MMK scores 7+ for corporate governance

8 June 2010 (11:19)

RID-Expert RA (a consortium uniting the Russian Institute of Directors and Expert RA Rating Agency) gave Magnitogorsk Iron & Steel Works (MMK) 7+ for its advanced corporate governance practices.

MMK’s corporate governance policies were monitored in May 2009-May 2010. According to the Consortium, the enterprise is unique in that the functions of the proprietor and those of a manager are embodied in the company’s majority shareholder that owns 85% of MMK’s common stock. In addition, the enterprise has plenty of minority stockholders, which was why the monitoring focused particularly closely on the corporate governance mechanisms that help reduce the CG risks related to majority-minority shareholder interaction.

‘In terms of protecting the stockholders’ rights, MMK’s corporate governance looks satisfactory. The company took impressive measures to reduce the risk of stockholder rights violation: for one, an independent entity is in control of the property rights over the shares. Then, the auditors are selected through an open tender. Also, the stockholders are informed of the AGM agenda within more than thirty days of the meeting. Next, the stockholders’ right to take part in the AGM is always observed. Finally, the company has a confirmed Corporate Governance Charter and declares dividends on a regular basis,’ RID-Expert RA’s analysts observe.

‘In terms of the managing and controlling bodies’ performance, MMK’s CG policy looks good. The Board of Directors performs all the functions needed for advance corporate governance practices through determining the company’s strategic development directions and supervising the enterprise’s financial and economic activity. There are five independent directors on the BOD, which helps to enhance the minority shareholders’ trust in the Board,’ the analysts say.

The Consortium also thinks highly of the BOD Committees’ performance, the policy of declaring the BOD and the Supervisory Board’s affiliate status in MMK’s internal documents, and the regulation of the internal control and audit procedures. On the other hand, the analysts’ assessment is a bit affected by a significant number of executive directors on the BOD and by the risk of minority shareholders rights infringement due to the strong control of the majority stockholder over the company’s corporate governance.

Finally, the experts feel MMK has a high level of financial and non-financial information transparency, so the company got an excellent assessment in this category. This was also true of MMK’s corporate social responsibility policies.

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