Compliance with Best Standards

Corporate Governance Principles

Assessment of Federal Grid Corporate Governance Quality

In 2015, the Federal Grid’s corporate governance system has undergone some significant changes resulting from the implementation of key recommendations of the Russian Corporate Governance Code¹. Following the implementation of the corporate governance development plans, the Company has conducted a self-assessment in accordance with the Corporate Governance Self-Assessment Methodology for State-Owned Companies (approved by the Order of Rosimuschestvo No. 306 dated 22 August 2014).

The corporate governance quality assessment have been conducted, among other things, with respect to compliance with the principles and recommendations set out in the Russian Corporate Governance Code.

^{1 Approved by the Board of Directors of the Bank of Russia on 21 March 2014 and recommended for application by the Letter of the Bank of Russia “On the Corporate Governance Code” No. 06-52/2463 dated 10 April 2014}

Following the Methodology’s approaches, six components have been assessed, all carrying a certain weight within the overall evaluation.

When conducting the assessment, a number of key assumptions were taken into account, including non-applicability of certain provisions of the Corporate Governance Code due to the absence in the structure of the Federal Grid Group, under the latest consolidated financial statements, of the controlled legal entities meeting the materiality criteria defined by the Code.

In addition, the Company has reviewed its corporate governance practices’ compliance with the principles and recommendations of the Russian Corporate Governance Code based on the Recommendations of the Bank of Russia on reporting compliance with the Corporate Governance Code principles and recommendations¹.

Being a company whose Global Depository Receipts are traded on the London Stock Exchange, Federal Grid Company strives to achieve high international standards in corporate governance, including the compliance with the UK Corporate Governance Code.

^{1 Letter of the Bank of Russia No. IN-06-52/8 dated 17 February 2016}

Full Report on Federal Grid’s compliance with the Corporate Governance Code principles and recommendations, as well as the Report on compliance with main principles of the UK Corporate Governance Code are available in the в Appendix 3 to the annual report

Key Elements of the Corporate Governance System (Model) of Federal Grid Company

Mechanisms to ensure and protect shareholder rights	The company takes significant measures to ensure that all shareholders have equal opportunities to exercise their rights and legitimate interests, and to reduce the risk of violation of such rights and interests. This includes implementing best practices into the process of preparing and holding the General Meeting of Shareholders, increasing transparency of the dividend policy, improving mechanisms for ensuring safety and efficiency of the Company’s assets, creating facilities that eliminate any abusive actions of the Company’s major shareholder to minority shareholders
Governance and control structure	The Company has established the governing and control bodies that interact effectively, their responsibilities are clearly separated and work is strictly regulated by the Federal Grid’s internal documents. The Company’s Board of Directors is balanced enough in terms of qualifications and experience of its members, as well as consideration of interests of all shareholders. Fulfilling its key role of strategic leadership, the Board is responsible for the effective oversight of the executive bodies’ activities. A highly professional management team of Federal Grid is responsible for day-today management of the Company and the delivery of its strategic goals and objectives
Risk management and internal control	The Company’s effective system of risk management and internal control established in accordance with best standards plays an important role in the achievement of the Company’s goals. An internal audit function has been established to ensure regular independent review of this system’s effectiveness and reliability
Corporate Secretary	To ensure effective engagement between shareholders, the Board of Directors and executive management of the Company, a position of independent Corporate Secretary has been established in Federal Grid
Disclosure	The Company ensures timely and regular disclosure of full, relevant and accurate information about itself, its operations and securities to enable shareholders and other stakeholders to take informed decisions concerning Federal Grid and its securities
Corporate culture and ethics	In its activities and relationships with all stakeholders, Federal Grid Company follows high ethical standards and values set out in the Code of Corporate Ethics. The Company has an effective system of monitoring compliance with the provisions of the Code

For further details of the key elements of the Federal Grid’s corporate governance system, see the Company’s Articles of Association and internal documents available on our website www.fsk-ees.ru in section Investors/Corporate Governance /Corporate Documents

Full details on the Federal Grid’s corporate governance system are available in section CORPORATE GOVERNANCE REPORT of this annual report

Improving the Corporate Governance System in 2015

In order to implement the Russian Corporate Governance Code recommendations, the Company developed and the Board of Directors approved (Minutes No. 255 dated 16 March 2015) an Action Plan (‘road map’) covered all aspects of the Federal Grid’s corporate governance system and practice.

All commitments made within the ‘road map’ have been fully met by the Company.

• ВIn June 2015, the Annual general Meeting of Shareholders approved an updated version of the Articles of Associations, updated versions of the Regulations on the General Meeting of Shareholders, Board of Directors, Management Board, Audit Commission, the Regulations on Remunerations and Compensations to Members of the Board of Directors and on Remunerations and Compensations to Members of the Audit Commission


• Following the update of the above documents, the Board also approved new Regulations on the Board committees and on remunerations to committee members


• A position of Corporate Secretary was established, and the Board approved Regulations on the Corporate Secretary


• The Federal Grid’s Information policy was updated, including with regard to new requirements of the Bank of Russia to securities issuers

When implementing measures envisaged by the ‘road map’, the Company continued to review and update the other internal documents as required by the recommendations of the Russian Corporate Governance Code, including the Regulations on the Investment Committee, Risk Management System, Internal Audit.

Gorporate Governance Rating

The results of the Company’s efforts to improve its corporate governance system were positively assessed by experts of the Russian Institute of Directors – an external independent consultant of Federal Grid Company that has been monitoring the corporate governance practice of the Company since 2012 and assigns a National Corporate Governance Rating (NCGR).

Among the major achievements of Federal Grid Company experts noted the following:

• Improving the balance of the Board of Directors by increasing the number of independent directors


• Establishing the position of Corporate Secretary


• Expanding the role of the Board of Directors with regard to monitoring and reviewing the effectiveness of the Company’s internal audit function

After the Annual General Meeting 2016, the Federal Grid’s corporate governance practice will be reevaluated under the updated NCGR methodology.

Plans for 2016

• Assessing corporate governance systems of Federal Grid subsidiaries using the Guidelines for self-assessment of corporate governance quality in state-owned companies


• Drafting, where appropriate, standard internal documents on corporate governance issues for the needs of subsidiaries


• Developing/updating and approving organisational and administrative documents on safeguarding insider information


• Improving organisational and administrative documents that regulate disclosure, and adjusting them in line with the recent changes in the Russian legislation