016, the Board of Directors had the composition that was determined by the EGM held on 27 September 2016: Sergey Chemezov (Chairman and independent director), Dmitry Mazepin (Deputy Chairman), Sir Robert John Margetts (Deputy Chairman and Senior Independent Director), Dmitry Konyaev, Dmitry Lobyak, Luc Maene (independent director), Dmitry Osipov (CEO), Paul Ostling (independent director) and Dimitry Tatyanin.
Thus, the Board of Directors of the Company retains the necessary balance of independent and non-executive directors, and also boasts the full set of experience, skills and knowledge necessary to work for the benefit of Uralkali. The Board of Directors provides overall guidance to activities of the Company. In particular, it sets and follows up strategic objectives, and mid-term and short-term targets for management; it also approves financial statements and performs other functions within the remit in the Charter of the Company.
The Board has 4 committees, which hold preliminary discussions and reviews of the matters falling under the Board’s competence. Two of the Board committees - the Audit Committee and the Nomination and Remuneration Committee - are a requirement of the Listing Rules of the Moscow Exchange. In 2016, in accordance with the Listing Rules, the necessary amendments were made to the regulations on these committees, which strengthen the role of the committees and the recommendations they give, and delegate to them a number of important matters of the Company’s operations.
Distribution of roles within the Board, planning and review of the Board’s performance
In 2016, the distribution of functions within the Board remained the same and in line with best corporate governance practices. In particular:
- The roles of the Chairman of the Board and the Chief Executive Officer are split so that the Board’s Chairman is responsible for leading the Board and ensuring it effectively handles all aspects of the Company’s activities, while the CEO is involved in day-to-day management of the Company
- The Senior Independent Director represents the team of independent directors; he interacts with investors on behalf of the Board and conveys views of shareholders, including minority shareholders, to the Board
- Independent directors chair and play an active part in the Board committees. Their task is to ensure that decisions are impartial and respect the interests of all shareholders. The independent directors also facilitate the Board’s adoption of the best global standards in corporate governance
- The Corporate Secretary arranges the work of the Board and its committees. The secretary creates work plans and meeting agendas for the Board, follows up on previous instructions issued by the Board, acts as an interface between the Board and management, and helps organise general meetings
The work plan of the Board for the 2016 calendar year was approved in December 2015, and in general the Company was able to follow the plan. Annual work planning for the Board of Directors and committees has been used by the Company since 2012, and we intend to continue this practice in the future.
In March 2016, the Nomination and Remuneration Committee considered a suggestion to review the Board’s performance in 2016 and approved the questionnaire for directors. As was instructed by the Committee, the performance review was completed by 1 April 2017. The results of the Board’s performance review indicate that on the whole its work is organized according to high standards of corporate governance. At the same time, directors believe that the meetings should pay more attention to particular issues within the competence of the Board. Following the appraisal, an action plan was developed taking into account the provided commentaries.
|Sir Robert John Margetts||All||All||All||All|
|Paul James Ostling||All||All||All||All|
** Eight out of seventeen meetings of the Board of Directors were held in absentia.
*** “All” refers to the number of Board/Committee meetings where a director had to be present either before the termination of the director’s term of office or following his/her election to the Board/Committee.
1 Dmitry Razumov was a board member until 27.09.2016.
2 Michael Sosnovsky was a board member until 27.09.2016.
3 Chen Jian was a board member until 17.06.2016.
Board’s activities in 2016
In 2016, the Board of Directors held 17 meetings, of which 9 were face-to-face. The Board of Directors reviewed and approved financial statements, convened shareholders’ meetings, presented issues related to major transactions and related party transactions, approved changes to the Company’s organisational structure and appointed top managers. In May 2016, the programme for the buyback of shares and global depositary receipts on the open market was launched, as a result of which the Company repurchased 3.35% of share capital.
In June 2016, a strategic session was held, at which members of the Board of Directors and the management discussed the most important issues of the Company’s operations. Much attention at sessions is always paid to the development of the Company, the quality of business processes and their optimization, the status of the investment programme and geological safety issues, and this session was no exception. Based on the results of the meetings, the management team received instructions, the implementation of which was strictly controlled at the level of the Board of Directors.
Committees of the Board of Directors
In 2016, all four Board Committees continued their active work.
In total, there were 21 committee meetings in 2016, in which over 60 different matters were reviewed.
|The Audit Committee|
|Risk management and internal control||20.69%|
|Corporate governance and instructions from the Board, including instructions related to the buyback programmes||24.14%|
|Monitoring of KPIs||6.9%|
|The Nomination and Remuneration Committee|
|Achievement of KPIs and recommendations to approve KPIs||7.14%|
|Recommendations on top management candidates||35.71%|
|The Investment and Development Committee|
|Strategy and investment projects||33.33%|
|Market development projects||11.12%|
|The Corporate Social Responsibility Committee|
|Occupational Health and Safety, and Environmental Protection||21.43%|
|Activity plans and reports||7.13%|
The Company’s Corporate Secretary performs the important function of ensuring efficient current interaction with shareholders, coordinating the Company’s activities to protect the rights and interests of shareholders and support the effective work of the Board of Directors.
The position of Uralkali’s Corporate Secretary has been occupied by Maria Klimashevskaya since 2011.
According to the Association of Independent Directors, within the context of the Director of the Year 2016 National Prize, Maria was ranked among the top 15 corporate secretaries at Russian companies in the ranking of the 25 Best Corporate Governance Directors/ Corporate Secretaries.
On 29 August 2016, new Regulations on the Corporate Secretary of Uralkali were adopted, in accordance with the updated Listing Rules of the Moscow Exchange. The main tasks of the Corporate Secretary are:
- Participation in the preparation and holding of general meetings of shareholders
- Ensuring the work of the Board of Directors and committees of the Board of Directors
- Participation in the implementation of the Company’s disclosure policy, as well as ensuring the storage of corporate documents
- Facilitating the Company’s interaction with its shareholders and participation in activities to prevent corporate conflicts
- Facilitating the Company’s interaction with regulatory bodies, trade organisers, the registrar and other professional participants of the securities market, within the authority vested to the Corporate Secretary
- Ensuring the implementation of procedures established by legislation and internal documents of the Company that secure the exercise of rights and legitimate interests of shareholders, and control over their implementation
- Assisting members of the Board of Directors in the performance of their functions
- Participation in the improvement of the Company’s corporate governance system and practices
In her work, the Corporate Secretary is guided by the provisions of Russian and other applicable laws, mandatory requirements imposed on the Company in connection with its market position, internal documents of the Company, recommendations of the Russian Code of Corporate Governance, as well as best practices of corporate governance.
Audit Committee report for 2016
In 2016, the Audit Committee was, as always, busy. In the reporting year, the Regulations on the Committee were brought in line with the Listing Rules of the Moscow Exchange. The updated Audit Committee, for the first time in the Company’s history, consists entirely of independent directors, which corresponds to the best standards of corporate governance.
As of 31 December, the Audit Committee had the following members:
- Paul Ostling (Chairman, independent director and a financial expert)
- Sir Robert John Margetts (senior independent director)
- Luc Maene (independent director)
The key matters within the competence of the Committee relate to public reporting, internal and external audit, risk management and internal control, corporate governance and ensuring compliance of the Company’s operations with applicable requirements.
In 2016, upon the recommendation of the Audit Committee, the Board of Directors approved the Regulations on Internal Audit, prepared in accordance with the Listing Rules of the Moscow Exchange and the provisions of the Code of Corporate Governance recommended by the Bank of Russia in 2014 (hereinafter referred to as the CCG).
In November 2016, Nikolai Ivanov, appointed head of the internal audit department in 2015, left the Company, and we are currently looking for a candidate for this position.
In 2016, the meetings of the Committee and the Board of Directors considered the need to improve the internal control system in the Company. In pursuit of this task, on 27 January 2017 the Board of Directors decided to create a new functional unit – the Control and Revision Department, which will carry out specific control activities within the Company’s regular or recurrent audits, and report to the CEO.
Along with this, since matters related to the quality of the internal control system are within the competence of the Committee, the latter will receive regular performance reports from the Control and Revision Department as part of the special reports of the CEO. The Internal Audit Directorate will continue performing its tasks, while functionally report to the Audit Committee.
In April 2016, the Committee reviewed the performance of Uralkali’s auditors, CJSC Deloitte & Touche CIS and CJSC Energy Consulting, and recommended that the General Meeting of Shareholders should approve the auditors for the new reporting year.
The fees of CJSC Deloitte & Touche CIS for 2016 were approved by the Board in the amount of 33,500,000 roubles (excluding VAT and including overheads) and the fees of CJSC Energy Consulting were approved in the amount of 8,500,000 roubles (excluding VAT).
According to the current Regulations on the Audit Committee, the Company’s auditors should also inform the Committee at least once a year about non-audit services provided to the Company, which was done in accordance with the established procedure.
Taking into account the internal policies and practices adopted by auditors in order to ensure their independence and to avoid conflicts of interests, the Company is reasonably assured that the provision of non-audit (consulting) services does not threaten the auditors’ independence in terms of the provided audit services. Following a review of non-audit services, all of which were considered by the Committee in its meeting held on 13 March 2017, the Committee concluded that there was all evidence of the impartiality and independence of the auditors of the Company’s financial statements.
The tasks of the Committee for 2017 will not change in comparison with the reporting year. However, special attention will be paid to risk management and internal control.
Risk management and internal control
The risk management and internal control system (hereinafter referred to as the RMICS) adopted by the Company in 2016 is based on principles incorporated in ERM4, an integrated risk management system that:
- Is a continuous process that covers all of the Company and is implemented by its employees at every level
- Is used in the development of the Company’s strategy
- Is applied in the whole organisation and includes a corporate-level review of the risk portfolio
- Aims to identify events that may affect the organisation and develop measures to minimise this potential impact
- Provides the management and the Board of Directors with reasonable confidence in achieving the goal.
In September 2012, the Board of Directors approved the Risk Management and Internal Control Policy, which specified the risk management and internal control responsibilities and roles of Uralkali’s management bodies and employees as follows:
Taking into account the numerous changes in the organisational structure and a number of appointments that took place in the reporting year, the Company plans to devote considerable attention to the RMICS and how it is functioning in 2017.
|Board of Directors||Responsible for the efficiency of the risk management process and for the development and maintenance of the corporate Risk Management and Internal Control System (RMICS).|
|Audit Committee||Considers the most material risks and corresponding management techniques applied by the Company's executive bodies.|
|CEO||Provides overall guidance for the risk management process.|
|Management Board||Is an expert authority of the CEO for risk management and internal control.|
|Executive Directors||Ensure regulation of business processes within their area of activity; identify process objectives and assess key risks.|
|Risk Manager||Coordinates the risk management process and the development of consolidated information about the risk management process and internal control system at all levels for the Audit Committee, the Board of Directors, the CEO and the Management Board.|
|Internal Audit Directorate||Monitors compliance with internal control procedures, informs the Audit Committee of identified violations, identifies areas for potential improvements, and provides consultations on corrective measures related to risk management, internal controls and corporate governance.|
|Employees||Duly perform duties assigned to them by the RMICS; promptly inform their management about risks identified during current activities.|
Use of the risk management and internal control system in the development of financial statements
Transparency and reliability of financial reporting is one of the crucial principles of corporate governance, and ensuring the proper quality of financial statements is a key function of the Board of Directors, so this process is always given special attention. In 2016, Uralkali had a number of control procedures aimed at ensuring the adequacy and reliability of collected and processed data. The process of preparing financial statements involves employees, officers, management bodies and external auditors of the Company, who have the following roles:
|Management bodies and employees of the Company||Roles of management bodies and employees of the Company|
|Chief Financial Officer||Ensures:
|Audit Committee||Preliminarily considers:
|Board of Directors||Approves financial statements taking into account recommendations made by the Audit Committee|
The Nomination and Remuneration Committee’s report for 2016
The Nomination and Remuneration Committee has five members, mostly independent directors.
As of 31 December 2016, the Committee was represented by:
- Paul James Ostling (independent director, chairman of the committee)
- Sir Robert John Margetts (senior independent director)
- Luc Maene (independent director)
- Dmitry Konyaev (non-executive director)
- Dmitry Lobyak (non-executive director)
In the course of 2016, the management team of Uralkali had several new appointments, and individual nominees were reviewed by the Committee. In particular, Vladimir Nitsulenko, who headed the Company’s capital construction directorate, left Uralkali in 2016. Alexei Yashnikov was appointed to this position; at the moment he is also a member of the Management Board. Another new appointment was Oleg Kalinsky, who heads government relations; Eduard Avetisyan, who held this position earlier, continues to work at Uralkali in another position.
In 2016, Vladimir Vershinin, who headed the Procurement Directorate, and Alexey Strakhov, the Company’s head of sales in charge of domestic sales, left the Company. On 27 January 2017, the Board of Directors agreed on the appointment of Alexander Kulbitsky and Vladislav Lyan to these positions, respectively. In turn, the position previously held by Vladislav Lyan, who since 2015 had been the head Uralkali subsidiary Uralkali Trading SIA, was given to Alexander Terletsky. Maxim Kadantsev was appointed Director of Information Technologies in 2016.
Changes to the shareholding structure of any large company almost always involve changes to the composition of top management. Changes to the management team listed in this section are very important for the Company. The Board of Directors and the Nomination and Remuneration Committee are confident that in 2017 the newly appointed managers and those managers who have worked for the Company for many years will become a real team that will be able to successfully achieve the goals set by shareholders and the Board of Directors.
Procedure to prevent conflicts of interests
Russian legislation provides for a number of mechanisms to prevent conflicts of interests among the Company’s directors and members of executive bodies, which, for instance, may be related to their employment in managerial positions by competitors of the Company. One of the mechanisms is directors’ and officers’ duty to inform the Company of any positions and/or of any equity ownership they may hold in other organisations. Also, a director is obliged to refrain from voting on a transaction if he or she may be interested in the Company entering into this transaction. Thirdly, a director must inform the Company of any parties in relation to which the director may be deemed a related party if entering into a transaction. Accordingly, when the Board approves a related party transaction, any director who is deemed a related party for the transaction does not vote.
The Company also has a number of internal controls to identify a conflict of interests. In particular, a director is obliged to inform the Company of any persons in relation to which the director is an affiliate. Also, the corporate information system has a list of related parties (updated regularly), which is used to select transactions that have to be put before the Board of Directors or the general meeting of the Company.
As mentioned earlier, in 2015 a new version of the Regulations on the Audit Committee was approved. The new document introduces a special working procedure for the Audit Committee in the event of a strategic transaction to be entered into by the Company. As strategic transactions mean a transfer of ownership or control in relation to a significant number of voting rights over voting shares of the Company or an acquisition by Uralkali or a member of Uralkali Group of significant blocks of shares, only a special committee comprised solely of independent directors is authorised to issue recommendations pertaining to such transactions (including their terms, conditions and procedures) in order to respect the interests of all shareholders and avoid a conflict of interest on the part of one or several directors who may be associated with major shareholders.
In 2016, Uralkali or other members of Uralkali Group did not grant loans to directors of the Company.
General meetings of shareholders in 2016
In 2016, the Board of Directors convened and held 6 meetings of shareholders. General meetings considered the matters delegated by law and the Company’s Charter to this body, including making decisions to approve major transactions and related party transactions, approve annual financial statements and the Company’s auditors. They twice elected the Board of Directors and the Revision Commission, and approved documents regulating the activities of Uralkali’s management bodies. In particular, at the General Meeting of Shareholders held on 22 December 2016, shareholders approved the new version of the Company’s Charter, the provisions of which were brought in line with the Federal Law On Joint-stock Companies, including partial changes to the competences of the Company’s management bodies relating to the approval of the annual report and annual financial statements of the Company, as well as to the provisions governing the procedure for convening and holding general meetings of Uralkali shareholders. The Regulations on the Board of Directors were also updated. The General Meeting of Shareholders approved Amendments to the Regulations on Remuneration and Reimbursement of Members of the Board of Directors
Major and related party transactions
In 2016, the Company entered into a number of transactions, which were deemed major and/or related party transactions pursuant to the Russian Federal Law On Joint-stock Companies (the Law). The Law also stipulates that such transactions must be approved by the general meeting or the Board of Directors depending on the value of transactions and the identity and number of related parties, and explains the approval procedure.
Most of the transactions in question were approved by the AGM as related party transactions and as transactions which can be entered into in the future in the ordinary course of business within the established limits (including transactions with Uralkali subsidiaries). The transactions do not create any conflict of interests. Also in 2016, the AGM approved a traditional transaction, under which all directors were deemed related parties, namely, the Directors’ & Officers’ liability insurance agreement, which is negotiated and approved each year.
Aside from the AGM held in June 2016, five extraordinary general meetings (EGM) took place in 2016.
The list of key transactions approved in 2016 includes a major transaction, the decision on which was taken at an EGM held on 15 March 2016. The transaction covered interrelated loan agreements with Sberbank with a total credit limit of US$3.9 billion, which in turn were related to a number of transactions approved in due course earlier. The same decision amended some of the previously approved transactions – agreements on the opening of non-revolving credit lines.
During the year, major related party transactions were subject to approval mainly due to the fact that they were related to the previously approved transactions referred to in the 2015 Annual Report. In particular, in 2015, in accordance with the established procedure, a major transaction was approved, which was a set of interrelated transactions associated with the financing of share and global depositary receipt buyback programmes. On 29 August 2016, as an interrelated transaction, the EGM approved transactions concerning the placement of the Company’s Exchange Traded Bonds with total nominal value of up to US$800 million in favour of JSC Uralkali-Technology.
Executive bodies of the Company
The Chief Executive Officer and the Management Board
The Chief Executive Officer is the sole executive body of Uralkali, whose competence is determined by the Company’s Charter. The CEO is also the head of the Management Board.
Since 24 December 2013, Uralkali’s CEO has been Dmitry Osipov.
The Management Board is a collective executive body of the Company. Its quantitative and personal composition is determined by the Board of Directors. In 2016, the composition of the Management Board was changed several times, and as of 31 December 2016 it had 7 members:
- Dmitry Osipov (Chairman)
- Anton Vischanenko
- Ruslan Ilyasov
- Evgeny Kotlyar
- Stanislav Seleznev
- Marina Shvetsova
- Alexei Yashnikov
In 2016, the Management Board had 10 meetings.
Committees under the CEO (Working Groups)
In 2011, the Company started a process to create committees (or working groups) directly reporting to the CEO to focus on key aspects of the Company’s activities. To date, there are 8 Working Groups:
- Health, Safety, Environment and Corporate Social Responsibility Working Group
- Risk and Internal Control Working Group
- Procurement Working Group
- Investments Working Group
- Subsidiary Management Working Group
- Mine Safety Working Group
- Compensation and Benefits Working Group
- Information Technology Working Group
The Working Groups were formed to ensure a single approach to decisionmaking in these areas of activity. Every group is represented by senior executives and is personally led by the CEO. The Working Groups’ competence includes monitoring and review of relevant information; preliminary discussions and risk analysis; and follow-up of scheduled activities. This approach ensures a continuous dialogue with the management team and a two-way flow of information about the most crucial aspects of the Company’s activities. In 2016, around 100 meetings of the Working Groups were held.
The key decisions of the Management Board in 2016 include decisions concerning the plan of personnel retention in a competitive environment, optimisation of production processes and repair of the surface complex, information security, procurement activities, and functional strategies of the Company.
Remuneration payable to the Management Board and Board of Directors
Members of the Board of Directors receive remuneration in line with the Regulations on directors’ remuneration and reimbursement. Until October 2016, the Regulations only provided for remuneration for independent directors and at the same time specified director independence criteria. In December 2016, the General Meeting of Shareholders approved amendments to the Regulations on Remuneration, according to which the right to receive remuneration was also granted to non-executive directors. Amendments to the Regulations, as decided by the General Meeting of Shareholders, apply to relations entered into since 1 October 2016.
An independent director’s remuneration consists of the base part and a separate part for additional duties as a committee member or chairperson or as a deputy chairperson of the Board of Directors. Both parts of remuneration are fixed values.
Remuneration payable to the Chairman of the Board of Directors is governed by a specific section of the Regulations on directors’ remuneration and compensation. The Chairman’s remuneration is also fixed and is paid on a monthly basis in equal amounts.
In the period from January to June 2016, remuneration was paid to three independent members of the Board of Directors – Sergei Chemezov, Sir Robert Margetts and Paul Ostling. After the AGM, remuneration was also paid to the newly elected member of the Board of Directors, Luc Maene. In September 2016, following the results of the extraordinary general meeting of shareholders, Dmitry Lobyak joined the Board of Directors; he has been receiving remuneration as a non-executive director since October 2016.
In accordance with the Regulations on directors’ remuneration and reimbursement, Members of the Board of Directors are reimbursed for their travel expenses (travel to and from the location of the meeting of the Board of Directors), accommodation costs and costs not related to participation in Board meetings but connected with the business of the Company.
Total payments to directors in 2016 were as follows:
|In RUB||In US$*|
|* Based on the CBR’s average exchange rate for 2016: 67.0349 RUB/1 US$.|
Remuneration payable to members of the Management Board consists of two parts: a monthly salary, the size of which is specified in individual employment contracts, and an annual bonus. The amount of the bonus depends on the achievement of individual annual KPIs, which reflects the contribution of a member of the management team to the achievement of strategic and operating goals of the Company. Members of the Management Board do not receive any additional remuneration for their work in the Management Board.
Currently, the Company does not have a longterm management incentive programme, and so senior executives of the Company are not paid additional bonuses.
The total amounts paid to the Management Board during 2016 were as follows:
|In RUB*||In US$***|
|* After personal income tax.
** Including payments made to the Management Board members who left Uralkali during 2016.
*** Based on the CBR’s average exchange rate for 2016: 67.0349 RUB/1 US$.
Information about management’s equity ownership
According to the Company’s registrar, OJSC VTB Registrar, as of 31 December 2016 there are no directors (Board of Directors and Management Board members) who currently hold or previously held positions in management bodies of Uralkali in 2016 in the Company’s share register both as of 1 January 2016 and as of 31 December 2016. There is no record of any transactions made by members of Uralkali’s management bodies to acquire or dispose of shares of the Company, including dates and essence of transactions, the category (type) and number of Uralkali shares, which were the subject matter of such transactions from 1 January 2016 until 31 December 2016. The share register has no records of nominee shareholders as of 1 January 2016 and as of 31 December 2016.
Anti-fraud and anti-corruption compliance system
In 2011, the Company adopted an anti-fraud programme, which establishes a mechanism to prevent corporate fraud. The programme covers internal, economic and information security and provides for a hotline service to receive messages about suspected fraudulent activities. The Security Directorate works in close contact with the Company’s compliance officer to identify conflicts of interests and respond to any identified noncompliance. In 2016, the programme remained in force, and a number of activities were implemented.
In 2013, the Company started a project to create an anti-corruption system. As of the end of 2016, the compliance system includes antitrust compliance, anti-corruption compliance, ethical compliance and sanctions compliance components, all of which are closely monitored to avoid breaching any applicable regulations. The Company holds regular training workshops and online knowledge assessments, and develops new controls as becomes necessary.
|Board Committee||Members (as of 31.12.2016.)||Key functions||Targets for 2016||Target achievement in 2016|
|THE AUDIT COMMITTEE||Paul Ostling (Chairman),
Sir Robert John Margetts,
|THE CSR COMMITTEE||Sir Robert John Margetts
|Consideration of health, safety, environment and social responsibility issues to develop an effective management system for these areas.||
|THE NOMINATION AND REMUNERATION COMMITTEE||Paul Ostling (Chairman),
Sir Robert John Margetts,
|THE INVESTMENT AND DEVELOPMENT COMMITTEE||Sir Robert John Margetts
|Consideration of the Company’s strategic development, budgeting process and major investment projects.||