Annual Report 2015



Corporate Governance Framework

MegaFon's investment appeal, sustainability and success rely on efficient corporate governance. The consistent development and enhancement of the corporate governance system helps us build and maintain trust-based relationships with our investors, employees and other stakeholders.

The Company's Board of Directors and executive bodies take ultimate responsibility for the corporate governance system, which is designed to balance the interests of our shareholders and management. As part of our commitment to continuous improvement, we are constantly looking at ways to develop and enhance our corporate governance policies and procedures.


Our approach to corporate governance is guided by a set of principles, which are fully compliant with national and international legislation requirements and standards.

MegaFon's corporate governance principles are:

  • enabling shareholders to fully exercise their rights relating to their shareholdings in the Company;
  • strategic governance and effective supervision of the Company's executive bodies by the Board of Directors, which in turn is accountable to the General Shareholders Meeting;
  • appropriate management of MegaFon's day-to-day operations by the Company's executive bodies and their accountability to the Company's Board of Directors and shareholders;
  • timely disclosure of complete and accurate information about the Company, including its financial position, performance, ownership and governance structure;
  • effective control of the Company's financial and business operations;
  • ensuring the protection of the interests and statutory rights of shareholders and other investors, creditors and other stakeholders, and commitment to high standards of social responsibility in the Company's activities.


In a most significant development in MegaFon's ongoing efforts to improve its corporate governance system, in 2015, the Company's constituent documents were brought into compliance with the provisions of Article 4 of the Civil Code of the Russian Federation (new version).

On 1 September 2014, Federal Law No. 99-FZ enacted on 5 May 2014 entered into effect. This Law materially amended Article 4 (Legal Entities), Part 1 of the Russian Civil Code. In particular, joint-stock companies are now classified as public and non-public. The amendment does not imply a change of legal form as the concept of a “joint-stock-company” remains; rather, it results in the introduction of new types of classification for such business entities.

On 20 April 2015, an extraordinary General Meeting of Shareholders approved amendments to MegaFon's Charter, including a change in the Company name, in order to comply with these changes in Article 4 of the Civil Code. As a result of the amendment, OJSC MegaFon was renamed PJSC MegaFon.

Another important development in improving the effectiveness of the Company's corporate governance was the implementation of the “two keys” ("two-in-the-box") principle, a new concept also recently introduced.

Specifically, in accordance with the amendments introduced to the Civil Code of the Russian Federation by Federal Law No. 99-FZ, a corporation's charter may provide for the powers of a sole executive body to be granted to several persons acting jointly, or for multiple executive bodies capable of acting independently to be appointed. Both individuals and legal entities may act as a sole executive body of a corporation (Clause 3, Article 65.3).

The amendment to the Russian Civil Code has introduced a new concept in Russian corporate law, aligning it more closely with a number of advanced foreign legal systems that have long espoused the practice of appointing several directors in one company – the so-called “two-keys” ("two-in-the-box") principle.

On 30 June 2015, the Annual General Meeting of Shareholders approved a new version of the Company's Charter to incorporate these new concepts. The new version provides for the appointment of a new executive, to be known as the Chief Operating Officer, to act independently from Chief Executive Officer within clearly defined duties of office.

The appointment of an additional person with executive powers is a powerful tool to maximise the effectiveness of the day-to-day management of the Company. The Chief Operating Officer is responsible for day-to-day management of the business, including business segments, infrastructure, branches and subsidiaries, while the Chief Executive Officer is focused on MegaFon's shareholder value growth, development and implementation of the Company's strategy, and mergers and acquisitions.

Another aspect of this change is that one individual can act with full executive powers when the other individual is on vacation or temporarily unable to carry out his duties.


Related-party transactions are regulated by Article 11 of Federal Law No. 208-FZ On Joint-Stock Companies . Under these provisions, transactions in which shareholders, members of the Board of Directors, or members of executive bodies are interested parties must be approved by either the Board of Directors or the General Meeting of Shareholders. The interested member(s) of the Board of Directors or the interested shareholder(s) does(do) not vote on the relevant resolution.

MegaFon pays close attention to identifying and controlling transactions in which shareholders, members of the Board of Directors, or members of executive bodies are interested parties. Through its SAP ERP system, MegaFon has developed procedures for determining and monitoring such transactions. All MegaFon counterparties are regularly checked for possible relationships with the main shareholders and members of the executive bodies.

In accordance with such procedures, all related-party transactions are subject to preliminary review by specific committees of MegaFon's Board of Directors, based upon the subject matter. In 2015, the Audit Committee carried out preliminary reviews, recommending for the Board's approval (and the Board of Directors subsequently approved) a total of 63 related-party transactions. The Finance and Strategy Committee carried out preliminary reviews, recommending for the Board's approval (and the Board of Directors subsequently approved) 10 such transactions.

The list of related-party transactions effected by MegaFon in 2015 is available on the Company’s website at Corporate website.


In 2015, MegaFon concluded no transactions which qualify as “major transactions” (as defined by Article 78 of Federal Law No. 208-FZ On Joint-Stock Companies ).


In accordance with the requirements of Russian law and regulation, the Board of Directors of a public company must include independent directors. Pursuant to the Regulations on the Audit Committee and the Remuneration and HR Development Committee of the Board of Directors, these committees must have at least one independent director meeting a specific set of requirements, including1 :

  • having no relationship with the Company;
  • having no links with the Company's significant shareholder;
  • having no relationship with the Company's competitors or significant counterparties;
  • having no relationship with any government or municipal entity.

Upon election, all members of the Board of Directors go through a process to determine whether or not they meet the independence criteria set out in the Corporate Governance Code. At the conclusion of this process, the Board determines which directors qualify as independent directors.

In accordance with these procedures, in 2015, the Company's Board of Directors designated Jan Erik Rudberg, Lord Paul Myners, and Sergey A. Kulikov as independent directors.


In March 2014, the Central Bank of Russia adopted a new Corporate Governance Code, marking a milestone in corporate governance. The new version of the Code is the result of a joint effort between market regulators, the Moscow Exchange, international organisations, investors and issuers, as well as international and Russian corporate governance experts. The Code contains best practices and standards and is designed to enhance corporate governance in Russian companies.

The Code’s recommendations are primarily aimed at public and stateowned companies. Certain standards and recommendations contained in the Code have already been included in the new Listing Rules of the Moscow Exchange.

Information on MegaFon’s compliance with the new Corporate Governance Code is available on the Company's website.

1  The full list of criteria of the Board members’ independence is stipulated in the Corporate Governance Code (letter of the Central Bank of Russia No. 06‑52/2463 dated 10 April 2014) and the Listing Rules of the Moscow Exchange.