KMG EP website

DIFFERENCES BETWEEN THE CODE ON CORPORATE GOVERNANCE OF THE COMPANY AND PROVISIONS OF THE UK CORPORATE GOVERNANCE CODE

Below are the main differences between the Code on Corporate Governance of the Company and provisions of the UK Code.

  • According to the UK Code, the Directors should meet without the Chairman of the Board of Directors present at least annually to appraise the Chairman’s performance and on such other occasions as are deemed appropriate. In addition, according to the UK Code the evaluation of the Board of Directors’ should be externally facilitated at least every three years.

The KMG EP’s Code on Corporate Governance has no such requirements. Throughout 2011, the Independent Non-Executive Directors met seven times without the Chairman of the Board to discuss the following issues: development of the updated Company’s strategy; acquisition projects for oil and gas assets in the Republic of Kazakhstan and abroad, relations of the Company with its major shareholder, Company’s insurance programme, further participation of the Company in petrochemical projects, cash funds management and observance of the Treasury Policy, internal audit and control matters, election to the Board of Directors and to the Management Board, Succession Policy.

No official evaluation of the activity of the Chairman of the Board of Directors was made by the Directors. The Board’s activity was evaluated by an external independent consultant.

  • According to the provisions of the UK Code the Chairman should on appointment meet the independence criteria set out therein.

The Code on Corporate Governance of the Company does not contain the provision on independence of the Chairman of the Board of Directors, and, in the opinion of the Directors, the Chairman would not meet the criteria of independence stated in the respective provisions of the UK Code or the Company’s Code on Corporate Governance.

The Audit Committee Provision specifies that the Chairman of the Board of Directors must not be a member of the Audit Committee, notwithstanding such an option in the UKCode. This difference is intentionally included in the Audit Committee Provision as the Chairman of the Board of Directors is the representative of the major shareholder.

  • According to the UK Code at least half of the Board of Directors, excluding the Chairman, should comprise of Independent Non-Executive Directors. On the other hand, the Code on Corporate Governance and the Charter of the Company specify that Independent Non-Executive Directors shall make at least one third of the Board of Directors.

In 2011 the Board of Directors consisted of 8 members, including the Chairman and three Independent Non-Executive Directors: Philip Dayer, Paul Manduca and Edward Walshe.

According to the Charter of the Company a number of key issues, including related-party transactions, shall be approved by a majority of the Independent Non-Executive Directors. The Charter of the Company is available for review at the corporate website.

  • The UK Code also states that the Board shall appoint one of the Independent Non-Executive Directors to be the Senior Non-Executive Director.

The Board of Directors did not appoint the Senior Non-Executive Director in a view of the current shareholder structure of the Company. The requirement on appointment of the Senior Non-Executive Director will be subject for consideration from time to time.

  • According to the UK Code the Chairman is responsible for setting the board’s agenda and ensuring that adequate time is available for discussion of all agenda items, in particular strategic issues.

The Code on Corporate Governance of the Company does not contain similar provisions, however in practice this requirement is complied with in all material respects.

  • According to the UK Code the Chairman should ensure that the directors continually update their skills and the knowledge and familiarity with the company required to fulfil their role both on the board and on board committees. Further the chairman should regularly review and agree with each director their training and development needs.

The Code on Corporate Governance of the Company has no such requirements and during 2011 these requirements were not complied with in all material respects.

  • According to the UK Code the Chairman, if necessary, should ensure that the company maintains contact as required with its principal shareholders about remuneration.

This requirement is not contained in the Code on Corporate Governance of the Company. In practice, remuneration issues are subject to approval by the Company’s major shareholder – NC KMG.

  • The UK Code states that the Chairman should ensure that the views of shareholders are communicated to the board as a whole and that the Chairman should discuss governance and strategy with major shareholders.

This requirement is not contained in the Code on Corporate Governance of the Company. Nevertheless, during 2011 the Chairman ensured that the views of the major shareholder – NC KMG was communicated to the Board of Directors as a whole, and also facilitated negotiations on governance issues and strategy of the Company with the major shareholders – NC KMG.

  • The UK Code states that Non-Executive Directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. They should satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible.

The Code on Corporate Governance of the Company imposes similar requirements to all members of the Board of Directors.

  • The UK Code provides that the Non-Executive Directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing and, where necessary, removing executive directors, and in succession planning.

The Code on Corporate Governance of the Company does not contain this requirement. During 2011 the Executive Director – General Director – was appointed and resigned following the decision instigated by the major shareholder of the Company – NC KMG.

  • The UK Code states that all Directors should be re-elected by the shareholders on an annual basis.

The Code on Corporate Governance of the Company does not contain this requirement. During the election of the members of the Board of Directors in 2011 requirements of the UK Code were not complied.

  • The UK Code provides that the Board of Directors is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives.

This requirement is not included in the Code on Corporate Governance of the Company. However this annual report provides certain information on risk factors facing the Company.

  • The UK Code provides that the Audit Committee should also review the Company’s internal financial controls and, unless expressly addressed by a separate board risk committee composed of independent directors, or by the board itself, to review the company’s internal control and risk management systems; The audit committee should review arrangements by which staff of the company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters.

The Code on Corporate Governance of the Company does not contain these requirements. The Company does not have a separate Risk Committee; therefore the Audit Committee of the Board of Directors carries out these functions according to the provisions of the Committee. More detailed information on the Audit Committee of the Board of Directors evaluation may be found on page 14 of this report.

  • According to the UK Code the Directors should include in the annual report explanation of the basis on which the Company generates or preserves value over the longer term (the business model) and the strategy for delivering the objectives of the Company.

The Code on Corporate Governance of the Company does not contain such a requirement. This annual report does provide some explanation of the basis on which the Company generates or preserves value over the longer term (the business model) and the strategy for delivering the objectives of the Company in the business outlook section.