Corporate Governance Framework
MegaFon’s corporate governance framework is based on Russian and international best practices. Committed to maintaining high standards of corporate governance, the Company is fully compliant with Russian laws on joint stock companies such as Federal Law No. 208-FZ On Joint Stock Companies dated 26 December 1995 (the Federal Law On Joint Stock Companies) and is guided by recommendations of the Corporate Governance Code and other recommendations of the Bank of Russia.
MegaFon’s corporate governance framework has been evolving over several years, and in the past it was significantly affected by the requirements of the Moscow Exchange and the London Stock Exchange for issuers of shares and global depositary receipts.
A structured corporate governance framework is vital for the successful development of our business as it helps set and achieve goals, and manage the Company’s risks effectively. MegaFon’s well-developed corporate governance framework also enables us to build and maintain trust-based relationships with the Company’s counterparties, shareholders, employees and other stakeholders.
In 2021, from 21 January to 1 July the Company returned to the “two keys” principle stipulated by the Charter: at the Extraordinary General Meeting of Shareholders held on 21 January 2021, shareholders voted to elect Khachatur Pombukhchan the Company’s Executive Director (prior to that, the position had been vacant for several years). At the Annual General Meeting of Shareholders held on 1 July 2021, Khachatur Pombukhchan was appointed Chief Executive Officer.
In 2022, the Company intends to maintain the high level of corporate governance achieved, which is embedded in our established practices and formalised in internal documents.
During the reporting period, new versions of a number of internal documents were approved, including:
- Regulations on the Internal Audit
- Risk Management and Internal Control System Policy
- Compliance Policy
- Regulations on the Committees of the Board of Directors
- Insider Information Regulations etc.
MegaFon’s corporate governance principles:
- Enabling shareholders to fully exercise their rights
- Strategic governance and effective supervision of executive bodies by the Board of Directors, as well as accountability to the General Meeting of Shareholders
- Appropriate management of MegaFon’s day-to-day operations by its executive bodies and their accountability to the Board of Directors and shareholders
- Timely disclosure of complete and accurate information about the Company, such as its financial position, performance, ownership and governance structure
- Effective control of the Company’s financial and business operations
- Ensuring protection of the interests and statutory rights of shareholders, investors, creditors and other stakeholders
- Commitment to high standards of social responsibility
Compliance with the Corporate Governance Code
MegaFon’s operations are governed by the recommendations of the Corporate Governance Code approved by the Bank of Russia’s Board of Directors on 21 March 2014. The Corporate Governance Code Compliance Report is presented in the Appendix to this Annual Report.
Interested party transactions
Interested party transactions are regulated by Article 11 of the Federal Law On Joint Stock Companies. Under its provisions, transactions in which the Company’s controlling parties, Board members or members of the Company’s executive bodies are interested parties may be approved by either the Board of Directors or the General Meeting of Shareholders. Interested members of the Board of Directors or shareholders do not vote on any resolution relating to the interested party transaction.
MegaFon pays close attention to identifying and controlling interested party transactions. All counterparties are regularly checked for possible relationships with shareholders or members of MegaFon’s executive bodies.
The Company did not enter into any interested party transactions in 2021.
In 2021, the Board of Directors approved one major transaction with a value of more than 25% but less than 50% of the book value of MegaFon’s assets determined as at the last reporting date prior to the transaction.
In October 2021, a framework lease agreement was signed, under which JSC FTC leases, and PJSC MegaFon will temporarily use certain areas at tower infrastructure facilities of JSC FTC to install and operate PJSC MegaFon’s equipment for providing them with communications services against placement orders (Resolution of the Board of Directors, Minutes No. 360(424) dated 26 October 2021). The agreement will be valid for 12 years and automatically renew on expiry of this period. The deal’s value was up to RUB 190 billion, inclusive.
Corporate governance structure
MegaFon’s principal corporate governance bodies are the General Meeting of Shareholders, the Board of Directors, the Management Board (collective executive body), the Chief Executive Officer, and the Executive Director (individual executive bodies). In 2021, there were no changes in the corporate governance structure.
In December 2021, the Board of Directors convened an Extraordinary General Meeting of Shareholders, which was held on 2 February 2022. The meeting approved a new version of the Charter that does not provide for a Revision Commission at the Company. The powers of members of the Revision Commission elected at the Annual General Meeting of Shareholders on 30 June 2021 were terminated. The necessary amendments were made to the Company’s internal documents.
To evaluate the reliability and effectiveness of risk management and internal controls, MegaFon has in place an Internal Audit function, which is a long-established independent unit reporting to the Board of Directors.
- As of 2 February 2022, the powers of the Revision Commission were terminated by the Extraordinary General Meeting of Shareholders.
General Meeting of Shareholders
The General Meeting of Shareholders is MegaFon’s supreme governing body.
In 2021, due to the spread of COVID-19, the Annual General Meeting of Shareholders was held by absentee voting for the second year running.
The meeting was held on 30 June 2021. The total number of votes held by the meeting participants was 620,000,000 (100% of the total number of votes).
In 2021, four Extraordinary General meetings of shareholders were held by absentee voting.
Board of Directors
The Board of Directors is MegaFon’s collective executive body exercising general control over its activities. The Board’s main duties include enhancing the effectiveness and transparency of MegaFon’s risk management and internal controls, and improving the framework for monitoring and ensuring the accountability of its governing bodies while protecting and promoting the rights of all shareholders.
The well-balanced composition of the Board of Directors reflects the scope and scale of MegaFon’s business. Nominees to the Board of Directors are elected based on their expertise, experience, business reputation, and personal skills.
Board members have extensive experience in the Russian telecommunications industry, excellent managerial skills and expertise in finance, strategic planning, technologies, and risk management.
Summary of the Board’s activities in 2021
The Board of Directors was fully involved in MegaFon’s key processes in the reporting year.
The Board considered a wide range of agenda items at its meetings, such as MegaFon’s participation in major projects; the impact on MegaFon’s business from changes to Russian legislation; approval of interested party transactions and transactions with a cumulative value in excess of US$ 50 million; approval of internal documents, including on compliance and internal audit. The Board also adopted resolutions on HR matters, reviewed the Company’s strategic development and issued recommendations to the General Meeting of Shareholders on items of its agenda.
Management reports reviewing quarterly business performance of the Company were presented at the meetings of the Board of Directors. Regular reports were provided to the Board of Directors on management’s response and the measures taken to prevent the spread of COVID-19.
No independent performance evaluation of the Board of Directors was carried out in 2021.
Remuneration of the Board of Directors
Members of the Board of Directors are remunerated for the performance of their duties. The amount of remuneration is approved by the General Meeting of Shareholders and depends on the actual hours worked during the reporting period.
Three committees of MegaFon’s Board of Directors provide oversight and strategic planning on matters related to the Board’s areas of responsibility:
- Audit Committee
- Finance and Strategy Committee
- Remuneration and Nominations Committee
Committee members are selected upon election of a new Board of Directors.
Activities of the Board Committees are regulated by internal documents.
The Board’s Audit Committee is responsible for all matters relating to internal and external audits of MegaFon’s financial and business operations and, in particular, for making recommendations as to the appointment of external auditors, resolving issues that arise during audits, analysing the effectiveness of internal controls and assessing risk management performance.
In 2021, the Audit Committee covered a wide range of matters, including:
- review of regular financial statements and press releases disclosing MegaFon’s financial and business operations
- internal controls enhancement
- change of approaches to the implementation of internal audit, recommendations for approval of the internal audit plan, review of quarterly reports
- review of litigation reports
- risk management and compliance (including the development of a compliance hotline)
- preparation of recommendations for the approval of the 2020 Annual Report.
Finance and Strategy Committee
The Finance and Strategy Committee exercises control over MegaFon’s strategic development, business planning, budgeting, and investment processes.
The Committee’s principal responsibilities include determining MegaFon’s strategic direction and approving its annual budgets, reviewing and approving proposed M&A and general business transactions, and reviewing the terms of borrowing and other financing options.
In 2021, the Finance and Strategy Committee covered a wide range of matters, including:
- approval of the Company’s budget and business plan for 2022
- regular reports on the Company’s performance
- the Company’s strategic development
- reviews of interested party transactions and transactions with a cumulative value exceeding US$ 50 million
- reviews of MegaFon’s M&A activities.
Remuneration and Nominations Committee
The Remuneration and Nominations Committee is responsible for the development and regular review of the remuneration policy, including reviewing and determining base salaries, bonuses and other compensation, as well as setting target KPIs for top management, making recommendations to the Board regarding candidates for key management positions and carrying out a performance evaluation of the Board, its members and its committees.
In 2021, the Remuneration and Nominations Committee covered a number of matters, including:
- short-term and long-term bonus programmes for the Company’s top management
- recommendations to the Board of Directors regarding approval of candidates for the positions of CEOs of key subsidiaries and heads of branches
- recommendations to the Board of Directors regarding candidates for the positions of the CEO, members of the Board of Directors, the Revision Commission, and the Management Board.
The Management Board is MegaFon’s collective executive body managing the Company’s day-to-day operations together with the individual executive bodies. It is responsible for all operational management matters, apart from those falling within the remit of the General Meeting of Shareholders, the Board of Directors and MegaFon’s individual executive bodies.
The size and composition of the Management Board are approved by the General Meeting of Shareholders based on the CEO’s recommendation.
The CEO is the Chairman of the Management Board.
Chief Executive Officer and Executive Director
The Chief Executive Officer and the Executive Director manage MegaFon’s day-to-day operations alongside the Management Board in all matters excluding those reserved to the Company’s General Meeting of Shareholders or the Board of Directors.
According to MegaFon’s Charter, their responsibilities include:
- managing MegaFon’s day-to-day operations, acting on behalf of the Company without power of attorney, representing MegaFon in its relations with all government authorities, legal entities and individuals, and granting powers of attorney
- making decisions and issuing orders, instructions, and other documents on matters consistent with their responsibilities, and approving MegaFon’s internal documents with the exception of certain matters.
The CEO’s responsibilities also include:
- opening settlement accounts and other bank accounts, effecting civil transactions on behalf of MegaFon, with exceptions set out in their employment contracts and/or applicable Russian laws
- organising the operations of MegaFon’s business units, signing employment contracts with MegaFon employees, making decisions on bonuses, benefits and compensations
- preparing and presenting information and documents on MegaFon’s operations to the Board of Directors, including for approval of certain documents.
The Executive Director’s responsibilities also include:
- effecting any civil transactions on behalf of MegaFon and managing MegaFon’s property within the limits established in his employment contract and/or applicable Russian laws
- implementing steps to ensure the security of information containing state secrets by developing and introducing measures to maintain confidentiality and protect data.
There were no changes in the competencies of the CEO and Executive Director in 2021.
In 2022, a new version of the Charter was approved, which details the procedure for exercising the powers of the Executive Director in case this position is vacant.
In this case, the role of the Executive Director is delegated to the CEO.
Remuneration of the Management Board, the Chief Executive Officer and the Executive Director
MegaFon’s senior executives are remunerated for their services to the Company. The Board of Directors determines the structure and amount of such remuneration.
To ensure the effectiveness of corporate governance, MegaFon has established the position of Corporate Secretary, with the person holding this position being responsible for ensuring compliance with rules and procedures which protect the rights and interests of shareholders. The Corporate Secretary is also responsible for shareholder relations, corporate communications, and ensuring the proper performance by the Board of Directors and its committees of their functions. The Corporate Secretary is also the Secretary of the Management Board.
The Corporate Secretary is elected by, and reports to, the Board of Directors.
In 2021, Daria Lizunova was MegaFon’s Corporate Secretary.
Born in 1986.
In 2007, she graduated from Moscow Pedagogical State University. In 2011, she graduated from Russian Foreign Trade Academy of the Ministry of Economic Development of the Russian Federation
From July 2011 to November 2018, she held various positions at the Corporate Secretary’s Office of PJSC MegaFon.
On 14 November 2018, she was appointed the Company’s Corporate Secretary by the Board of Directors (Minutes No. 295(359) dated 14 November 2018).
Daria combines the duties of Corporate Secretary and the Company’s Controller responsible for insider information control and security.
Percentage ownership in the Company: nil.
Percentage of the Company’s ordinary shares held: nil.
In the reporting period, the Revision Commission, which was elected annually by the General Meeting of Shareholders, controlled MegaFon’s financial and business operations.
As of 2 February 2022, the powers of the Revision Commission were terminated by the Extraordinary General Meeting of Shareholders. To evaluate the reliability and effectiveness of risk management and internal controls, MegaFon has in place an Internal Audit function, which is a long-established independent unit reporting to the Board of Directors.
MegaFon’s Internal Audit team indirectly reports to the Board of Directors.
Internal Audit operations are guided by MegaFon’s Regulations on the Internal Audit, as well as by the International Standards for the Professional Practice of Internal Auditing.
The Internal Audit team assesses the RMICS, as well as the corporate governance framework against performance targets approved by the Board of Directors.
Upon the Audit Committee’s recommendation, on 12 August 2020, the Board of Directors appointed Evgenia Karaoglanova the new Internal Audit Director.
MegaFon engages independent external auditors to audit its annual financial statements and review its quarterly financial statements. The Audit Committee assesses prospective auditors and makes recommendations to the Board of Directors regarding their appointment and fees. The independent auditor recommended by the Board must be approved by the General Meeting of Shareholders.
The Annual General Meeting of Shareholders held on 30 June 2021 approved JSC KPMG as the Company’s external auditor.
MegaFon ensures that its operations are fully transparent, both in compliance with all applicable laws and regulations and in line with international best practice for disclosure. For each fiscal year ending 31 December, the Company publishes audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS). In 2021, MegaFon also provided unaudited consolidated financial statements at the end of the first, second and third fiscal quarters.
MegaFon’s financial results and notices of upcoming General Meetings of Shareholders, as well as other important information and price sensitive information, are announced through Interfax, an authorised Russian news agency.