Corporate Governance

Its system of corporate governance is based on several core principles: transparency in all business processes for our investors and partners, maintaining an engaged and professional board of directors and maintaining a consistent approach to all issues concerning the Corporation’s management. Sistema applies these principles to all company processes and procedures, including strategic management, financial accounting and reporting, audit, risk management, HR policy, corporate governance and corporate social policy.

Sistema’s processes and procedures are codified in the Company’s Charter, which determines the structure and competencies of its governing bodies. The Company’s Corporate Code and Code of Ethics contain additional commitments that Sistema has made in terms of promoting openness, collective decision making, social responsibility, and ethical principles in its relationship with partners, governments, employees, and shareholders.

Sistema’s main governing bodies are the General Meeting of Shareholders, Board of Directors, President and Management Board. Board committees are operational at the Board level, special committees are operational at the President level to make policy recommendations. The Company’s organizational structure is built on the basis of operational management, identifying key issues and establishing bodies with the necessary competencies to resolve them.

Throughout 2007 the Company made several strides to further the development of its corporate governance structures. A new set of procedures was adopted by the Board of Directors in October 2007 to increase the effectiveness of the Board’s meetings. The changes call for a slight reduction in the number of planned meetings per year and improving preparation and organization processes. This will entail preparing more thorough materials in the run up to the Board’s meetings and limiting the number of invitees to the Board’s meetings. Board materials will be first reviewed by the Management Board and Board committees before being distributed. The new rules also institutionalize constant flow of information between management and the members of the Board of Directors between the Board’s meetings.

Sistema launched an internal corporate governance rating system in June 2007 to measure the effectiveness of corporate governance at its subsidiaries. The methodology relies on concepts used by ratings agencies such as Standard & Poor’s, Moody’s and Expert RA. The results have been used to create action plans to further the development of its subsidiaries’ corporate governance systems.