Corporate Governance Code

1 Corporate Governance code Table of Contents 1. CHAPTER 1 principles OF Corporate 4. CHAPTER 2 GENERAL SHAREHOLDERS MEETING .. 11. CHAPTER 3 BOARD OF DIRECTORS OF THE COMPANY .. 20. CHAPTER 4 EXECUTIVE BODIES OF THE COMPANY .. 41. CHAPTER 5 Corporate SECRETARY OF THE 53. CHAPTER 6 MAJOR Corporate 59. CHAPTER 7 DISCLOSURE OF INFORMATION ABOUT A 65. CHAPTER 8 SUPERVISION OF FINANCIAL AND BUSINESS OPERATIONS OF THE. 75. CHAPTER 9 85. CHAPTER 10 RESOLUTION OF Corporate 89. i INTRODUCTION. Corporate Governance is a term that encompasses a variety of activities connected with the management of companies.

2 Corporate Governance affects the performance of economic entities and their ability to attract the capital required for economic growth. Improvement of Corporate Governance in the Russian Federation is vital for increasing investment in all sectors of the Russian economy from both domestic sources and foreign investors. One means to foster such improvement is to introduce standards that are based on an analysis of best practices of Corporate Governance . These standards of Corporate Governance apply to all economic entities, but are most important for joint stock companies.

3 This is because it is in joint stock companies that the separation between ownership and management is the greatest, and thus conflicts related to Corporate Governance are most likely. Therefore, this code has been developed primarily for joint stock companies seeking access to capital markets. This consideration, however, does not rule out the possibility of its use by other economic entities. Standards of Corporate Governance should be applied to ensure adequate protection of the interests of all shareholders, regardless of the size of their holdings.

4 The greater the level of shareholders' protection achieved, the more investment capital will be available to Russian joint stock companies (hereinafter referred to as companies ), which will favorably influence the Russian economy as a whole. Standards of Corporate Governance should be instrumental to the attainment of high ethical standards in relations between market participants. The following sections describe the background of the development of the Corporate Governance code (hereinafter referred to as the code ). It should be also taken into account that any company may develop its own code of Corporate Governance in accordance with the recommendations of this code , or incorporate some of the code 's provisions into its internal regulations.

5 Subject to a company's legal status, branch affiliation, capital structure, and other specific parameters, such a company may selectively use those recommendations of this code suitable to it. 1. Russian law already incorporates the majority of the fundamental principles of Corporate Governance , however, in practice, their use, especially in court, and Corporate Governance traditions, are still at the formative stage The existing Russian legislation governing the operation of economic entities is relatively new, however it already reflects most of the generally accepted Corporate Governance principles .

6 On the other hand, the main problems in the Corporate Governance area arise from the lack of durable Corporate Governance practices rather than the quality of legislation, which is why Corporate Governance traditions are currently in the formative stage. 1. 2. High standards of Corporate Governance cannot be assured by legislative provisions alone Legislation alone cannot be expected and is inherently unable, to regulate all issues related to the management of companies. First, the law establishes and should establish only general mandatory rules.

7 It cannot regulate, and should not have as its purpose to regulate in detail all matters of Corporate operations. Abundance of detail in legal norms makes it difficult for companies to function since each company's business is unique, making it impossible adequately to reflect such uniqueness in the law. That is why the law often completely omits provisions regulating certain relationships (and the absence of such regulation is often not at all a legislative weakness), or establishes general rules leaving it to the parties involved in appropriate business relationships to choose a line of behavior.

8 Second, legislation is unable to react rapidly to changes in Corporate Governance practice, as amending laws is very time consuming. 3. Many issues associated with Corporate Governance lie outside the legal arena and have an ethical rather than legal nature Many legislative regulations covering Corporate Governance are based on ethical norms. For example, civil law regulations, in particular, stipulate the possibility of applying requirements of good faith, prudence and equity in the absence of applicable legislation, as well as exercising civil rights in a reasonable and fair manner.

9 Thus, moral and ethical standards of reasonableness, equity and good faith are part and parcel of the existing legislation. At the same time, such legislative regulations are not always sufficient to ensure proper Corporate Governance . Therefore, companies should act in accordance not only with statutory standards, but also with ethical standards which are often more demanding than the law's requirements. Ethical standards present a set system of behavioral norms and customs of the trade traditionally applied by the business community, which are not based on the law, and which form positive expectations with respect to the anticipated behavior of participants in Corporate relations.

10 Ethical standards of Corporate Governance form sustainable behavioral patterns common to all participants in Corporate relations. Compliance with these standards is not only a moral imperative; it also helps the company avoid risks, supports long-term economic growth and facilitates successful business activity. 2. Ethical standards and best practice, together with the law, form a company's policy of Corporate Governance based on respect for the interests of both the shareholders and management of the company and help to strengthen the company and increase its profit.