CORPORATE GOVERNANCECORPORATE GOVERNANCE
OVERVIEW OF THE CORPORATE GOVERNANCE SYSTEM
VTB GROUP CORPORATE GOVERNANCE
VTB Group is structured as a strategic holding. This model entails a common single growth strategy for all Group companies, as well as a single brand, centralised management of financial performance and risk, and unified control systems.
Under its current management model, the Group is governed along two key lines:
- Administrative management– executing the rights of the parent bank as the main shareholder by allowing its representatives to participate in the management bodies of subsidiary companies;
- Functional management– managing the Group’s business, support and control lines within VTB Group as a whole. Functional coordination is a supplementary governance mechanism that provides early-stage expert review of management decisions.
To achieve key strategic objectives, the following business lines have been established within the Group: Corporate-Investment Business, Medium and Small Business, Retail Business.
The Group’s Corporate Centre sets the Group’s overall strategic direction and promotes best practices within the Group.
The management system established by the Group enables the Bank to develop a global mechanism for client service, to closely coordinate the work of every business line in all of the Bank’s regions of operation, to increase profitability through synergies between business lines and best practices, and to reduce costs by sharing infrastructure and resources more extensively among Group companies. Furthermore, this management model is a platform for the effective integration of assets acquired by VTB Group.
VTB Group pays a great deal of attention to improving its governance system, which is designed to comply fully with corporate and antimonopoly legislation in countries where the Group operates.
VTB BANK’S CORPORATE GOVERNANCE SYSTEM
Corporate governance at VTB Bank is a system of interactions between executive bodies, the Supervisory Council, shareholders and other stakeholders aimed at protecting the rights of shareholders and investors, improving the Bank’s investment case and the transparency of its operations, creating effective risk assessment mechanisms that can have an influence on the Bank’s value, and ensuring the effective use of funds provided by shareholders (investors).
The Bank’s corporate governance system is based on the principle of unconditional compliance with legislative requirements and the requirements of stock exchange operators in Russia and abroad. It is also focused on the recommendations of the Corporate Governance Code (the Code) approved by the Bank of Russia’s Board of Directors, of the Basel Committee on Banking Supervision and of the Financial Stability Board, as well as international best practices and standards of corporate governance.
The principles and procedures of the Bank’s corporate governance are enshrined in bylaws, the most important of which is the Bank’s Corporate Governance CodeApproved by the Bank’s Supervisory Council in 2015, Minutes No. 27 dated 11 December 2015..
The Bank’s corporate governance system is based on the following principles:
- equal and fair treatment of all shareholders, providing shareholders with opportunities to exercise their rights and protect their legitimate interests;
- professionalism and accountability on the part of the Supervisory Council, active participation on the part of independent directors as well as members of the Supervisory Council nominated by the Bank’s minority shareholders in the management of the Bank;
- implementation of strategic management of the Bank by the Supervisory Council and its effective oversight of the activities of executive bodies and of the functioning of the risk management system and internal control;
- reasonable, conscientious and effective management of the Bank’s ongoing operations by executive bodies and key executives;
- compliance with the laws of the Russian Federation and the national laws of the countries where the Group’s companies are located;
- corporate social responsibility;
- a highly ethical approach to business and zero tolerance for corruption;
- complete, transparent, reliable and timely disclosure of information by the Bank;
- an effective system of internal control as well as internal and external audit;
- active cooperation with investors, creditors and other stakeholders in an effort to augment the Bank’s assets and capitalisation;
- continuous improvement of corporate governance practices.
The General Meeting of Shareholders is the supreme governing body of VTB Bank. Any holder of ordinary shares may exercise the right to participate directly in the management of the Bank by voting on the agenda of the General Meeting of Shareholders. To make voting as convenient as possible for shareholders, the Bank was one of the first to introduce remote e-voting at General Meetings of Shareholders.
The Supervisory Council, elected by the shareholders and accountable to them, provides strategic management and oversight of the Bank’s executive bodies, namely the President and Chairman of the Management Board and the Management Board itself. The Supervisory Council approves the Bank’s strategy and long-term development programme and its Regulation on Remuneration and Compensation for expenses for executive bodies and other key executives of the Bank, plays a key role in the Bank’s material corporate events, and determines the key principles and overall approach to risk management and the internal control system.
The executive bodies are responsible for day-to-day management and carry out the tasks entrusted to them by the shareholders and the Supervisory Council.
The following committees function under the Supervisory Council:
- the Staff and Remuneration Committee, which drafts recommendations on key appointments and incentives for members of the Supervisory Council and the Bank’s executive and control bodies;
- the Audit Committee, whose main activity is to analyse and support an effective and adequate system of internal control;
- the Strategy and Corporate Governance Committee, which considers and makes recommendations on strategic development issues and on improving corporate governance, as well as on refining management of the Bank’s capital
The Bank has established a special structural unit, the Supervisory Council Administration, headed by the Corporate Secretary, who is approved by the Bank’s Supervisory Council.
The Bank’s financial and economic affairs are monitored by the Statutory Audit Commission and also by the Internal Audit Department, an independent structural unit that operates under the direct supervision of the Supervisory Council. It verifies and assesses the effectiveness of the Bank’s internal control and risk management systems; verifies the reliability, completeness, objectivity and timeliness of accounting and management reports; establishes uniform approaches to the organisation of internal control systems in companies controlled by the Bank; gathers information about their status; and develops recommendations for improvement. The Supervisory Council approves the Internal Audit Department’s work plans and monitors their implementation.
In order to reduce management risks, liability insurance is purchased for the Bank, as well as for members of the Bank’s Supervisory Council and executive bodies (director’s and officer’s liability insurance, D&O).
The Bank and its minority shareholders created a Shareholders Consultative Council, an independent expert consultative and advisory body consisting of minority shareholders whose meetings are also attended by members of the Bank’s Supervisory Council and executive bodies. Members of the Shareholders Consultative Council play an active part in VTB Bank’s activities, discussing with the Group’s top management the most pressing issues concerning the interests of shareholders, including issues related to strategy development and implementation, as well as improving corporate governance practices.
VTB adheres to a policy of full and timely disclosure of reliable information, giving shareholders, investors and counterparties the opportunity to make properly informed decisions. Information is disclosed in compliance with Russian legislation and the requirements of the UK financial regulator, the Financial Conduct Authority. The Bank’s Supervisory Council has approved the VTB Bank Regulation on Information PolicyMinutes No. 18 dated 1 December 2017., which is posted on the Bank’s website and specifies the ways in which information may be disclosed, as well as the time frame for such disclosure and the forms such disclosure may take; it provides a list of information that the Bank has a duty to disclose, as well as measures to ensure compliance with the Bank’s Information Policy.
The Bank regularly publishes its financial results in accordance with both Russian and international standards. In order for all stakeholders to obtain the most up-to-date information on VTB Group’s activities as quickly as possible, the Bank publishes information from its IFRS management reporting on a monthly basis in addition to quarterly and annual reports.
Development of corporate governance in 2020
The Bank views improving its corporate governance system as an integral part of its work to improve the efficiency and results of its activities; the corporate governance system is also subject to constant monitoring by the Bank’s Supervisory Council and executive bodies.
VTB Bank closely monitors the development of corporate legislation and practices and carries out consistent work to improve the corporate governance system within the Bank and Group companies by applying international standards and the best Russian and international practices.
In 2020, the Bank continued introducing into its operations the provisions of the Russian Corporate Governance Code, which remains the main source of guidance for improving the Bank’s corporate governance system.
At the Annual General Meeting of Shareholders on 24 September 2020, a new Supervisory Council was elected. Out of 11 members of the Supervisory Council, five directors are not associated with the main shareholder, while three of them are independent directors and four are representatives of minority shareholders / institutional investors. Committees were formed at the first meeting of the new Supervisory Council: the Strategy and Corporate Governance Committee, as well as the Audit Committee and the Staff and Remuneration Committee – the latter two of which comprised independent directors only for the first time.
Shareholders also elected a new Statutory Audit Commission, which retained a place for a representative of minority shareholders.
Results of an external assessment of the work of the Bank’s Supervisory Council
During the reporting year, the Bank’s Supervisory Council held an in-person meetingMinutes No. 10 dated 20 August 2020. at which it reviewed an assessment report of its performance, which was conducted for the first time by an independent consultant.
The experts who conducted the assessment noted the following positive aspects of the Supervisory Council’s work:
- compliance in terms of the performance of the Bank’s key management-related functions with the recommendations of the Russian Corporate Governance Code and the Guidelines for Members of Boards of Directors (Supervisory Councils) of Financial Institutions (Letter of the Bank of Russia IN-06-28/18 dated 28 February 2019);
- the optimal and balanced composition and structure of the Supervisory Council in terms of the number of members, the representation of different groups of shareholders, the participation of independent directors and the key competencies of its members;
- the effective work of the Chairman of the Supervisory Council and of the Corporate Secretary in terms of the functions assigned to them;
- the excellent organisation of the work of the Supervisory Council and the information support available for members, creating the conditions for their wide-ranging participation in the work of the Supervisory Council;
- the use of advanced tools to improve the efficiency of the Supervisory Council’s work; in particular, the Supervisory Council switched to a paperless workflow with the help of an electronic information and communication system;
- the committees’ excellent performance of the duties assigned to them; the balanced and optimal composition of the committees to ensure the success of their work.
At the same time, the assessment highlighted areas in which the activities of the Supervisory Council and its committees could be improved. Recommendations were made for development and improvement in the following key areas: the inclusion of Supervisory Council candidates with competencies in digitalisation and information technology, the organisation of an expanded meeting of the Strategy and Corporate Governance Committee – open to all members of the Supervisory Council – on issues related to developing and updating the Bank’s Development Strategy, the establishment of programmes and the organisation of training for members of the Supervisory Council, the expansion the Supervisory Council’s remit in relation to subsidiaries and an update to the existing system of incentives for members of the Supervisory Council.
As part of the assessment of the Supervisory Council’s work, the experts also carried out benchmarking (comparative analysis) of the Bank’s corporate governance practices in order to establish an objective understanding of the Bank’s current level of corporate governance in comparison with comparable Russian state-owned companies in terms of the scale of their operations. The comparative analysis identified the strengths and weaknesses of the Bank’s corporate governance system and also identified areas for further improvement.
Increased corporate governance scores
The RID provides the annual rankings, which are based on an independent review. A rating of 8 is assigned to companies that, according to experts, comply with the requirements of Russian legislation in the field of corporate governance, follow a substantial portion of the Corporate Governance Code and represent a low risk to shareholders of losses associated with corporate governance.
Every year, the Bank engages an external consultant as an independent expert to assess the quality of corporate governance, which enables it to continue implementing the best applicable practices to improve its corporate governance system. For these assessments, the Bank engages the RID, which is a recognised expert institution in Russia in the field of corporate governance and in assessing the quality of corporate governance in Russian companies.
The RID’s assessment methodology includes 160 criteria on four components: shareholder rights, management and oversight bodies, disclosure, and corporate social responsibility and sustainable development.
Among other positive changes in the reporting year, it is worth noting the Supervisory Council’s approval of a new version of the Bank’s Code of Ethics, which was considerably expanded to include new standards on the comprehensive regulation of conflicts of interest between employees and members of the Bank’s Supervisory Council.
Plans to improve corporate governance practices
In order to continue improving the corporate governance system in 2021, the Bank plans to develop and implement measures recommended by experts that take into account the independent assessments of the Supervisory Council’s work and corporate governance practices.
Key events that the Bank is planning for 2021 include amendments to the methodology for self-assessment of corporate governance and the work of the Supervisory Council, which is to be updated in light of recommendations from the Federal Property Management Agency and from the Bank of Russia, and also in light of advanced corporate governance practices.