EVRAZ @ The Fool

Published in Investing on 17 May 2013  BY

Tony Reading

What you need to know about the top executives of steelmaker EVRAZ plc (LON:EVR).

Management can make all the difference to a company's success and thus its share price.

The best companies are those run by talented and experienced leaders with strong vested interests in the success of the business, held in check by a board with sound financial and business acumen. Some of the worst investments to hold are those run by executives collecting fat rewards as the underlying business goes to pot.

In this series, I'm assessing the boardrooms of companies within the FTSE 100 (UKX). I hope to separate the management teams that are worth following from those that are not. Today I am looking at Evraz (LSE: EVR), the vertically-integrated mining-to-steelmaking group that is Russia's largest steelmaker.

Here are the key directors:

Director	Position
Alexander Abramov	(non-exec) Chairman
Alexander Frolov	Chief Executive

78% of Evraz is controlled by a group of Russian oligarchs, including 31% by Chelsea-owner Roman Abramovich and 22% by chairman Alexander Abramov. That gives the oligarchs effective control, to the extent of being able to pass special company resolutions, but a relationship agreement secures the interests of minority shareholders.

A special dispensation for a free float below 25% was given by the LSE when the company floated in 2011. The stock has declined in value by about 60% since then.

Scientists

A former scientist working on high-temperature physics, Alexander Abramov is the Russian oligarch who built up Evraz from a slew of interests acquired after Russia's financial crisis in1998. He was CEO from 2005, stepping down to be a non-exec in 2006 and then assuming the chairmanship in 2008.

Also a former scientist and former atomic energy researcher, Alexander Frolov co-founded Evraz with Mr Abramov. He was chairman from 2006 and CEO from 2007, and had previously been its chief financial officer.

Board composition

Evraz has no finance director. There are three shareholder representative non-execs and five independent non-execs. The board of ten thus has five 'aligned' and five 'non-aligned' directors.

The three shareholder representatives include Eugene Shvidler, Roman Abramovitch's business partner and chairman of Mr Abramovich's holding company; Eugene Tenenbaum, a Ukrainian-Canadian lieutenant of Mr Abramovich and a director of Chelsea Football Club; and Olga Pokrovskaya, head of corporate finance for Mr Abramovich's investment firm.

Independents

The senior independent director is Sir Michael Peat, former treasurer to the Queen and private secretary to Prince Charles. He earns $250,000 a year for sitting on Evraz's board, similar to the other independent non-execs, and has appointed Eugene Shvidler to the board of his own stockbroking firm.

Two of the independent directors are also non-execs of Highland Gold Mining, the AIM-listed Russian gold miner part-owned by Mr Abramovich whose board also includes Mr Shvidler, Mr Tenenbaum and Ms Pokrovskaya.

Messrs Abramov, Frolov and Shvidler have billion-pound holdings in the company. No other directors hold any shares.

I analyse management teams from five different angles to help work out a verdict. Here's my assessment:

1. Reputation. Management CVs and track record. Successful.	Score 3/5
2. Performance. Success at the company. Underperformed.	Score 2/5
3. Board Composition. Skills, experience, balance See above.	Score 0/5
4. Remuneration. Fairness of pay, link to performance. Uncontroversial.	Score 3/5
5. Directors’ Holdings, compared to their pay. See above.	Score 2/5

Overall, Evraz scores 10 out of 25, a very poor result. With no finance director and independent directors who are closer to the owners than might be ideal, external oversight is limited. Its LSE listing underpins Evraz's corporate governance standards, but minority shareholders would be deluded if they thought a company controlled by a group of oligarchs close to the Kremlin which produces a fifth of Russia's steel output is run for their benefit.