We consider the corporate governance system, first of all, as an instrument of the rights protection and observance of shareholders’ interests. The mission of the efficient corporate governance is to decrease the investment risks and the cost of the debt capital, increase the investment attractiveness and shareholder value of the company, and strengthen the commercial goodwill.

For further improvement of the corporate governance we use a positive experience of other companies by monitoring changes in the legislation of the Russian Federation and best practices in this area and making relevant adjustments to the Company’s corporate governance system.

Corporate governance principles

Management and control bodies

Board of Directors is a management body responsible for generation of the Company’s development strategy and control over financial and business activities and accountable to the General Meeting of Shareholders. The Board of Directors performs its activities in accordance with the Federal Law on Joint-Stock Companies, legislation of the Russian Federation and the Company’s internal documents: Articles of Association, Corporate Code of Conduct, Regulation on the Procedure for Convening and Holding Meetings of the Board of Directors of IDGC of the North-West.

Goals and objectives of the Board of Directors are realized, in particular, in considering matters of strategic development of the Company and determination of priority areas of activity.

For example, on the basis of the Development Strategy of Russian Grids until 2015 and prospectively until 2020 the Board of Directors approved the Plan of Actions for Implementation of the Strategy in the Company prepared with an active participation of representatives of minority shareholders.

In order to define the Company’s areas of development in the field of information technologies, automation and telecommunications Board of Directors approved the Company’s strategy in the area of information technologies, automation and telecommunications for the period until 2016 and the plan of actions for implementation of the Strategy in 2012.

The Board of Directors determined the following priority activity areas:

• switch to regulation of tariffs for electricity transmission services using the return on investment capital method (RAB), including filing applications to tariff regulating authorities within the period set forth by the Board of Directors;
• development and implementation of the Program for Investment Development of JSC IDGC of the North-West;
• assurance by the Company of a set level of reliability and quality of rendered services in accordance with relevant legal acts;
• implementation of a construction management system for major investment projects;
• carrying out activities for registration of titles to real estate properties and registration/re-registration of titles to land plots;
• carrying out a mandatory energy inspection of the Company in accordance with legal requirements of the Russian Federation;
• implementation of a production asset management system;
• making amendments to the system of key performance indicators for Director General and top managers of the Company.

Matters reflecting the results of the Company’s development by priority activity areas are regularly reviewed by the Company’s Board of Directors.

Furthermore, the Board of Directors constantly pays attention to other significant matters:

• business planning, including preparation and approval of the investment program for one year and in the mid-term;
• long-term development of electricity metering systems in the retail electricity market in distribution networks of the Company;
• energy saving and increase of energy efficiency of the Company, including carrying out a mandatory energy inspection of production, business and electric grid facilities of the Company;
• purchasing policy and innovative activities;
• HR policy and corporate management;
• approval of transactions, approval of internal documents and risk management.

Assessment of efficiency of the Board of Directors’ activities

A collective assessment of the efficiency of activities of the Company’s Board of Directors based on the results of the 2010-2011 corporate year was carried out in the Company for the first time. This procedure allowed to identify the most serious risks in activities of the Board of Directors and Committees, in the Company’s corporate governance system development and to determine key areas for development and improvement. It is planned to carry out such an assessment on a regular basis.

Committees of the Board of Directors are consulting and advisory bodies of the Board of Directors which play an active part in the process of making decisions by the Board of Directors of the Company, increasing the efficiency of its activities. Activities of the Committees are regulated by internal documents of the Company: Regulations on Committees which govern the activities, procedure for creation, competence and term of powers of the Committees. The following committees were established:

• Audit Committee;
• HR and Remuneration Committee;
• Strategy and Development Committee;
• Reliability Committee;
• Committee for Technological Connection to Electric Grids.

Director General is the sole executive body carrying out the current management of the Company’s activities and responsible for the implementation of its strategy developed by the Board of Directors. According to the Company’s Articles of Association, Director General has wide powers in such key spheres as property management, transactions making on behalf of the Company, issue of orders, approval of instructions and internal documents in all important areas of the Company’s activity.

Until June 30, 2012 Alexander Kukhmay has been Director General of the Company.

On July 01, 2012 Sergey Titov was appointed Director General of JSC IDGC of the North-West by resolution of the Board of Directors.

Management Board is a collegial executive body designated to solve the most difficult issues relating to implementation of financial and business policy of the Company and its subsidiaries and affiliates, to increase the efficiency of internal control and risk monitoring systems and to make decisions on other matters referred to the Management Board by the Company’s Director General. Activities of the Company’s Management Board are regulated by the Federal Law on Joint-Stock Companies, Articles of Association of the Company, and Provision on the Management Board.

By resolution of the Board of Directors of the Company it is established that the number of members of the Management Board shall be 10.

Auditing Commission is a body carrying out regular control over the Company’s financial and business activities on the part of shareholders. The advantages of the Auditing Commission of the Company include legal approval the auditing commission notion together with the right of convening General Meetings of Shareholders. Another important aspect of the activity of the Auditing Commission is its right to demand submission of documents concerning the financial and business activity of the Company from the Company’s officials.

The quantitative structure of the Auditing Commission of the Company is defined by the Articles of Association and consists of 5 members.

Remuneration of members of the Management Board and Director General

In order to achieve the Company’s long-term goals, improve control over its activities and increase motivation of Director General and top-managers of the Company, in autumn of 2012 the Board of Directors approved the system of annual and quarterly key performance indicators (KPIs) containing the list and rates of bonus payments, calculation method and fulfillment assessment.

The approved system of KPIs has the increased number of indicators taking into account all essential aspects of the Company’s activities. The Company’s business plan for 2013 was approved with regard to the new system of KPIs.