Information about independence criteria for members of board of directors at joint stock companies

1. The Russian Government Directive No. 738 on the Management of Federally Owned Shares of Joint Stock Companies and the Use of the Special Right by the Russian Federation to Participate in Joint Stock Company Management (“Golden Share”) dated December 3, 2004, imposes certain requirements to be complied with when the Russian Federation in its capacity as a shareholder nominates candidates for election to the board of directors of a joint stock company as independent directors.

As per Article 8 (1) of the said Directive, a person nominated by the Russian Federation as a shareholder for election to the board of directors as an independent director or his family members (spouse, parents, children, adopters, adoptees), full and half siblings, grandparents must not continuously over the last three years:

• hold positions in the governing bodies and be employees of the relevant joint stock company, its subsidiaries or affiliates or hold positions in the governing bodies and be employees of a managing entity of the relevant joint stock company or act as a managing person of the relevant joint stock company;
• be affiliated persons of the joint stock company or its subsidiaries and affiliates, except in the capacity as a member of the board of directors (supervisory board) of the joint stock company;
• act as an auditor (including in the capacity of an audit company employee) of the joint stock company and be affiliated persons of the joint stock company’s auditor;
• fulfill obligations or be employees of an entity fulfilling obligations under a contract with the joint stock company, if the total volume of transactions made for the contract purposes makes up during one year 10 or more per cent of the book value of the joint stock company’s assets;
• represent the interests of persons or entities bound by contractual obligations with the joint stock company, with which the total volume of transactions makes up during one year 10 or more per cent of the book value of the joint stock company’s assets;
• receive remuneration, compensations or other payments from the joint stock company, the amount of which makes up 10 or more per cent of the total annual income of the said persons, except for payments received with respect to carrying out activities as an independent director and concluding transactions for personal, household, family needs or other needs not related to entrepreneurial activity, and participate in the company’s stock option programs.

In addition, a person nominated by the Russian Federation as a shareholder for election to the board of directors as an independent director must not:

• hold any state civil service positions in the Russian Federation and be an employee of the Central Bank of the Russian Federation;
• over a continuous period of the last 12 years be a member of the board of directors (supervisory board) of the company he/she is being elected to;
• hold positions in the governing bodies or be an employee of some other joint stock company, in which any of the persons holding positions in the governing bodies of the company, where the person is nominated as an independent director, is a member of the staff and remuneration committee of the company’s board of directors;
• simultaneously be an independent director in more than three joint stock companies.

2. Pursuant to the Bank of Russia Regulation No. 714-P on Information Disclosure by Issuers of Issue-Grade Securities dated March 27, 2020, Gazprom discloses information, including in the form of a report on compliance with the principles and recommendations of the Corporate Governance Code (approved by the Board of Directors of the Bank of Russia on March 21, 2014, and recommended for application by the letter of the Bank of Russia No. 06–52/2463 dated April 10, 2014), hereinafter – the Code, within the Annual Report.

According to Article 2.4.1 of Part B of the Code, a person should be recognized as an independent director if he/she possesses appropriate expertise, background and independence for adopting his/her own position, and is capable of making impartial and fair judgements irrespective of the company’s executive bodies, separate groups of shareholders or other parties concerned. It should also be taken into account that in normal conditions a candidate (an elected member of the board of directors) cannot be considered independent if he/she is affiliated with the company, its significant shareholder, significant contracting party or competitor, or is affiliated with the state.

Articles 102–107 of Part B of the Code stipulate the following:

A person is recommended to be recognized as an independent director (a candidate for election as an independent director), if:

• he/she is not affiliated with the company;
• he/she is not affiliated with the company’s significant shareholder;¹
• he/she is not affiliated with the company’s significant contracting party² or competitor;
• he/she is not affiliated with the state (the Russian Federation, a Russian Federation constituent entity) or a municipality.

A person should be recognized as affiliated with the company at least if he/she and (or) his/her associates:

• are or in the last three years have been members of the executive bodies or employees of the company, an entity controlled by the company and (or) the company’s managing entity;
• are members of the board of directors of a legal entity that controls the company or an entity controlled by or managing such legal entity;
• during any of the last three years have received remuneration and (or) other financial benefits from the company and (or) entities controlled by the company in the amount exceeding half of the fixed annual remuneration to a member of the company’s board of directors, but without regard to payments and (or) compensations that the said persons received as remuneration and (or) compensation for expenses related to fulfilling their duties as members of the board of directors of the company and (or) an entity controlled by the company, including expenses associated with insuring their liability as members of the board of directors, as well as revenues and other payments received by such persons as holders of securities in the company and (or) an entity controlled by the company;
• are holders or beneficial owners of the company’s shares³ that represent more than one per cent of the company’s equity capital or the total number of voting shares, or the market price of which is 20 times higher than the fixed annual remuneration to a member of the company’s board of directors;

• are employees and (or) members of the executive bodies of a legal entity, if their remuneration is determined (assessed) by the remuneration committee of the board of directors (or by the board of directors) of this legal entity, and any of employees and (or) members of the company’s executive bodies is a member of the above-mentioned committee (board of directors);
• provide consultation services to the company, a person controlling the company or legal entities controlled by the company, or are members of the governing bodies of entities that provide such services to the company or the said legal entities, or are employees of such entities directly involved in providing such services;
• during the last three years have provided appraisal services, fiscal consultations, auditing or accounting services to the company or legal entities controlled by the company, or in the last three years have been members of the governing bodies of entities that provided such services to the said legal entities or have been members of the governing bodies of the company’s rating agency, or have been employees of such entities or a rating agency directly involved in providing the respective services to the company.

In addition, a person should be recognized as affiliated with the company if he/she has occupied the position of a member of the company’s board of directors for a total of more than seven years.

A person should be recognized as affiliated with the company’s significant shareholder at least if he/she and (or) his/her associates:

• are employees and (or) members of the executive bodies of the company’s significant shareholder (a legal entity from a group of entities that the company’s significant shareholder belongs to);
• during any of the last three years have received remuneration and (or) other financial benefits from the company’s significant shareholder (a legal entity from a group of entities that the company’s significant shareholder belongs to) in the amount exceeding half of the fixed annual remuneration to a member of the company’s board of directors, but without regard to payments and (or) compensations that the said persons received as remuneration and (or) compensation for expenses related to fulfilling their duties as members of the board of directors (a committee of the board of directors) of the company’s significant shareholder (a legal entity from a group of entities that the company’s significant shareholder belongs to), including expenses associated with insuring their liability as members of the board of directors, as well as revenues and other payments received by such persons as holders of securities of the company’s significant shareholder (a legal entity from a group of entities that the company’s significant shareholder belongs to);
• are members of the board of directors in more than two legal entities controlled by the company’s significant shareholder or by a person controlling the company’s significant shareholder.

A person should be recognized as affiliated with the company’s significant contracting party or competitor at least if he/she and (or) his/her associates:

• are employees and (or) members of the governing bodies of the company’s significant contracting party or competitor as well as legal entities controlling or controlled by the company’s significant contracting party or competitor;
• are holders or beneficial owners of the company’s significant contracting party or competitor’s shares (stakes) that represent more than five per cent of the equity capital or the total number of voting shares (stakes).

A person should be recognized as affiliated with the state or a municipality at least if he/she:

• is or has been a state or municipal officer, a government official or an employee of the Bank of Russia during one year preceding his/her election to the company’s board of directors;
• is a representative of the Russian Federation, a Russian Federation constituent entity or a municipality in the company’s board of directors, which was vested with the special right of participating in management (“golden share” principle);
• is entrusted with voting on one or several issues within the competence of the company’s board of directors according to a directive from the Russian Federation, a Russian Federation constituent entity or a municipality;
• is or has been during one year preceding his/her election to the company’s board of directors a member of an executive body or an employee with managerial powers in an entity controlled by the Russian Federation, a Russian Federation constituent entity or a municipality, or an employee of a state or municipal unitary enterprise or institution (except for employees of a state or municipal educational or scientific establishment, who are engaged in teaching or research activities and are not appointed to (approved for) the position of a sole executive body or another position in a state and municipal educational or scientific establishment by the decision or with the consent of government (local) authorities, if such person is nominated for election to the board of directors of a company where the Russian Federation, a Russian Federation constituent entity or a municipality controls more than 20 per cent of the equity capital or voting shares.

Article 109 of Part B of the Code stipulates that in particular cases, which must be exceptional, the board of directors may when performing an assessment recognize a candidate (a member of the board of directors) as independent despite some formal signs of his/her affiliation with the company, the company’s significant shareholder, significant contracting party or competitor, if such affiliation does not affect such person’s ability to pass independent, objective and bona fide judgements.

For instance, the board of directors may recognize a candidate (an elected member of the board of directors) as independent in the following cases:

• an associate of the candidate (member of the board of directors) is an employee (except for an employee with managerial powers) of an entity controlled by the company, or a legal entity from a group of entities that the company’s significant shareholder belongs to (except for the company itself), or the company’s significant contracting party or competitor, or a legal entity controlling or controlled by the company’s significant contracting party or competitor;
• the nature of relations between the candidate (member of the board of directors) and his/her associate is such that they are unable to influence the decisions made by the candidate;
• the candidate (member of the board of directors) has an established, including among investors, reputation confirming his/her ability to adopt an independent position (Article 110 of the Code).