6.0CORPORATE GOVERNANCE REPORT

COMPLYING WITH MODERN BEST PRACTICES IN CORPORATE GOVERNANCE IS INDISPENSABLE TO PROGRESSING IN THE RAPIDLY CHANGING WORLD OF DIGITAL TECHNOLOGY.

PAO TMK maintains its position among the Top 20 Russian companies with the best corporate governance disclosures

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Dmitry Pumpyanskiy

Dmitry Pumpyanskiy

Chairman of PAO TMK’s Board of Directors

Complying with modern best practices in corporate governance is indispensable to progressing in the rapidly changing world of digital technology. For this purpose, TMK’s Board of Directors makes consistent and systemic efforts to improve our corporate governance practices by incorporating provisions of the Corporate Governance Code recommended by the Bank of Russia (Russian Corporate Governance Code) as well as recommendations of recognized rating agencies, non-governmental organizations, and educational institutions focused on corporate governance matters.

In 2018, we updated our Code of Ethics, combining in one place all of TMK’s ethical business practices which had previously been regulated under several different regulations and policies. In February 2019, TMK Group’s Code of Ethics (www.tmk-group.ru/media_ru/files/51/Kodeks_Etiki.pdf) was approved by the Board of Directors and came into effect. The Code is a crucial tool for building TMK Group’s overall corporate culture and core values, and is aimed at preventing risks of misconduct. Guided by these principles and values, we expect our employees to make the right decisions guided when engaging with our shareholders, business partners, and colleagues as well as performing their duties honestly and in good faith. This will help secure our leadership in the market and enhance our reputation and the quality of our business.

In 2018, in order to deliver on all of our shareholder commitments, enhance the shareholder experience, incorporate the recommendations of the Russian Corporate Governance Code, and comply with applicable laws, the Company revised and adopted the new versions of PAO TMK’s Articles of Association, Regulations on the General Meeting of Shareholders, Regulations on the Board of Directors, Regulations on the Dividend Policy, and Regulations on the Information Policy (http://www.tmk-group.ru/Documents).

The new version of the Articles of Association sets out the decision-making procedure for each matter referred to the Board of Directors: by simple majority or qualified majority of three quarters of votes from Board members participating in the voting (clause 15.2 of the Articles of Association). The Articles of Association also establish that during General Meetings, shareholders can vote remotely online or by telephone. Our dividend policy contains a clear set of criteria and circumstances under which the Company can cancel dividend payouts.

The Board worked in close cooperation with TMK’s management, mainly through a more in-depth review of certain matters by the Board Committees, and provided advice on strategic lines of business and corporate management. The Board also reveiwed reports on the Group’s and its divisions’ financial and operating performances, internal audit results, the HSE performance of the Company’s facilities, and other matters.

We focused on the digital transformation of the Company’s business based on digital technologies. In 2018, we developed and approved a comprehensive transformation programme, set up a transformation committee and formed a project office. A number of projects relating to production processes and other non-production activities are already being implemented.

We adopted a Long-Term Top Management Incentive Program in early 2018 to expand our range of incentives for key managers to reward improved performance. We reviewed performance against the individual KPIs for managers covered by the 2017 short-term incentive program and made decisions on bonus payments.

At the end of 2018, PAO TMK was in full compliance with all corporate governance rules of the Moscow Exchange, with its ordinary shares remaining on the A1 quotation list.

TMK’s corporate governance framework is based on the Russian Corporate Governance Code, guided by internal regulations available at www.e-disclosure.ru/portal/files.aspx?id=274&type=1 and www.tmk-group.ru/Documents, and outlined in TMK’s Corporate Governance Code at www.tmk-group.ru/media_ru/files/51/corp_gov_code_ru.pdf

The Company carries out annual performance assessments of the Board of Directors, its Committees, and individual Directors. TMK’s Board of Directors ran a self-assessment of its performance in the 2017-2018 corporate year, as guided by the Nomination and Remuneration Committee. The Board’s 2018-2019 corporate year performance was assessed by an independent external organization. The results were reviewed at an in-person Board meeting on April 25, 2019.

This Annual Report summarizes the most significant elements of PAO TMK’s corporate governance model and practices, including the Corporate Governance Code Compliance Report included in this Annual Report. TMK’s compliance with the Russian Corporate Governance Code was assessed as recommended by the Bank of Russia (Letter of the Bank of Russia No. IN-06-52/8 dated February 17, 2016).

When assessing compliance, the Board applied a substanceover-form approach and considers the Company to be in full compliance with the vast majority (93.7%) of the Russian Corporate Governance Code recommendations and in partial compliance with 100% of the recommendations. The Board of Directors notes the Company’s progress in incorporating the Russian Corporate Governance Code recommendations and intends to maintain its focus on this progress for the benefit of all stakeholders.

Our public experience has shown that the Company’s access to capital is directly linked to our willingness to be sincere and transparent with the market about the specifics of our business, our performance results and future plans, material corporate events, and our risks, problems, and the measures we take to prevent or resolve them.

PAO TMK maintains its position among the Top 20 Russian companies with the best corporate governance disclosures (according to the National Corporate Governance Index annual survey run by the Russian National Association of Corporate Directors and supported by the Moscow Exchange and the Russian Union of Industrialists and Entrepreneurs https://corpshark.ru/ wp-content/uploads/2018/12/National-CG-Index-2018TopCompetence.pdf).

Our 2019 Priorities:

  • Introduce electronic voting to General Meetings held in person through electronic ballots, including via a mobile application
  • Continue enhancing our corporate governance practice through adopting advanced corporate governance standards

Incorporating the Russian Corporate Governance Code Recommendations in 2018

  • The Board adopted a new version of the Articles of Association allowing for shareholders to attend General Meetings remotely using telecommunications technologies
  • The Company developed a clear set of metrics and circumstances under which dividends would not be distributed, and added them to the new version of the Dividend Policy
  • The Board of Directors drafted and adopted a Long-Term Top Management Incentive Program
  • TMK’s Information Policy was updated in line with the Code recommendations, ensuring effective information communications between the Company and its shareholders, investors, and other stakeholders
  • The Company’s Code of Ethics was also updated to reflect modern corporate governance standards. TMK Group’s new Code of Ethics came into effect after the reporting date, bringing together several internal documents on regulatory compliance

According to the National Corporate Governance Index annual survey, TMK ranked among the Top 20 Russian companies with the best corporate governance disclosures in 2018.

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The Articles of Association stipulate that the General Meeting of Shareholders is PAO TMK’s supreme governing body, with key management roles delegated by shareholders to the Board of Directors. In order to ensure the Company’s day-to-day management, the Board of Directors elects the CEO and approves candidates for the Management Board as advised by the CEO. The Board of Directors also proposes candidates for executive bodies, as well as nominees to the boards of directors of controlled entities.
The Board establishes committees whose resolutions are of an advisory nature.
To ensure efficient control over the Company’s financial and business operations, as well as compliance with Russian laws and regulations, the General Meeting of Shareholders elects the Revision Committee and approves the Company’s auditor.

General Meeting of Shareholders

The powers of PAO TMK’s General Meeting of Shareholders, as well as all procedures for convening and holding the meeting, are set out in the Regulations on the General Meeting of Shareholders (www.tmk-group.ru/media_ru/files/51/TMK_Polozhenie_ob_OSA_2018.pdf). A new version of the Regulations aligned with recent changes in the Federal Law On Joint Stock Companies and supplemented with provisions on the use of information and communication technology at general meetings of shareholders was adopted in 2018.

In 2018, the Annual General Meeting of Shareholders was held, along with one extraordinary meeting. The agenda of the meetings included, inter alia: approval of the revised Articles of Association, approval of the revised regulations on the General Meeting of Shareholders and the Board of Directors, distribution of profits for 2017, election of the Board of Directors and the Revision Committee, auditor approval, and approval of interested party transactions.

Over the past six consecutive years, Directors of PAO TMK have been consistently been recognized among the best professionals in corporate governance by the Director of the Year National Awards.

COMPOSITION OF THE BOARD OF DIRECTORS

Independent Directors

Due to TMK’s primary listing on the Moscow Exchange, the composition of its Board of Directors is subject to strict requirements, in particular regarding an adequate number of independent directors (at least three). Thre role of the Independent Directors is to ensure decisions made by the Board of Directors and are made objectively and enhance the credibility of the Board of Directors among shareholders. Independent Directors account for about a half of TMK’s Board members (five out of eleven). The independence of a director is assessed by the Nomination and Remuneration Committee when the list of nominees to the Board of Directors is being drawn up, and is approved by the Moscow Exchange on a quarterly basis.

The Board of Directors may recognize a Director as independent even if the Director has signs of affiliation with the issuer. Alexander Shokhin, who has been on the Board of Directors for over ten years, is recognized as independent because he has an established reputation in the investment community, and the independence of his position does not raise any doubt. This decision is disclosed on our website at www.tmk-group.ru/bod/Shohin_Aleksandr_Nikolaevich

Professional Competence, Communication Skills, and Acknowledgement

Effective strategic management of TMK Group, one of the world’s leading producers of tubular products, requires a close-knit, highly professional team of directors committed to ethical principles of business conduct.

Members of the Board of Directors of PAO TMK are individuals capable of making independent judgements; they are distinguished for their impeccable business and personal reputation and possess all the required skills: more than half of the eleven directors have higher academic degrees, including two doctors of sciences. Nine directors received an economic education, two of them have also a technical education, and one director also has a management education; one director has a management education, and one – technical.

Six directors have received government awards – orders of the Russian Federation

Over the past six consecutive years, members of TMK’s Board of Directors have been consistently recognized among the best professionals in corporate governance by the Director of the Year National Awards held annually by the Independent Directors Association, Russian Union of Industrialists and Entrepreneurs, and PwC, jointly with the Moscow Exchange and Sberbank.

Members of TMK’s Board of Directors Peter O’Brien and Alexander Shokhin were ranked among the Top 50 Independent Directors. Dmitry Pumpyanskiy, Chairman of TMK’s Board of Directors, was included in the Top 25 ranking of Board of Directors Chairmen: www.nand.ru/professional-information/ ratings/rating-2018/#2

Directors’ Liability Insurance

Starting from 2006, TMK has insured the liability of its directors and officers. Liability insurance covers the insured persons against any possible damage caused by unintentional errors (or omissions) in the course of managing the Company. The terms and conditions of insurance contracts, including risk coverage, comply with the international best practice in insurance against similar risks.

CHANGES IN THE COMPOSITION OF THE BOARD OF DIRECTORS IN 2018

BY RESOLUTION OF THE GENERAL MEETING OF SHAREHOLDERS DATED JUNE 21, 2018, YAROSLAV KUZMINOV WAS ELECTED TO THE BOARD OF DIRECTORS AS AN INDEPENDENT DIRECTOR. INDEPENDENT DIRECTOR MIKHAIL ALEKSEEV LEFT THE BOARD OF DIRECTORS.

THE NUMBER OF MEMBERS OF THE BOARD OF DIRECTORS IS SPECIFIED IN PAO TMK’S ARTICLES OF ASSOCIATION AND EQUALS ELEVEN DIRECTORS, I.E. THE OPTIMAL NUMBER FOR PUBLIC COMPANIES.

AS AT 31 DECEMBER 2018, FOLLOWING THE ANNUAL GENERAL MEETING OF SHAREHOLDERS HELD ON JUNE 21, 2018, PAO TMK’S BOARD OF DIRECTORS WAS COMPOSED AS FOLLOWS:

Dmitry Pumpyanskiy

Dmitry Pumpyanskiy

Chairman of the Board of Directors, Non-Executive Director

Stake in the authorized capital of PAO TMK: 0.0063%

Principal employment: President of JSC Sinara Group

Born in 1964. Graduated from Kirov Urals Polytechnic Institute in 1986. Ph.D. in Technical Sciences, Doctor of Economics. Beneficial owner of TMK. Member of the Board of Directors since 2004, Chairman of the Board of Directors since 2005. Mr. Pumpyanskiy was awarded a second class Medal of the Order for Merit to the Fatherland, a fourth class Order for Merit to the Fatherland, and the Order of Honor, is a Russian Government prize winner in Science and Technology, received the title of Honored Metallurgist, and was declared the winner of the 6th Director of the Year National Award in the Chairman of the Board: Contribution to the Development of Corporate Governance category in 2011. At present, he is extensively involved in public activities aimed at promoting the Russian metals industry. Fields of interest: metals industry economics, and physics of metals. Author of four monographs and over 70 scientific papers.

Relevant experience in the last five years

Period Organization Position
2018 – present Non-Profit Association of Legal Entities Russian-American Council for Business Cooperation Deputy Chairman of the Board of Trustees, member of the Board of Trustees
2018 – present Russian Union of Industrialists and Entrepreneurs Chairman of the Committee on Technical Regulation, Standardization, and Compliance Assessment
2017 – present St. Catherine’s Charitable Foundation Foundation Board member
2016 – present Chamber of Commerce and Industry of the Russian Federation Board member
2015—2016 Russian Steel Association President
2015 – present Demidov Public Scientific Foundation (Yekaterinburg) Member of the Board of Trustees
2013 – present JSC Sinara – Transport Machines (STM) Member of the Board of Directors
2013 – present Non-Profit Organization Foundation for Development of the Center for Elaboration and Commercialization of New Technologies Board member
2013 – present ISTOKI Endowment Fund Member of the Board of Trustees
2013—2013 Rosagroleasing Joint Stock Company Member of the Board of Directors
2013—2013 Russian Agricultural Bank Chairman of the Supervisory Board
2013—2016 Chamber of Commerce and Industry of the Russian Federation Member of the Management Board
2013 – present Federation of Ski-Jumping and Nordic Combined of Russia Chairman of the Board of Trustees
2013 – present The Russian Olympians Foundation Foundation Board member, member of the Council of Trustees
2013 – present Ural Federal University named after the first President of Russia B.N. Yeltsin Chairman of the Supervisory Board
2013—2013 Ural Federal University named after the first President of Russia B.N. Yeltsin Member of the Supervisory Board
2013 – present Sverdlovsk Regional Union of Industrialists and Entrepreneurs (Regional Association of Employers) President
2013 – present Russian Union of Industrialists and Entrepreneurs (Non-governmental organization) Member of the Bureau, member of the Management Board
2013 – present Russian Union of Industrialists and Entrepreneurs (All-Russian association of employers) Member of the Bureau, member of the Management Board
2013 – present Joint-Stock Commercial Bank of Support to Commerce and Business Member of the Board of Directors
2013 – present PAO TMK Chairman of the Board of Directors
2013 – present World Steel Association Board member
2013 – present JSC Sinara Group President, Chairman of the Board of Directors
2013 – present Russian Steel Association (formerly, Non-Profit Partnership Russian Steel) Member of the Supervisory Board
Andrey Kaplunov

Andrey Kaplunov

Executive Director. Has been with PAO TMK since 2001, member of the Board of Directors since 2005

Stake in the authorized capital of PAO TMK: 0.0067%

Principal employment: First Deputy CEO of PAO TMK

Born in 1960. Graduated from Moscow Finance Institute in 1982 and later completed a postgraduate degree program there. Ph.D. in Economics. Commended by the Ministry of Industry and Trade of the Russian Federation.

Relevant experience in the last five years

Period Organization Position
2015 – present Orsky Machine Building Plant, Joint stock company Chairman of the Board of Directors
2013 – present Sinara Mini-Football Club (Sverdlovsk Regional Sports NonGovernmental Fund) Member of the Board of Trustees
2013 – present Joint Stock Company Interregional private BIG Pension Fund Member of the Board of Directors
2013 – present PAO TMK Member of the Board of Directors, First Deputy CEO, member of the Management Board
2013 – present AO Trade House TMK Chairman of the Board of Directors
2013 – present Seversky Pipe Plant, Public Joint stock company Chairman of the Board of Directors
2013 – present Volzhsky Pipe Plant, Joint stock company Chairman of the Board of Directors
2013 – present Taganrog Metallurgical Plant, Public Joint stock company Chairman of the Board of Directors
2013 – present Sinarsky Pipe Plant, Public Joint stock company Chairman of the Board of Directors
2013 – present Joint-Stock Commercial Bank of Support to Commerce and Business Member of the Board of Directors
2013 – present JSC Sinara Group Member of the Board of Directors
Sergey Kravchenko

Sergey Kravchenko

Independent Director, member of the Nomination and Remuneration Committee, member of the Strategy Committee, member of the Board of Directors since 2016

Holds no shares in PAO TMK

Principal employment: President of Boeing Russia/CIS

Born in 1960. Graduated from Moscow Auto-Mechanical Institute in 1982. Doctor of Engineering, Professor. Decorated with the Order of Friendship.

Relevant experience in the last five years

Period Organization Position
2018 – present PAO TMK Chairman of the Nomination and Remuneration Committee
2016 – present PAO TMK Member of the Board of Directors, member of the Strategy Committee
2013 – present The Boeing Company President of Boeing Russia/CIS, Vice President of Boeing International
Yaroslav Kuzminov

Yaroslav Kuzminov

Independent Director, member of the Nomination and Remuneration Committee, member of the Board of Directors since 2018

Holds no shares in PAO TMK

Principal employment:National Research University Higher School of Economics

Born in 1957. Graduated from Lomonosov Moscow State University in 1979. Ph.D. in Economics, Associate Professor. Mr. Kuzminov was awarded a third class Order for Merit to the Fatherland, a fourth class Order for Merit to the Fatherland, and the Order of Honor.

Relevant experience in the last five years

Period Organization Position
2018 – present PAO TMK Member of the Board of Directors, member of the Nomination and Remuneration Committee
2017 – present Autonomous Non-Profit Organization National Agency for Qualification Development Member of the Supervisory Board
2017 – present JSC Publishing House Prosveshcheniye Member of the Board of Directors
2017 – present Association of Global Universities Chairman of the Board
2015 – present All-Russia People’s Front Co-Chairman of the Moscow Regional Office
2015 – present Association of federal universities, national research universities, Lomonosov Moscow State University, and Saint Petersburg State University Association member
2014 – present Autonomous Non-Profit Organization Center for Expert Assessment of the Issues of the World Trade Organization Member of the Supervisory Board
2014 – present Association of the Leading Universities in Economics and Management Chairman of the Board
2014 – present Presidential Library named after B.N. Yeltsyn Member of the Academic Council
2013 – present Federal State Autonomous Educational Institution For Higher Professional Education National Research University Higher School Of Economics Rector
2013 – present Center for Strategic Research Board member
2013 – present Russian Union of Rectors Member of the Union
2013 – present Russian Engineering Union (All-Russia Industry Association of Employers) Member of the Management Board
2013 – present Non-Profit Partnership Russian International Affairs Council Member of the Partnership
2013 – present National Accreditation Council of Business and Management Education Member of the Rector Supervisory Board under the Presidium
2013 – present Federal State Autonomous Educational Institution for Higher Professional Education Ural Federal University named after the first President of Russia B.N. Yeltsin Member of the Supervisory Board
2013 – present Margarita Rudomino All-Russia State Library for Foreign Literature Member of the International Board of Trustees
Peter O’Brien

Peter O’Brien

Independent Director

Holds no shares in PAO TMK

Chairman of the Audit Committee, member of the Board of Directors since 2012. Born in 1969. Graduated from Duke University (USA) in 1991 and obtained an MBA from Columbia University Business School in 2000. Took a course in AMP (Advanced Management Program) at Harvard Business School in 2011. In 2008, Mr. O’Brien won the National Award of the Independent Directors Association in the Contribution to the Improvement of Corporate Transparency special category, and in 2017, he won the National Award of the Independent Directors Association as the best Chairman of the Audit Committee of the Board of Directors (Russia).

Relevant experience in the last five years

Period Organization Position
2018 – present PJSC SIBUR Holding Member of the Board of Directors
2017 – present Regalwood Global Energy (USA) Member of the Board of Directors
2017—2018 Sberbank CIB USA (New York) Member of the Board of Directors
2016—2018 PJSC TransContainer Member of the Board of Directors
2015—2018 PJSC T Plus Member of the Board of Directors, Chairman of the Audit Committee
2013 – present PAO TMK Member of the Board of Directors, Chairman of the Audit Committee
2013 – present TransFin-M PC Chairman of the Board of Directors
2013—2015 IG Seismic Services (IGSS) Independent director, Chairman of the Audit Committee
2013—2013 OJSC RusRailLeasing Chairman of the Board of Directors
2013—2013 HRT Participacoes Member of the Board of Directors, Chairman of the Audit Committee
2013—2016 CJSC European Pension Fund Member of the Fund’s Board of Trustees
Sergey Papin

Sergey Papin

Non-Executive Director, member of the Board of Directors since 2005, member of the Nomination and Remuneration Committee

Stake in the authorized capital of PAO TMK: 0.0044%

Principal employment: Vice President of JSC Sinara Group

Mr Papin was awarded a Badge of Honor and Order of Friendship, Gratitude from the President of the Russian Federation for labor achievements and many years of dedicated work, a Commemorative medal and diploma «XXII Olympic Winter Games, XI Paralympic Winter Games 2014 in Sochi «, Certificate of Merit of the Ministry of Industry and Energy of the Russian Federation, Certificate of Merit of the Russian Union of Industrialists and Entrepreneurs.

Relevant experience in the last five years

Period Organization Position
2018 – present PAO TMK Member of the Board of Directors, member of the Nomination and Remuneration Committee
2018 – present JSC Burgas Resort Chairman of the Board of Directors
2017—2018 PAO TMK Member of the Strategy Committee
2014—2016 JSC Kalugaputmash (formerly, OJSC Kalugaputmash) Member of the Board of Directors
2013—2017 PAO TMK Member of the the Nomination and Remuneration Committee
2013 – present LLC Ural Locomotives Member of the Board of Directors
2013 – present Russian Union of Industrialists and Entrepreneurs (Non-governmental organization) Member of the Management Board
2013 – present Russian Union of Industrialists and Entrepreneurs (All-Russian association of employers) Member of the Management Board
2013 – present JSC Burgas Resort Member of the Board of Directors
2013—2017 JSC Arkhyz – Sinara (formerly, OJSC Arkhyz – Sinara) Member of the Board of Directors
2013—2017 JSC Sinara – Transport Machines (STM) Member of the Board of Directors
2013 – present JSC Sinara – Transport Machines (STM) Member of the Board of Directors
2013 – present JSC Sinara Group Member of the Board of Directors
2013 – present PAO TMK Member of the Board of Directors
Alexander Pumpyanskiy

Alexander Pumpyanskiy

Non-Executive Director, member of the Audit Committee and the Strategy Committee. Member of the Board of Directors since 2017

Holds no shares in PAO TMK

Principal employment: Managing Director of Lera Capital SA

Born in 1987. Graduated from the University of Geneva with a degree in Business Management in 2008, and obtained a Master’s degree in Economics at the University of Geneva in 2015.

Relevant experience in the last five years

Period Organization Position
2018 – present OFSI Holding LLC Member of the Board of Directors
2018 – present Domus Flavia Investments AG Administrator
2018 – present IPSCO Tubulars Inc. Member of the Board of Directors
2018 – present Sinara Capital Management SA Managing Director
2017 – present PAO TMK Member of the Board of Directors, member of the Audit Committee, member of the Nomination and Remuneration Committee
2017 – present Banks’ Association RUSSIA Board member
2017 – present OFS International LLC Member of the Board of Directors
2017 – present Oak Town Real Estate SA Chairman of the Board of Directors, Administrator
2016 – present Joint-Stock Commercial Bank of Support to Commerce and Business Chairman of the Board of Directors
2016 – present TMK STEEL HOLDING LIMITED Member of the Board of Directors
2016 – present Lera Capital SA Managing Director, Investment Portfolio Manager
2014—2016 Joint-Stock Commercial Bank of Support to Commerce and Business Deputy Chairman of the Board of Directors
2014 – present JSC Sinara Group Member of the Board of Directors
2013 – present Segilo AG Member of the Board of Directors
2013—2016 Sinara Capital Management Investment Analyst
2013—2014 Open Joint-Stock Commercial Bank of Support to Commerce and Business Member of the Board of Directors
Robert Mark Foresman

Robert Mark Foresman

Independent Director, member of the Audit Committee, member of the Board of Directors since 2012

Holds no shares in PAO TMK

Principal employment: Vice Chairman of UBS Investment Bank

Born in 1968. Graduated from Bucknell University (USA) in 1990 and Harvard University Graduate School of Arts and Sciences in 1993. Obtained a certificate from Moscow Power Engineering Institute in 1989.

Relevant experience in the last five years

Period Organization Position
2018 – present PAO TMK Member of the Board of Directors, member of the Audit Committee
2016 – present UBS Investment Bank Vice Chairman
2017 – present OOO UBS Bank Chairman of the Board of Directors
2014—2016 Barclays Plc Head of Barclays in Russia
2013—2018 PAO TMK Member of the Board of Directors, member of the Nomination and Remuneration Committee
2013–2013 OOO Barclays Capital President
2013—2013 LLC Investment Company of Vnesheconombank (VEB Capital) Member of the Supervisory Board
Anatoly Chubais

Anatoly Chubais

Non-Executive Director, member of the Strategy Committee, member of the Board of Directors since 2015

Holds no shares in PAO TMK

Principal employment: Chairman of the Management Board of LLC RUSNANO Management Company

Born in 1955. Graduated from the Palmiro Togliatti Leningrad Institute of Engineering and Economics in 1977 and the School of Advanced Training of Moscow Power Engineering Institute in 2002. Ph.D. in Economics. Decorated with a third class and fourth class Order for Merit to the Fatherland, a Medal for Merit to the Chechen Republic, and a first class Medal for Special Contribution to the Development of Kuznetsk Basin. Three times commended by the President of Russia (in 1995, 1997, and 1998).

Relevant experience in the last five years

Period Organization Position
2018 – present Non-Profit Association of Legal Entities Russian-American Council for Business Cooperation Member of the Board of Trustees
2015 – present PAO TMK Member of the Board of Directors, member of the Strategy Committee
2015 – present Innovation and R&D Directors Club Member of the Supervisory Board
2015 – present National Association of Manufacturers of Building Materials, Products, and Structures Member of the Supervisory Board
2014 – present LLC RUSNANO Management Company Member of the Management Board, member of the Board of Directors
2013 – present LLC RUSNANO Management Company Chairman of the Management Board
2013 – present Hospice Charity Fund Vera Member of the Board of Trustees
2013 – present Tri Alpha Energy, Inc. Member of the Board of Directors
2013 – present Far Eastern Federal University Member of the Supervisory Board
2013 – present International Advisory Board of the Higher School of Management, Saint Petersburg State University Member of the Advisory Board
2013 – present Southern Federal University Member of the Advisory Board
2013 – present Advanced Research Foundation Member of the Advisory Board
2013 – present Non-Profit Partnership Russian Nanoindustry Association Member of the Advisory Board
2013 – present Stupeni Charitable Foundation Founder
2013 – present Non-Profit Organization RUSNANO School League Chairman of the Board of Trustees
2013–2015 Global Board of Advisers at the Council on Foreign Relations Board member
2013 – present Limited Liability Company RusnanoMedInvest Member of the Board of Directors, Chairman of the Board of Directors
2013–2018 Presidential Council for Economic Modernization and Innovative Development of the Russian Federation Council member
2013 – present Limited Liability Company NovaMedica Member of the Board of Directors, Chairman of the Board of Directors
2013 – present Coordination Board of the MICEXRTS Innovation and Investment Market Chairman of the Board
2013 – present Polytechnic Museum Deputy Chairman of the Board of Trustees
2013 – present Autonomous Non-Profit Organization ELearning for Nanoindustry (eNano) Member of the Supervisory Board
2013–2018 National Council on Corporate Governance Board member
2013–2015 Stichting Joule Global Foundation Member of the Board of Directors
2013–2015 Joule Global Holdings B.V. Member of the Board of Directors
2013 – present Joint Stock Company RUSNANO (formerly, Open Joint Stock Company RUSNANO) Member of the Board of Directors
2013–2014 Open Joint Stock Company RUSNANO Chairman of the Management Board, member of the Management Board
2013–2017 CJSC Sarov Technopark Member of the Board of Directors
2013 – present Moscow Institute of Physics and Technology (State University) Head of the Inter-Faculty Basic Department of Technology Entrepreneurship
2013 – present Non-Profit Organization Foundation for Development of the Center for Elaboration and Commercialization of New Technologies Board member
2013 – present Yegor Gaidar Foundaiton Chairman of the Board of Trustees
2013 – present Infrastructure and Educational Program Foundation Member of the Supervisory Board, Chairman of the Management Board, member of the Management Board
2013–2015 Rusnano Capital AG Chairman of the Board of Directors
2013 – present Boris Yeltsin Presidential Center Foundation Member of the Board of Trustees
2013 – present Moscow Theater School of the Modern Play Chairman of the Board of Trustees
2013 – present Russian Union of Industrialists and Entrepreneurs (Non-governmental organization) Member of the Bureau, member of the Management Board, Chairman of the Committee on Innovative Entrepreneurship
2013 – present Russian Union of Industrialists and Entrepreneurs (All-Russian association of employers) Member of the Bureau, member of the Management Board, Chairman of the Committee on Innovative Entrepreneurship
2013 – present Round Table of Russian and European Industrialists Co-Chairman
Alexander Shiryaev

Alexander Shiryaev

Executive Director, member of the Strategy Committee. Has been with PAO TMK since 2003, member of the Board of Directors since 2005

Stake in the authorized capital of PAO TMK: 0.015%

Principal employment: CEO of PAO TMK

Born in 1952. Graduated from the Sverdlovsk Institute of National Economy in 1991. Mr. Shiryaev was awarded by the Sverdlovsk Region with a second and third class Badge of Merit, received the title of Honored Metallurgist, and is a Russian Government prize winner in Science and Technology (2018).

Relevant experience in the last five years

Period Organization Position
2017 – present PAO TMK Member of the Strategy Committee
2016 – present DОО VIZAVI CEO
2013 – present Orsky Machine Building Plant, Joint stock company Member of the Board of Directors
2014–2015 Orsky Machine Building Plant, Joint stock company Chairman of the Board of Directors
2013 – present AO Trade House TMK Member of the Board of Directors
2013 – present Seversky Pipe Plant, Public Joint stock company Member of the Board of Directors
2013–2015 OAO TMK Member of the Strategy Committee
2013 – present PAO TMK Member of the Board of Directors, Chairman of the Management Board, CEO
2013 – present Volzhsky Pipe Plant, Joint stock company Member of the Board of Directors
2013 – present Taganrog Metallurgical Plant, Public Joint stock company Member of the Board of Directors
2013 – present Sinarsky Pipe Plant, Public Joint stock company Member of the Board of Directors
2013 – present JSC Sinara Group Member of the Board of Directors
Alexander Shokhin

Alexander Shokhin

Independent Director, Chairman of the Strategy Committee, member of the Board of Directors since 2008

Holds no shares in PAO TMK

Principal employment: President of the Russian Union of Industrialists and Entrepreneurs

Born in 1951. Graduated from Lomonosov Moscow State University in 1974. Doctor of Economics, Professor. Mr. Shokhin was awarded a third and fourth class Orders for Merit to the Fatherland, an Order of Alexander Nevsky, Order of Honor, and a number of public and government awards, including a second class Order of Holy Prince Daniel of Moscow and a medal in commemoration of the 850th Anniversary of Moscow. In 2008, won the National Award of the Independent Directors Associations in the Independent Director category.

Relevant experience in the last five years

Period Organization Position
2016 – present Autonomous Non-Profit Organization Agency for Technological Development Member of the Supervisory Board
2016 – present Chamber of Commerce and Industry of the Russian Federation Board member
2013 – present PAO Mechel Deputy Chairman of the Board of Directors
2015 – present JSC RSMB Corporation Member of the Board of Directors
2014–2016 JSC United Transport and Logistics Company Member of the Board of Directors
2013 – present OOO Merrill Lynch Securities Advisor
2013–2014 OJSC Alrosa OJSC Alrosa
2013 – present PAO TMK Member of the Board of Directors, Chairman of the Strategy Committee
2013 – present Eurasia Drilling Company Limited Member of the Board of Directors
2013–2014 JSC RZD Member of the Board of Directors
2013–2013 OJSC Baltika Breweries Member of the Board of Directors
2013–2013 TNK BP Limited Member of the Board of Directors
2013–2014 OJSC Fortum Member of the Board of Directors
2013–2013 OJSC LUKOIL Member of the Board of Directors
2013 – present Agency for Strategic Initiatives Member of the Supervisory Board
2013 – present Russian Union of Industrialists and Entrepreneurs (Non-governmental organization) President, member of the Bureau, member of the Management Board
2013 – present Russian Union of Industrialists and Entrepreneurs (All-Russian association of employers) President, member of the Bureau, member of the Management Board
2013 – present National Research University Higher School of Economics President
2013 – present Non-Profit Association of Legal Entities Russian-American Council for Business Cooperation Chairman of the Board of Trustees
2013 – present Non-Profit Partnership National Council on Corporate Governance Member of the Partnership, member of the Presidium
2013 – present German-Russian Chamber of Commerce Board member
Maxim Kurbatov

Maxim Kurbatov

Secretary of the Board of Directors (Corporate Secretary)

Principal employment: has been the Secretary of the Board of Directors since 2005

Born in 1967. Graduated from Kirov Urals Polytechnic Institute, the Academy of National Economy under the Government of the Russian Federation, and Moscow State Law Academy. Has been with PAO TMK since 2002. Headed the CEO’s Executive Office and the Corporate Governance function.

PERFORMANCE OF THE BOARD OF DIRECTORS IN 2018

Meetings of the Board of Directors are held in accordance with an approved plan; agendas of the meetings are disclosed in advance to all stakeholders as corporate action notices. Members of the Board of Directors have all they need to adequately prepare for the meetings, including materials that are distributed beforehand.

In 2018, the Board of Directors held 24 meetings, including eight meetings in person.

Directors’ attendance at meetings of the Board of Directors and relevant Board Committees in 2018

Board of
Directors
Audit
Committee
Nomination and
Remuneration
Committee
Strategy
Committee
(24 meetings) (8 meetings) (5 meetings) (5 meetings)
Dmitry Pumpyanskiy (Chairman) 24
Mikhail Alekseev 9 (9)* 2 (4) 2 (2)
Andrey Kaplunov 24
Sergey Kravchenko 24 3 (3) 3
Yaroslav Kuzminov 14 (15) 3 (3)
Peter O’Brien 24 8
Sergey Papin 24 3 (3) 1 (2)
Robert Mark Foresman 24 4 (4) 2 (2)
Alexander Pumpyanskiy 24 8 2 (2) 3 (3)
Anatoly Chubais 22
Alexander Shiryaev 24 5
Alexander Shokhin 24 5

* Bracketed figures denote the number of meetings held during the period when a Director served on the Board of Directors and on the relevant Board Committee.

THE MOST IMPORTANT MATTERS DISCUSSED AT THE MEETINGS OF PAO TMK’S BOARD OF DIRECTORS INCLUDED:

  • Target structure of the TMK Group for 2019
  • Consolidated budget for 2019
  • Management reports and consolidated financial statements
  • Performance of the Board of Directors’ Committees
  • Results of the performance evaluation of the Board of Directors and its Committees in 2017-2018 corporate year
  • Remuneration of the Company’s managers for 2017, key performance indicators and remuneration arrangements for 2018
  • Approval of TMK’s Long-Term Top Management Incentive Program
  • Recommendations to the General Meeting of Shareholders on the final dividend for 2017
  • Selection of the Company’s auditor
  • Election of the Chairman of the Board of Directors, members of the Board of Directors’ Committees; approval of the Company’s governing bodies
  • Schedule of activities for the Company’s Board of Directors
  • Implementation of the Board of Directors’ resolutions
  • Submission for consideration of the General Meeting of shareholders of new versions of the Company’s Articles of Association, the Regulations on the General Meeting of Shareholders, and the Regulations on the Board of Directors
  • Approval of new versions of the information policy and the dividend policy
  • Performance of the Internal Audit Service in 2018
  • HSE situation at TMK Group’s facilities
  • Performance of the Company’s American division in 2017, 1H 2018 and 1Q 2018, as well as guidance for 4Q 2018 and 1Q 2019
  • Performance of the Company’s European division in 9M 2018
  • TMK’s participation in I’m a Professional, an association of student competition organizers
  • Approval of the Buyback Program for 2018–2019 to repurchase PAO TMK shares and GDRs

REMUNERATION OF THE BOARD OF DIRECTORS

In accordance with the legislation of the Russian Federation, the General Meeting of Shareholders may resolve to pay members of the Board of Directors remuneration reflecting the time and effort commitment of Directors to the preparation of, and participation in, meetings of the Board of Directors and its Committees.

The Board of Directors’ remuneration scheme evolves in line with the latest best practices in corporate governance and is now fully compliant with the Russian Corporate Governance Code (see paragraphs 4.1 and 4.2 of Appendix to this Report):

  • The Policy on Remuneration and Compensation of the Board of Directors of PAO TMK describes the Company’s approaches to remuneration and regulates all types of payments and compensation due to members of the Board of Directors
  • The Board of Directors, supported by the Nomination and Remuneration Committee, monitors compliance with the Policy
  • The levels of remuneration are adequate to attract directors with required qualifications and responsibility
  • Annual remuneration is a fixed payment linked to the performance of main duties and additional responsibilities as a director (who is not an executive of the Company) inherent to the roles of Chairman of the Board of Directors, Chairman of the Board of Directors’ Committee, and member of the Board of Directors’ Committee
  • The amount of remuneration and reimbursable expenses is subject to preliminary approval by the Board of Directors and is based on recommendations made by the Nomination and Remuneration Committee

Remunerations and reimbursements for members of the Board of Directors of PAO TMK, $ million

2016 2017 2018
Remuneration for service on the Board of Directors and its Committees 2.26 2.52 2.35
Reimbursement of expenses 0.14 0.22 0.22
Other remuneration 0 0 0
Total 2.4 2.74 2.57

The Board of Directors has three standing committees: the Audit Committee, the Nomination and Remuneration Committee, and the Strategy Committee. The committees have been formed in compliance with PAO TMK’s Corporate Governance Code, which specifically requires that the Audit Committee and the Nomination and Remuneration Committee include independent directors only, or, where it is not reasonably possible, comprise independent directors and non-executive directors only. The Board of Directors also seeks to strike the optimal balance of Directors’ roles, ensure the necessary professional excellence, experience, and age balance of the Committee membership, as well as regular re-election and continuity of their functions.

By resolution of the Board of Directors dated June 22, 2018, the Nomination and Remuneration Committee was fully re-elected, and a new independent director was elected to the Audit Committee. Each of the two Committees includes a non-executive director – Sergey Papin (63, Nomination and Remuneration Committee) who has extensive professional experience and knowledge of TMK’s business profile, and Alexander Pumpyanskiy (31, Audit Committee) who is highly qualified and has received modern education enabling him to apply best practices in his work. Therefore, the actual structure of the Audit Committee and the Nomination and Remuneration Committee consists of two independent directors and one non-executive director, that contributes to the Committees’ efficient performance.

Changes to the membership of the Board of Directors’ Committees in 2018 (following the Annual General Meeting of Shareholders)

Committee members newly elected on June 21, 2018 Committee composition as at December 31, 2018 Stepped down on June 21, 2018
Robert Mark Foresman Audit Committee
Peter O’Brien
Chairman, Independent Director

Robert Mark Foresman
Independent Director

Alexander Pumpyanskiy
Non-Executive Director
Mikhail Alekseev
Sergey Kravchenko

Yaroslav Kuzminov

Sergey Papin
Nomination and Remuneration Committee
Sergey Kravchenko
Chairman, Independent Director

Yaroslav Kuzminov
Independent Director

Sergey Papin
Non-Executive Director
Mikhail Alekseev

Alexander Pumpyanskiy

Robert Mark Foresman
Alexander Pumpyanskiy Strategy Committee
Alexander Shokhin
Independent Director

Sergey Kravchenko
Independent Director

Anatoly Chubais
Non-Executive Director

Alexander Pumpyanskiy
Non-Executive Director

Alexander Shiryaev
Executive Director
Sergey Papin

AUDIT COMMITTEE

Performance Report of the Audit Committee of PAO TMK’S Board of Directors

This report details the performance of the Audit Committee of PAO TMK’s Board of Directors (the Committee) in 2018 and between January 01, 2019 and March 31, 2019.

Peter O’Brien

Peter O’Brien

Chairman of the Audit Committee

Key Roles:

  • Review completeness, accuracy and reliability of consolidated financial and standalone accounting statements of PAO TMK
  • Assess external auditors for independence, objectivity, and absence of conflicts of interest; oversee external audits and audit quality
  • Monitor the risk management and internal control system for reliability and effectiveness
  • Safeguard the independence and objectivity of internal audits, monitor and assess the internal audit function’s performance
  • Monitor the effectiveness of the corporate-wide whistleblowing system (including failures to comply with the anti-corruption and insider laws)

The full list of the Committee roles is set out in the Regulations on the Audit Committee of PAO TMK (http://www.tmk-group.ru/Documents)

Сompetencies

Each Committee member has knowledge and experience required to perform their duties. All Committee members comply with the Russian Corporate Governance Code recommendations for the reporting review and assessment competencies.

Assessment

The Committee’s performance was assessed by an external advisor as part of independent assessment of the Board of Directors’ performance. The advisor noted that the Chairman of the Committee possessed all required qualifications relating to accounting and financial statements, the Company’s financial and business performance monitoring, and internal and external audit. The advisor also noted that the Committee’s objectives set out in the Regulations on the Committee comply with best practices in corporate governance. The advisor recommended to increase the Committee membership taking into account the number, diversity, and complexity of its tasks.

Meetings

The Audit Committee held eight meetings in 2018 and three meetings between January 01, 2019 and March 31, 2019. Members of the Committee also had several meetings with the head of the Internal Audit Service, and the leader of the external audit team, held without participation of the Company’s executives.

Key Activities

In 2018 and between January 01, 2019 and March 31, 2019, the Committee addressed the following key issues:

  • Review of the Company’s accounting (financial) statements for completeness, accuracy, and reliability
  • Review of the plans and reports of the Internal Audit Service, performance assessment of the internal audit function
  • Cooperation with the Revision Committee
  • Review of the audit plan and scope, review of the terms of audit services
  • Performance assessment of TMK’s risk management and internal control systems, and the internal audit function
  • Monitoring of the Company’s anti-corruption efforts in 2018

The Committee heard reports of the heads of the Revision Committee, Internal Audit Service, Risk Management Committee, and the CEO’s Committee on Regulating Compliance Risks, as well as the Chief Accountant’s report. The Audit Committee gave a positive assessment of the current internal control and risk management system.

The Committee reviewed the following key matters regarding the preparation and audit of PAO TMK’s consolidated and separate accounting (financial) statements:

  • Preparation of the audit plan for consolidated financial statements of TMK Group under the International Financial Reporting Standards (IFRS)
  • Status and results of an audit of consolidated financial statements of TMK Group prepared under IFRS, and PAO TMK’s accounting (financial) statements prepared under the Russian Accounting Standards (RAS)
  • External auditor’s recommendations on PAO TMK’s accounting (financial) statements based on the results of the annual audit; assessment of the Company’s existing controls for the preparation of accounting (financial) statements
  • Performance assessment of the external auditor and the quality of audit services

Based on the results of its oversight of the external audit exercise, the Audit Committee concluded that the audit had been carried out to professional standards.

The Audit Committee reviewed PAO TMK’s accounting statements for 2018 prepared under RAS and the consolidated IFRS financial statements of PAO TMK for 2018, and recommended that the Board of Directors approve them.

NOMINATION AND REMUNERATION COMMITTEE

Sergey Kravchenko

Sergey Kravchenko

Chairmen of the Nomination and Remuneration Committee

In accordance with the Regulations on the Committee (http://www.tmk-group.ru/media_ru/files/51/2016_09_15_Polozhenie_o_Komitete_po_naznacheniyam_i_voznagrazhdeniyam_SD_PAO_TMK.pdf) , its goal is to enhance the efficiency of the Board of Directors’ decision-making on remuneration, and HR policy development and implementation; ensure the competent composition and efficiency of the Board of Directors; and enhance the corporate governance framework through previewing the above mentioned matters.

I. COMMITTEE’S KEY PRIORITIES IN 2018:

  • Management appointments and succession planning
  • Implementation of corporate governance best practices
  • Personnel engagement assessment
  • HR support of the Company’s digital transformation
  • Organization of activities and further development of TMK2U Corporate University
  • Introduction of new incentive schemes and programs
  • Granular formalized external assessment of the Board of Directors and its Committees in terms of their overall efficiency and Directors’ personal contribution to the activities of the Board of Directors and its Committees
  • Preparation of recommendations to the Board of Directors on the improvement of the procedures of the Board of Directors and its Committees

II. СOMMITTEE’S MEETINGS

In 2018, the Committee held five meetings. The meetings were regularly attended by the Company’s top executives and top managers, which facilitated efficient communication and resulted in more balanced and constructive recommendations.

THE COMMITTEE PRESENTED TO THE BOARD OF DIRECTORS RECOMMENDATIONS ON THE FOLLOWING KEY MATTERS:

  • Composition of PAO TMK’s governing bodies and the Committees of the Board of Directors
  • Directors’ independent status
  • Remuneration of the Company’s managers for 2017, key performance indicators and remuneration arrangements for 2018
  • HR support of the Company’s digital transformation, changes in the organizational structure and management composition due to the implementation of digital transformation projects
  • Key headcount and payroll indicators for the budget, and their monitoring
  • Monitoring the organizational and HR structure in TMK Group’s divisions
  • Role of HR in ensuring health and safety across TMK Group’s facilities
  • Financial incentive scheme implemented in TMK IPSCO, including the long-term incentive program and its potential IPO-related amendments
  • Update of the Company’s internal regulations, including the Code of Ethics
  • Activities of PAO TMK’s Corporate University
  • Personnel engagement assessment and its results
  • Performance assessment of the Board of Directors in the reporting corporate year

The Committee regularly held meetings with newly appointed top managers and with the talent pool for top management positions. These meetings were dedicated to the discussion of professional development, career planning, responsibility areas, objectives, key risks associated with the business line the manager heads, the specifics of relations with diverse personnel categories, corporate culture development, etc. The Committee’s resolutions noted that the meetings had been efficient and positive, and underlined the need to further develop this practice through engaging managers from the talent pool in the meetings of the Nomination and Remuneration Committee. The Committee put a strong focus on TMK2U Corporate University. The Committee requested and received information on assessment best practices, in-person and distance education for the Company’s personnel, engagement with PAO TMK’s plants and third party partners, development of corporate professional standards, and organization of professional excellence contests and competitions, as well as other events. The Committee did not commission services from third party organizations during 2018, no costs associated with such services or with technical support for the Committee’s activities were incurred.

The Committee’s performance was assessed as part of the independent assessment of the Board of Directors’ performance. The Committee members were considered to possess the required skills in HR management, including qualification assessment, personal and professional growth, and employee performance and motivation. The continuity of the Committee’s decisions and recommendations were also noted, as well as personnel development activities, in particular those targeting young professionals.

Future activities of the Committee:

  • Digital transformation of the Company
  • Best practices in personnel motivation
  • Further improvement of the corporate governance framework

STRATEGY COMMITTEE

Alexander Shokhin

Alexander Shokhin

Chairmen of the Strategy Committee

In the course of an independent assessment by a consultant, it was noted, that given the scale of TMK’s business, the creation and activities of the Strategic Committee are essential for the Company. The Strategic Committee is composed only of members of the Board of Directors. The Committee’s directors have competences in the field of strategic management, in the field of information and innovative technologies, as well as international business experience.

The Committee is governed by the Regulations on the Strategy Committee of PAO TMK www.tmk-group.ru/Documents.

The Committee’s roles include making recommendations to the Board of Directors on the Company’s business priorities and growth strategy.

In 2018, the Committee held five meetings and reviewed and made recommendations to the Board of Directors on the following key matters:

  • Key indicators for TMK Group’s 2019 budget
  • TMK Group’s target structure for 2019
  • Large diameter pipe sales organization and sales plans
  • TMK Group’s management reports
  • Recommendations on dividend distribution in line with the Company’s dividend policy
  • Performance of TMK’s European and American divisions

We have been performing assessments of our corporate governance framework and the Board of Directors’ performance since 2006. It is an important tool to determine the Board of Directors’ efficiency and develop approaches to its performance improvement.

Regular performance assessment of the Board of Directors, its Committees, and members of the Board of Directors demonstrates TMK’s commitment to best practices in corporate governance. In line with the Russian Corporate Governance Code, an external assessment of the Board of Directors’ performance by an external advisor is carried out every three years.

In the 2018/2019 corporate year, the Board of Directors’ performance was assessed by an independent external advisor (the Advisor).

The following data collection and analysis tools were used for the assessment:

  • Analysis of internal documents regulating the performance of TMK and its Board of Directors, and publicly available information on the activities of TMK and its Board of Directors
  • Questionnaire-based surveys of the Chairman and members of the Board of Directors
  • Analysis of director details
  • Analysis of the information on the Board of Directors’ resolutions
  • Benchmark of specific aspects of the Board of Directors’ performance against corporate governance practices in peer companies

Based on the analysis of information received from the members of the Board of Directors, the Board of Directors’ resolutions in the reporting period, the key aspects of annual financial performance including in 2018, as well as the disclosed information, the Advisor considered the performance of PAO TMK’s Board of Directors efficient and compliant with the vast majority of the Russian Corporate Governance Code recommendations.

During the independent assessment, the Advisor emphasized the following aspects:

  • The Board of Directors’ efficiency in key matters such as planning and monitoring TMK’s performance, corporate governance including investor communications, and personnel development
  • Sufficiency of directors’ skills and a strong succession pipeline ensuring awareness and engagement in corporate governance
  • Engagement and interest of independent directors who made proposals aimed at improving the Board of Directors’ performance
  • High level of organization of the Board of Directors’ and the Corporate Secretary’s activities such as planning meetings, reviewing the majority of matters and the most important matters at meetings held in person, previewing key matters at relevant Committee meetings prior to passing respective resolutions at the Board of Directors’ meetings
  • Professional excellence of the Chairman of the Board of Directors, including regular monitoring of the implementation of the Board of Directors’ resolutions
  • Overall high level of corporate governance at TMK

PAO TMK’s day-to-day operations are managed by the CEO and the Management Board. The CEO also acts as the Chairman of the Management Board.

Composition of the Management Board

On June 21, 2018, the Company’s Management Board comprising eight members was elected by the Board of Directors. In August 2018, the Board of Directors approved the reduction in the number of the Management Board members to seven after Alexander Klachkov stepped down from the Management Board.

As at December 31, 2018, the Management Board comprised the following members:

Alexander Shiryaev

Alexander Shiryaev

Chief Executive Officer of PAO TMK, Chairman of the Management Board. 0,015%

Stake in the authorized capital of PAO TMK

See the Board of Directors section for biographical details.

Andrey Kaplunov

Andrey Kaplunov

First Deputy CEO of PAO TMK. 0,0067%

Stake in the authorized capital of PAO TMK

See the Board of Directors section for biographical details.

Andrey Zimin

Andrey Zimin

Deputy CEO for Legal Issues of PAO TMK

Stake in the authorized capital of PAO TMK: 0.000072%.

Born in 1980. Graduated from the Moscow State Institute of International Relations in 2003. Has been with TMK since 2004.

Relevant experience in the last five years

Period Organization Position
2018 – present Completions Development S.a r.l. Director
2018 – present Powerstream Holdings Limited Member of the Board of Directors
2016 – present PAO TMK Member of the Management Board
2016 – present OFS Development SARL Member of the Board of Directors
2015 – present Completions Research AG Member of the Board of Directors
2013 – present TMK Bonds SA Member of the Board of Directors
2014 – present COURSE MANAGEMENT CORP Member of the Board of Directors
2014 – present TMK Gulf International Pipe Industry LLC. Member of the Board of Directors
2013 – present TMK Holdings SARL Member of the Board of Directors
2013 – present Capitoline Holdings Limited Member of the Board of Directors
2013 – present PAO TMK Deputy CEO for Legal Issues
2013–2014 TMK Africa Tubulars Member of the Board of Directors
2013 – present Sinarsky Pipe Plant, Public Joint stock company Member of the Board of Directors
2013 – present AO Trade House TMK Member of the Board of Directors
2013 – present Seversky Pipe Plant, Public Joint stock company Member of the Board of Directors
2013 – present Volzhsky Pipe Plant, Joint stock company Member of the Board of Directors
2013 – present Taganrog Metallurgical Plant, Public Joint stock company Member of the Board of Directors
2013 – present Orsky Machine Building Plant, Joint stock company Member of the Board of Directors
2013 – present AO TMK-CPW Member of the Board of Directors
2013 – present SC TMK-ARTROM Member of the Board of Directors
2013 – present SC TMK-Resita SA Member of the Board of Directors
2013 – present ТМК Global AG Member of the Board of Directors
2013 – present TMK Middle East Chairman of the Board of Directors, member of the Board of Directors
2013–2014 TMK North America Inc. Member of the Board of Directors
2013 – present Rockarrow Investment Limited Member of the Board of Directors
2013 – present IPSCO Tubulars Inc. Member of the Board of Directors
2013–2014 JSC Volgograd River Port Member of the Board of Directors
Vladimir Oborsky

Vladimir Oborsky

CEO of AO Trade House TMK

Stake in the authorized capital of PAO TMK: 0.00075%.

Born in 1961. Graduated from Frunze Kiev Higher Combined-Arms Command Academy in 1982 and Frunze Military Academy in 1994, obtained an MBA from International University in Moscow in 2009. Ph.D. in Economics. Decorated with a Medal for Battle Merit and an Order of Military Merit, awarded a Certificate of Merit from the Ministry of Industry and Trade of the Russian Federation.

Relevant experience in the last five years

Period Organization Position
2017 – present Pipe Producers Association Member of the Coordination Board
2013 – present AO Trade House TMK CEO
2013–2016 AO Trade House TMK Member of the Board of Directors
2013 – present AO TMK-CPW Member of the Board of Directors
2015 – present PAO TMK, part-time Executive Director, First Deputy CEO
2013–2015 OAO TMK, part-time Deputy CEO for Sales
2013 – present PAO TMK Deputy CEO for Sales
Tigran Petrosyan

Tigran Petrosyan

Deputy CEO for Economy and Finance of PAO TMK

Stake in the authorized capital of PAO TMK: 0.0016%.

Born in 1968. Graduated from Yerevan State University in 1993. Awarded a Certificate of Merit from the Ministry of Industry, Science, and Technologies of the Russian Federation.

Relevant experience in the last five years

Period Organization Position
2013 – present Orsky Machine Building Plant, Joint stock company Member of the Board of Directors
2013 – present AO Trade House TMK Member of the Board of Directors
2013 – present PAO TMK Deputy CEO for Economy and Finance, member of the Management Board
2013 – present AO Trade House TMK, part-time Deputy CEO for Economy and Finance
2013 – present Seversky Pipe Plant, Public Joint stock company Member of the Board of Directors
2013 – present Volzhsky Pipe Plant, Joint stock company Member of the Board of Directors
2013 – present Taganrog Metallurgical Plant, Public Joint stock company Member of the Board of Directors
2013 – present Sinarsky Pipe Plant, Public Joint stock company Member of the Board of Directors
Vyacheslav Popkov

Vyacheslav Popkov

First Deputy CEO – Chief Engineer (Industrial Engineering Unit) of PAO TMK

Stake in the authorized capital of PAO TMK: 0.0015%.

Born in 1965. Graduated from Kirov Urals Polytechnic Institute in 1992 and Financial University under the Government of the Russian Federation in 2011. Received an MBA from Ural State Technical University named after the first President of Russia B.N. Yeltsin in 2009. Decorated with a second class Medal of the Order for Merit to the Fatherland, awarded Certificates of Merit from the Ministry of Industry and Trade of the Russian Federation and the Ministry of Industry and Science of the Sverdlovsk Region, an Honorary Diploma of the Sverdlovsk Region Government; an Honored Metallurgist and Honorary TMK Employee.

Relevant experience in the last five years

Period Organization Position
2018 – present PAO TMK First Deputy CEO – Chief Engineer (Industrial Engineering Unit), member of the Management Board
2017–2018 PAO TMK First Deputy CEO (Industrial Engineering Unit), member of the Management Board
2017–2017 PAO TMK Deputy CEO for Operations
2017 – present Seversky Pipe Plant, Public Joint stock company Member of the Board of Directors
2017 – present Taganrog Metallurgical Plant, Public Joint sctock company Member of the Board of Directors
2017 – present Volzhsky Pipe Plant, Joint stock company Member of the Board of Directors
2017 – present Orsky Machine Building Plant, Joint stock company Member of the Board of Directors
2016–2017 LLC TMK-INOX CEO
2013 – present Sinarsky Pipe Plant, Public Joint stock company Member of the Board of Directors
2013–2017 PAO TMK Managing Director of Sinarsky Pipe Plant, Public Joint stock company
2013–2013 ОJSC Sinarsky Pipe Plant CFO
Vladimir Shmatovich

Vladimir Shmatovich

Deputy CEO for Strategy and Business Development of PAO TMK

Holds no shares in PAO TMK.

Born in 1964. Graduated from Moscow Finance Institute in 1989 and received an MBA from the University of Notre Dame (USA) in 1993. Awarded a Certificate of Merit from the Ministry of Industry and Trade of the Russian Federation and a Tsiolkovsky Medal, received the titles of OJSC Udmurtneft’s Honored Oil Specialist and Honorary TMK Employee.

Relevant experience in the last five years

Period Organization Position
2018 – present IPSCO Tubulars Inc. Member of the Board of Directors
2014–2018 Completions Development S.а r.l. Director
2014–2016 TMK Completions Ltd. Director
2013– 2014 Open Joint-Stock Commercial Bank of Support to Commerce and Business Member of the Board of Directors
2013–2016 OFS Development SARL Member of the Board of Directors
2013 – present TMK Gulf International Pipe Industry LLC Chairman of the Board of Directors
2013 – present Lhoist – TMK B.V. Member of the Board of Directors
2013 – present PAO TMK Deputy CEO for Strategy and Business Development, member of the Management Board

As at December 31, 2018, the members of the Management Board held no interest in controlled entities.

In 2018, the members of the Management Board did not enter into any transactions to acquire, or dispose of, PAO TMK shares.

Remuneration of Members of the Management Board and other Key Executives

The Company’s Policy on Remuneration of Key Executives of PAO TMK is focused on motivating employees to deliver on tasks and action plans, as well as ensuring the Company’s financial stability and the continuity of its business and development.

Remuneration of key executives is linked to the Company’s results and the personal contribution of each executive to the achievement of such results. TMK applies both short-term and long-term incentives.

For each reporting year, the Company approves a list of officers eligible for its financial incentive scheme/program as follows:

  • Members of the Company’s executive bodies are approved by the Board of Directors based on a proposal by the CEO and the Nomination and Remuneration Committee
  • Other key executives are approved by the CEO based on proposals by Deputy CEOs for different business lines, Managing Directors of plants, and heads of TMK Group’s divisions and sections

Breakdown of remuneration payable to the CEO, the members of the Management Board, and key executives of PAO TMK:

  • The fixed part (official salary) determined in accordance with the employment contract, payable on a monthly basis, and reflecting the position and relevant responsibilities
  • The variable part including a bonus based on performance in the reporting period and, in certain cases, a bonus for effective implementation of targeted programs, projects, and certain tasks, or for other achievements

Basic remuneration and a set of KPIs are individually determined for each manager included in a shortterm incentive program. Each KPI has a certain weight assigned to it. Based on the full-year results, the weights of quantifiable KPIs are adjusted subject to the actual performance against such KPIs, measured on the approved scale.

Remuneration is accrued upon review by the Board of Directors of the Company’s performance in the past year. To summarize its annual performance, TMK uses the reporting data submitted by financial services, including EBITDA, operating cash flow, product shipments, sales revenue, etc.

In addition to these performance indicators, managers’ performance can also be assessed based on the achievement of individual targets, including performance against expense budgets, project management, or management of subordinate units. All these data may be decomposed by top managers’ responsibility areas into divisions, sections, individual assets, or business lines.

For key executives, bonus KPIs include business Total 4,74 7,37 6,31 targets approved as part of the Company’s plans and budget for the reporting period.

On February 22, 2018, PAO TMK’s Board of Directors reviewed the remuneration of the Company’s managers for 2017, key performance indicators, and remuneration arrangements for 2018, and made respective decisions.

Since 2018, TMK has in place a long-term incentive program aimed at increasing the managers’ interest in the Company’s capitalization growth through granting a right to receive additional motivating remuneration for the achievement of TMK’s strategic goals, and based on the changes in its share price against the reference group comprising major international and Russian companies. In line with the program terms, no remuneration was accrued under the program in 2018. The information on the remuneration of managers covered by the Policy is disclosed in accordance with the corporate practices, applicable laws, regulators’ requirements, the listing rules of stock exchanges, and the recommendations of the Corporate Governance Code.

Remuneration of PAO TMK’s CEO and Management Board, $ million

2016 2017 2018
Salary 3,36 5,58 4,18
Bonuses 1,38 1,79 2,13
Other remuneration 0 0 0
Total 4,74 7,37 6,31

RISK MANAGEMENT, INTERNAL CONTROL, AND INTERNAL AUDIT SYSTEMS IN PLACE AT TMK ARE FORMALIZED AND BASED ON GENERALLY ACCEPTED INTERNATIONAL STANDARDS.

The aim is to provide the Company’s management with an objective view of:
the Company’s current state and prospects
risk exposure
reliability of all types of reporting
compliance with laws and internal regulations

Control procedures are integrated into the business processes of TMK Group’s business units and entities and are carried out on a continuous basis by management bodies at all levels and by employees while performing their duties and tasks.

The Board of Directors has determined the principles of, and approaches to, its risk management, internal controls, and internal audit incorporated into TMK’s approved corporate policies and internal documents (www.tmk-group.ru/Documents).

The Audit Committee monitors the fair presentation of financial statements, reliability and effectiveness of risk management and internal controls, safeguards the independence and objectivity of TMK’s internal audit, carries out performance assessments of the internal audit, and monitors the effectiveness of the management information system used to report irregularities in the Company (including failures to comply with the anti-corruption policy and insider laws).

The meetings of the Audit Committee and the Board of Directors held on December 19, 2018 and on December 20, 2018, respectively, gave a positive assessment of the performance of TMK’s risk management, internal controls, and internal audit in the reporting year.

Risk Management

Risk management at TMK is a process designed to identify, assess, manage, and control potential risk events or situations to provide reasonable assurance that the Company’s goals and objectives will be achieved.

TMK’s risk management framework is based on the Company’s Risk Management Policy. The CEO, via the Risk Management Committee, is in charge of the day-to-day risk management. The Committee designs and implements a methodological framework, and performs risk analysis which includes risk identification, assessment of the potential damage that the risk may cause if realized, and the probability or frequency of such events. The Committee also sets relevant measures to mitigate risks and minimize their probability or frequency and its Chairman regularly reports to the Audit Committee on risk occurrence.

A dedicated unit coordinates risk management processes and cooperation between the Company’s business units by:

  • consolidating information on TMK’s risk exposure, analyzing the impact of key risks on the cash flow, and compiling a corporate risk register, risk map, and risk management report to be discussed by the Risk Management Committee
  • coordinating the development of action plans to reduce potential losses from the occurrence of key risks; monitoring the risk mitigation activities and analyzing their outcomes on a quarterly basis; the monitoring process also drives changes in TMK’s risk map
  • ensuring cooperation between TMK’s units, preparing recommendations for risk management tools and methods.

These tasks are fully in line with the Russian Corporate Governance Code.

For details on key risk factors inherent in the Company’s business see the Management Discussion and Analysis (MD&A) section of this Annual Report.

Internal Control

TMK’s internal controls are a system of control bodies and procedures aimed at covering the risks impeding the Company’s business growth.

TMK’s Board of Directors and executive management strive to incorporate internal control elements into every stage of the Company’s management processes, as required by the Internal Control – Integrated Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO): TMK fosters a control environment, maintains a risk assessment system, and implements control procedures.

In line with the Regulations on Internal Control, which was approved by the Board of Directors (www.tmk-group.ru/Documents), the Company has a system that ensures the use of controls at every management level based on the principles of centralization, delegation, and division of responsibilities.

TMK Group’s integrated risk management and control system follows the three lines of defense model, which engages employees with different backgrounds in risk management process and divides the management assurance process into three levels. The first line of defense is control, exercised by management as part of operational tasks. The second line is represented by dedicated control units. The third line of defense involves internal audits assuring the effectiveness of the first and second lines of defense.

Three Lines of Defense model at TMK Group

Internal Audit

Audits of business processes carried by the IAS at the Company’s entities and business units in 2018 to check compliance with the legislation and internal regulations, as well as assess the reliability of information provided in accounting and reporting documents showed that the Company’s internal controls are generally able to provide confidence of the Company’s management in achieving its business goals.

The reliability and effectiveness of TMK’s internal controls, risk management, and corporate governance are assessed by the Internal Audit Service (IAS).

The goals and objectives of the IAS are specified in the Internal Audit Policy of TMK Group and the Regulations on the Internal Audit Service of PAO TMK approved by the Board of Directors (www.tmk-group.ru/Documents).

The IAS is an independent business unit reporting directly to PAO TMK’s CEO (administratively) and to the Board of Directors via the Audit Committee (functionally), which ensures its independence and objectivity.

PAO TMK’S INTERNAL AUDIT

The IAS has regional units across TMK’s geographical regions (TMK divisions), which use a single planning and reporting system.The IAS’s regional coverage ensures a prompt response to any changes in business processes and operations at entities. TMK’s top management puts a strong focus on internal auditors’ independence, including the absence of conflicts of interest and the division of responsibilities. Heads of IAS units do not participate in managing functional areas of the Company’s business that require management’s decisionmaking on audited entities.

Internal auditors are guided by uniform corporate standards when planning their activities, audit procedures and reporting, internal audit follow-ups, quality control, and performance assessment, which are set out in the Guidelines on Internal Audit at TMK Group (TMK’s Order No. 408 dated November 30, 2015).

In 2018, the IAS carried out an internal audit in line with the annual risk-focused audit plan approved by the Board of Directors and the CEO. The aim was to perform a comprehensive, step-by-step audit of the key business processes: steelmaking, pipe rolling, and tube welding facilities, repairs, construction, and service, supply and sales functions, and IT.

Corrective actions and improvements at TMK’s business units upon compliance with the IAS’s recommendations in 2017–2018

The goal of these audits is to ensure, through using an objective approach, that risk management and controls are efficient and as effective as possible.

TMK’s management promptly responds to gaps and bottlenecks in risk controls identified by the internal audit, through introduction of the required changes, allowing to improve corporate governance process and quality.

The IAS monitors the implementation by business units of planned actions and recommendations on the elimination of gaps, oversees the compliance by the Company’s governing bodies, officers, and employees with insider information laws, and reports to the Audit Committee on a regular basis and the Board of Directors at the end of each year.

A report on IAS’s work in 2018 was reviewed at meetings of the Audit Committee and PAO TMK’s Board of Directors on December 20, 2018. The report contained information on significant risks and gaps identified in internal controls, as well as examples of positive changes in the performance of TMK’s business units and entities upon compliance with the recommendations produced by the IAS, and results of risk management, internal control, and corporate governance assessments.

Internal Audit Quality Assessment

In line with TMK Group’s Internal Audit Quality Assessment and Improvement Program (approved by TMK’s Order No. 408 dated November 30, 2015), the IAS conducts self-assessment on an annual basis.The results of the 2018 self-assessment confirm that the IAS’s performance is on the whole compliant with the International Standards for the Professional Practice of Internal Auditing and the Code of Ethics of the Institute of Internal Auditors. No circumstances were identified that could impact the scope of the audits or the contents of internal audit reports, or prevent the auditors from being objective when carrying out their duties.

Mid-term goals of Internal Audit:
  • Identify the potential for improving the operational efficiency of TMK Group’s business processes
  • Improve controls and minimize risks
  • Engage the management of the audited entity in an active dialogue on ways to improve business processes

The IAS’s Audit Plan for 2019 was reviewed at a meeting of the Audit Committee, and approved by the Board of Directors and by PAO TMK’s CEO.

The Audit Committee adopted a resolution (minutes dated November 13, 2018) to perform independent external diagnostics and assessment of the IAS in 2019 with the involvement of an internationally recognized audit and consulting firm.

Internal Control over Financial Reporting

TMK’s management is responsible for implementing and maintaining adequate internal control over the Company’s financial reporting to ensure:

  • compliance of the accounting policy with national and international accounting standards (RAS and IFRS)
  • completeness and accuracy of accounting records, prompt identification of errors
  • reliability of financial statements
  • conformity of financial statements with the law as well as national and international accounting standards (RAS and IFRS)
  • timely preparation of financial statements.

TMK’s internal control over financial reporting includes control procedures for both standalone and consolidated financial statements. Centralized development of RAS and IFRS accounting policies provides for uniform accounting for, and recording of, similar transactions.

All employees engaged in the preparation of standalone and consolidated financial statements of TMK Group entities have an academic degree in accounting or finance and regularly enhance their qualifications. PAO TMK’s Chief Accountant and head of the department engaged in the preparation of IFRS consolidated financial statements are members of the Association of Chartered Certified Accountants (ACCA). The preparation of TMK Group’s consolidated financial statements involves regular exchange and thorough centralized verification of the financial information provided by subsidiaries.

The preparation of consolidated financial statements has been automated in line with the latest international standards, significantly enhancing its efficiency, in particular, by accelerating the preparation of consolidated statements, optimizing the allocation of roles, increasing flexibility in preparing consolidated financial statements in two currencies, minimizing technical errors, and implementing formalized data match controls.

Revision Committee

PAO TMK’s Revision Committee continuously monitors the Company’s financial and business performance and compliance with the applicable Russian laws on financial and business activities, as well as with decisions of governing bodies. The Revision Committee’s activities are regulated by the Articles of Association and PAO TMK’s Regulations on the Revision Committee www.tmk-group.ru/Documents

The Revision Committee comprises three members who are elected at the Annual General Meeting of Shareholders for a period until the next Annual General Meeting of Shareholders.

COMPOSITION OF THE REVISION COMMITTEE IN THE CORPORATE YEAR 2018/2019*

Mikhail
Khodorovsky

(Chairman)
Alexander
Valeyev
Sergey
Sidnev
CEO of JSC Sinara Group Deputy CEO for Corporate Compliance Risks of PAO TMK Chief Accountant of JSC Sinara Group

* Elected by resolution of PAO TMK’s Annual General Meeting of Shareholders on June 21, 2018 (minutes w/n dated June 25, 2018).


The Revision Committee confirmed the reliability of data provided in PAO TMK’s annual accounting (financial) RAS statements and Annual Report 2018, as well as information contained in the Report on PAO TMK’s Interested Party Transactions in 2018.
In 2018, the Revision Committee held four meetings.

External Auditor

The Company engages an external auditor on an annual basis to independently assess the reliability of the accounting (financial) statements prepared in accordance with RAS and IFRS. The external auditor verifies and confirms that the Company’s financial statements are in line with the applicable accounting rules and national and international financial reporting standards (RAS and IFRS), and expresses its opinion on the reliability of the financial statements following their audit.

The Audit Committee reviews the completeness, accuracy, and reliability of TMK’s accounting (financial) statements, assesses the external auditors for independence, objectivity, and absence of conflicts of interest, oversees the external audit, evaluates its quality, and reviews the external auditor’s opinion.

An external auditor to conduct an independent audit of the Company’s RAS statements is proposed by the Board of Directors and approved by PAO TMK’s General Meeting of Shareholders.

In selecting an external auditor to audit TMK Group’s IFRS consolidated financial statements and assessing its performance, the Company adheres to the Policy on Selection of TMK Group’s External Auditor approved by the Board of Directors (www.tmk-group.ru/Documents).

The following procedures are in place to ensure the auditor’s independence and objectivity:

  • The Company holds a tender to select an auditor pursuant to the terms and conditions approved by the Board of Directors based on the Audit Committee’s proposal. The Audit Committee also organizes the tender and summarizes its results
  • The Audit Committee is entitled to request an early tender following the assessment of the auditor’s performance and its compliance with the independence requirement
  • The auditor is selected from among internationally recognized independent auditors, and is approved by the Board of Directors

To mitigate the risk of long-term relationship compromising the external auditor’s independence and objectivity, members of audit teams and the lead partner responsible for the audit are subject to rotation.

PAO TMK approved Ernst & Young, a member of the SelfRegulatory Organization of Auditors, Russian Union of Auditors (Association) (RUA), as the external independent auditor of its 2018 and interim consolidated and standalone financial statements.

In 2018, the auditor’s remuneration for auditing the annual financial statements and conducting interim reviews (including audits of standalone statements of individual TMK entities) was $3.17 million, and $0.06 million for non-audit services.

Throughout 2018 and up to now, TMK Group has employed efficient internal controls which reasonably guarantee the reliability of the Company’s consolidated and standalone financial statements and their compliance with the national and international standards (RAS and IFRS).

Managing Potential Conflicts of Interest

The Company seeks to maintain the balance between the interests of shareholders and the management who are committed to a high level of trust and ethical business practices and standards. The Company’s corporate ownership is transparent, the rights and obligations of shareholders as well as regulations on their power of disposition are set out clearly in the Articles of Association and the Company’s internal documents, all relevant information being publicly available. The Company is committed to equal treatment of shareholders and protects their voting rights as set out in its internal documents.

TMK prevents shareholder conflicts of interests mainly through:

  • adhering to the order of, and procedure for, passing resolutions on most material matters
  • compliance with the voting procedure for interested party transactions
  • ensuring absolute transparency and openness when preparing and holding Meetings of Shareholders, and prompt information disclosures on the resolutions passed by the Board of Directors
  • disclosing related-party transactions
  • engaging external auditors from the Big Four accounting firms
  • deploying dilution of value prevention tools. The process of selecting vendors of goods, works, and services is organized in accordance with the Company’s approved standards regulating open competitive procurement procedures.

Preventing Conflicts of Interest Involving Members of the Board of Directors

Acting reasonably and in good faith, directors pass resolutions on a fully informed basis, with no conflict of interest, subject to equal treatment of the Company’s shareholders, and assuming normal risk levels.

The Company has tools which manage conflicts of interest, providing reasonable assurance that if a Director finds himself/ herself in a situation where he/she has a conflict of interest, this is resolved at an early stage and the Company’s interests are not affected.

In accordance with the Regulations on the Board of Directors, members of the Board of Directors must refrain from actions that will or may result in a conflict between their interests and those of the Company, and should such a conflict arise, they will promptly disclose to the Company any relevant information: notify the Board of Directors of TMK securities owned by them and transactions with such securities, disclose their equity interests in controlled entities, contemplated transactions in which such members of the Board of Directors could be deemed interested (with the existing interest and its grounds to be promptly disclosed); notify the Board of Directors of their intention to serve on the governing bodies of other entities (apart from the entities controlled by the Company) and of being elected (appointed) to such bodies.

Resolving Conflicts of Interest within Executive Bodies

The Company puts a strong focus on preventing and minimizing the effects of potential conflicts of interest among members of its executive bodies. The Company developed and approved the Regulations on the Conflict of Interest (TMK’s Order No. 385 dated December 31, 2014) to identify, regulate, and prevent conflicts of interest for TMK’s employees including members of executive bodies. The key objective of these Regulations is to limit the influence of personal interests of employees on their functions and business decisions and to maintain and comply with high corporate governance standards in terms of openness, transparency, and predictability.

No conflicts of interest were identified either with members of the Board of Directors or with members of the Management Board of PAO TMK in 2018.

Managing Potential Conflicts of Interest Involving Employees

One of the key drivers preventing corruption offences is the timely identification of conflicts of interest involving TMK’s employees.

A new version of the Company’s Code of Ethics has an entire section devoted to this issue titled “Conflicts of Interest”.

The Company’s practices used to manage conflicts of interest are based on the following principles:

  • Mandatory disclosure of information on any existing or potential conflict of interest
  • Individual examination and assessment of reputational risks faced by the Company each time a conflict of interest is identified, and its management
  • Confidentiality for disclosure of information on conflicts of interest and for their management
  • Maintaining balance between the Company’s and its employees’ interests when managing conflicts of interest
  • Protecting employees from adverse consequences due to a reported conflict of interest that has been promptly disclosed by the employee and managed (prevented) by the Company

Anti-Corruption and Fraud Policies and Procedures

TMK is committed to high ethical standards as well as business openness and transparency and drives initiatives to create an environment of zero tolerance for any form of corruption in accordance with the Transparency International’s Business Principles for Countering Bribery.

In 2018, in line with the latest trends in global compliance practices and based on our own experience, a new version of TMK’s Code of Ethics was developed, which came into force in February 2019.

TMK Group’s Code of Ethics (http://www.tmk-group.com/media_en/files/386/Code_of_Ethics_TMK_Group1.pdf ) specifies the following areas of regulatory compliance:

  • Conflict of interest
  • Abiding by the law
  • Fighting corruption
  • Fighting money-laundering
  • Business gifts and business hospitality policy
  • Company charity policy

The Company has a clearly structured and independent compliance framework which ensures compliance with legal and ethical standards.

Compliance framework at TMK

  • Compliance with laws and meeting the highest standards
  • Policies and procedures
  • Corporate-wide plan
  • Membership in the International Compliance Association (ICA)
  • Compliance with the Anti-Corruption Charter of Russian Business
  • Control by the Board of Directors
  • Deputy CEO for Corporate Compliance Risks
  • CEO’s Committee on Regulating Compliance Risks and its regional subcommittees
  • Compliance Risk Department
  • Hotline
  • Reviews of TMK’s counterparties and transaction monitoring
  • Distribution of visual guidance materials, education and training of employees and counterparties

The system integrates preventive measures, detection of, and sanctions for, violations and is based on vertical and horizontal interactions. This process is coordinated by the CEO’s Committee on Regulating Compliance Risks and its 18 regional subcommittees which work unanimously across all TMK Group’s divisions and plants, and are guided by TMK’s internal regulations specifying its compliance risk and anti-corruption principles, standards, and policies: www.tmk-group.ru/compliance.

TMK compliance documents:

  • Code of Ethics
  • Corporate Governance Code
  • Ethics Policy for Business Trips of TMK Group Employees
  • Regulations on the TMK Charity Policy (Endowments, Donations)
  • Regulations on the Conflict of Interest
  • Policy on Comprehensive Psychological and Physiological Testing
  • Guidelines for Mitigating Antitrust Risks
  • Reminder concerning the use of the hotline

TMK counters and prevents corruption when engaging with partners and counterparties through monitoring transactions within counterparties’ ownership chain for conflicts of interest, and through introducing anti-corruption clauses and other mandatory conditions in their contracts. TMK holds special events for business partners at the annual METAL-EXPO exhibitions in Moscow so that they can familiarize themselves with the anti-corruption laws and relevant internal regulations.

In 2018, in line with our anti-corruption program, the Company adopted the Policy on Comprehensive Psychological and Physiological Testing of PAO TMK (Minutes No. 7 dated September 27, 2018 of the meeting of the Committee on Regulating Compliance Risks). In 2018, as part of initiatives to identify any cases of conflict of interest, fraud, or embezzlement, and for other purposes, the psychological and physiological condition of 77 employees was tested using a polygraph. The results were reported to the Company’s management.

The Committee on Regulating Compliance Risks arranged for regular workshops to be run across all of TMK’s business units. The Committee annually develops training plans and educational materials on relevant topics. In 2018, 51 trainings took place involving 1,187 of the Group’s managers. To train our managers, TMK2U Corporate University developed a remote course on Compliance Risk Management which is available on the corporate web portal.

Using its corporate communication system, TMK educates its employees and distributes information about the communication channels of the Committee on Regulating Compliance Risks, which comprise flyers available across all production shops and plant headquarters, and TMK corporate media.

To enable public control, TMK operates a hotline information system (telephone lines and email 8072@tmk-group.com) which can be used by the Company’s employees, investors, clients, and other stakeholders to report any known abuse or violations. Overall, in 2018, TMK’s hotline received 868 calls (up 37% year-on-year) and 709 emails (down 4% year-on-year). The Сompany investigated all reports to the hotline without exception and conducted meetings with any whistleblowers. To address the confirmed cases, we held surveys, meetings, discussions with employees, etc., the responsible managers took the necessary personnel and management decisions.

TMK ensures protection for whistleblowers – they may submit information either anonymously or not. To ensure the whistleblowers’ anonymity, all information (submitted either by telephone, by email, or by letter) is directed to a dedicated group of three authorized members of the Committee on Regulating Compliance Risks, who have signed a non-disclosure agreement.

The Compliance Risk Department, a dedicated anti-corruption and compliance risk management unit has been established pursuant to Article 13.3 of the Federal Law On Counteracting Corruption and is now actively operating within TMK. In particular, the Department reviews all TMK’s counterparties for sanctions risks using the X-COMPLIANCE program.

PAO TMK is a corporate member of the International Compliance Association (ICA) and won the ICA Compliance 2015 award in the Compliance Leadership category. We are also among the members of the Russian Union of Industrialists and Entrepreneurs who have signed the AntiCorruption Charter of Russian Business, which reflects TMK’s commitment to promoting the best practices of business ethics and corporate governance, and encouraging fair competition in Russia. TMK regularly participates in the All-Russian Interactive Anti-Corruption Campaign launched by the Chamber of Commerce and Industry of the Russian Federation.

TMK Group’s 2018 anti-corruption report was discussed at the meeting of the Audit Committee of the Board of Directors (minutes dated December 19, 2018) and received a positive assessment.

Information Security

Development of new approaches based on up-todate digital and IT solutions – and their acceptance as standard manufacturing and management practices – make businesses adopt a markedly different approach to information security (IS), and cybersecurity (CS) in particular.

As part of its information security efforts, the Company:

  • identifies categories of information subject to protection and critically important systems subject to special protection
  • builds models of information security threats faced by the Company
  • implements organizational, administrative, and technical measures to ensure information security as part of its Information Security Management System
  • adopts internal IS regulations and ensures compliance with them by all employees.

The Information Security Policy of TMK Group Russian Entities underpins a medium-term program to improve security of TMK’s IT infrastructure, including compliance with the requirements set out in Federal Law No. 187–FZ.

TMK Group’s Information Security Management System (ISMS) relies on:

  • establishment of a single management center and regional units
  • development of baseline (general) requirements to information security
  • reasonable and adequate protection, reserved only for essential information
  • uniform requirements on how to manage information security breaches, and unified reporting
  • distribution of rights and responsibilities across ISMS roles
  • utilization of dedicated data movement tracking software, ensuring its integrity and security.

All of TMK Group information is grouped as follows:

  • Public information which may be freely published and shared
  • Internal business information which may not be freely shared with third parties
  • Restricted information (trade secrets, personal data, insider information, information subject to banking secrecy, medical confidentiality, etc.)

Information security organization and compliance are the responsibility of PAO TMK’s Economic Security Service and of Economic Security Departments at the TMK regional entities, with technical support provided by PAO TMK’s Information Technology Department. The most important technical tasks related to protecting TMK Group’s entities from cyberattacks are actioned and coordinated by PAO TMK’s IT Infrastructure Protection Department, as well as by local cybersecurity units and desks at the entities.

TMK Group deploys a corporate malware (anti-virus) protection system to manage identified information security risks through employing state-of-the-art protection software against targeted attacks and relevant threats (the software is on the Unified Registry of Russian Computer Programs and Databases), and implementing a set of measures to secure process control systems against external and internal threats.

The Company monitors news on information security incidents globally. When such an incident is reported, TMK Group sends out information to its business units specifying requirements to strengthen security and prevent corruption, as well as on ways to minimize negative impact.

The Company took the following key IS and CS actions in 2018:

  • Audited IT systems and IT security tools and techniques used by TMK’s entities, drawn up lists of critical information infrastructures (CIIs) and provided them to the Federal Service for Technical and Export Control (FSTEC) of Russia
  • Analyzed security systems that are used to protect TMK’s IT infrastructure; developed uniform approaches to managing security vulnerabilities by performing regular infrastructure scans; set up or updated network firewalls to protect process networks at shops; created a security and control platform for mobile devices; updated anti-virus systems, etc.
  • Deployed Check Point’s SandBlast, a system for behavioral analysis of files (sandboxing) to protect incoming external mail and internet traffic (zero-day protection) to provide preventive protection from new viruses
  • Checked IT infrastructure at TMK IPSCO for traces of compromise, prepared and carried out recommendations to improve security
  • Deployed Microsoft Azure, a cloud-based tool for protecting both local and cloud IT infrastructure
  • Held second and third corporate forums on cybersecurity which were attended by the Company’s partners

TMK’s CS improvement plans for 2019 and the medium term:

  • Adopt a Strategy to Ensure and Improve Cybersecurity at TMK Group
  • Implement a security information and event management (SIEM) system to automate security event detection from different web resources and protect the IT infrastructure of the Russian division’s key plants.
  • Set up TMK’s Cybersecurity Situation Room and organize its interaction with the State system for detection, prevention and consequence management of cyberattacks on Web Resources in the Russian Federation (GosSOPKA), to comply with Federal Law No. 187–FZ.
  • Categorize the main CIIs at the Russian division’s entities to ensure compliance with Federal Law No. 187–FZ, and design a security subsystem for CIIs
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