Corporate Governance Report

The Executive Board and Supervisory Board see good corporate governance as an essential component of responsible, transparent management and control oriented to long-term value creation.

The German Corporate Governance Code (Deutscher Corporate Governance Kodex — DCGK) establishes a standard for transparent control and management of companies, which is particularly aligned to the interests of the shareholders. Many of the principles contained in the DCGK have already been practiced at ProSiebenSat.1 for a long time.

Individual topics relating to corporate governance at ProSiebenSat.1 Media AG are described in more detail in the Management Declaration pursuant to Section 289a of the German Commercial Code; this includes in particular the annual Declaration of Conformity and relevant information on management practices. Supplementary statements, such as a description of the working procedures of the Executive Board and Supervisory Board, a presentation of the composition and working procedures of the committees and explanations on the capital market communication and the reporting principles can be found in the following Corporate Governance Report pursuant to section 3.10 DCGK.

Fundamentals Relating to Corporate Governance

ProSiebenSat.1 Media AG is a listed stock corporation, with its registered office located in Germany. As well as from the German Corporate Governance Code, the formal structure for Corporate Governance is therefore derived from German law, in particular the law governing stock corporations and the capital market, as well as from the articles of incorporation of ProSiebenSat.1 Media AG.

The compliance officer of ProSiebenSat.1 Media AG is entrusted with implementing the principles of corporate governance, monitoring compliance with the requirements of law and documenting these processes. The officer’s duties also include keeping up to date on changes in the laws, and tracking the relevant public discussions.

The Company’s Governing Bodies

As a German stock corporation, ProSiebenSat.1 Media AG has three governing bodies: the Annual General Meeting, the Supervisory Board and the Executive Board. Their tasks and powers emerge from the German Stock Corporation Act and the articles of incorporation of ProSiebenSat.1 Media AG.

German corporate law provides for a clear separation of personnel between management and controlling bodies. The managing body is the Executive Board, which is overseen and advised by the Supervisory Board with regard to management. All transactions and decisions that are of fundamental importance to the Corporation are handled in close coordination between the Executive Board and the Supervisory Board. As such, open communication and close cooperation between bodies is of particular importance. This Corporate Governance Report therefore reports on the working procedures of the Executive Board and Supervisory Board and their cooperation. The compensation of the members of the Executive and Supervisory Boards is explained in the Compensation Report, which is part of the Group management report.

The shareholders exercise their rights of joint administration and oversight at the Annual General Meeting. Each share of common stock confers one vote at the Annual General Meeting. The invitation to the Annual General Meeting notifies the Company’s shareholders in a timely manner about the various agenda items and the resolution proposals that the Executive Board and Supervisory Board will be submitting for approval.

Composition of the Executive Board and Supervisory Board

According to the provisions of the articles of incorporation, the Executive Board has one or more members. The number of Executive Board members is determined by the Supervisory Board. As of December 31, 2014, the ProSiebenSat.1 Media AG Executive Board consisted of four members.

The Supervisory Board has nine members in accordance with the articles of incorporation, which must all be elected by the Annual General Meeting. As of December 31, 2014, the Supervisory Board had eight members due to the resignation of Mr. Stefan Dziarski (member up to October 30, 2014). As a company that primarily serves purposes of reporting or expressing opinions, the company is not subject to co-determination.

Objectives for the Composition of the Supervisory Board

The Supervisory Board has thoroughly discussed the recommendations of item 5.4.1 para. 2 and para. 3 of the German Corporate Governance Code and specified concrete objectives regarding its composition by resolution dated March 13, 2015 taking into account the specifics of the Company. The Supervisory Board aspires that

• the share of independent Supervisory Board members within the meaning of item 5.4.2 of the German Corporate Governance Code shall be at least 30 %;
• the share of women shall be at least 30 %;
• the international activities of the Company shall continue to be taken into account for its composition and the current standard of internationalization should at least be maintained. The Supervisory Board shall continue to comprise members who represent regions or cultures in which the Company engages in relevant business activities or who have specific international knowledge and experience due to their origin or professional activities, in particular in the areas of broadcasting, media and communication;
• also the diversity shall continue to be taken into account for its composition and the current standard of diversity should at least be maintained. The Supervisory Board shall continue to comprise members who may provide wide-ranging experience and specific knowledge due to their origin, their personal background, their education or professional activities;
• it continues to assess in each individual case within the legal framework and taking into account the German Corporate Governance Code, how it will handle potential or actual conflicts of interest in order to continue to guarantee an unbiased supervision and advice of the Executive Board of the Company in the best interest of the Company;
• the age limit of 70 years at the time of the election as a Supervisory Board member as adopted by the Rules of Procedure of the Supervisory Board shall continue to apply.

The Supervisory Board in its current composition fulfills the abovementioned objectives for its composition with exception of the share of women; this share currently amounts to approx. 22 % with regard to the size of the Supervisory Board stipulated by the articles of incorporation. The Supervisory Board aspires to fulfill all objectives for its composition in the future.

Working Procedures of the Executive Board and Supervisory Board

Each member of the Executive Board is in charge of their own area of responsibility and keeps their colleagues on the Board continuously up to date on events in that area. The cooperation and areas of authority of the Executive Board members are governed by established rules of procedure, which the Supervisory Board enacted for the Executive Board. As a rule, the full Executive Board meets weekly. The meetings are chaired by the CEO. These meetings discuss such matters as resolutions about measures and transactions that require the consent of the full Board under the Board’s rules of procedure. For resolutions to be valid, at least half of the members of the Executive Board must participate in the vote. Resolutions of the full Executive Board are adopted by simple majority vote. In the event of a tie, the CEO has the casting vote. When important events occur, any member of the Executive Board may call an extraordinary meeting of the full Executive Board; the Supervisory Board may likewise call such meetings. The Executive Board may also adopt resolutions outside meetings via an oral, telephone or written vote and by vote in text form. Written minutes are prepared of every meeting of the full Executive Board and of every resolution adopted outside a meeting. The minutes are presented to the full Executive Board for approval at the next meeting and signed by the CEO. In addition to the regular Executive Board meetings, a strategy workshop is held at least once a year. At workshops of this kind, strategic objectives are prioritized for the whole Group and the strategy for the current financial year is developed in cooperation with managing executives from various business units.

Further details on the working procedures of the Executive Board are governed by the rules of procedure for the Executive Board defined by the Supervisory Board, which also govern the schedule of responsibilities and the matters reserved for the full Executive Board.

The Executive Board promptly and fully informs the Supervisory Board in writing, and also at the Supervisory Board’s quarterly meetings, about planning, business performance and the condition of the Company including risk management and about compliance issues. Where indicated, an extraordinary meeting of the Supervisory Board is called to address important events. The Supervisory Board is involved by the Executive Board in the Company’s strategy and planning, as well as in all matters of fundamental importance to the Company. For significant business decisions, the rules of procedure for the Executive Board involve requirements to obtain the consent of the Supervisory Board. For example, adopting the annual budget, major acquisitions or divestments, or investments in programming licenses require the consent of the Supervisory Board. More detailed information on the cooperation between the Executive Board and the Supervisory Board and important issues discussed in the 2014 financial year can be found in the Supervisory Board’s report.

The Supervisory Board holds at least two meetings per half of the calendar year. The Supervisory Board has adopted rules of procedure in addition to the provisions of the articles of incorporation to govern its work. These rules stipulate that the Chairman of the Supervisory Board coordinates the work of the Supervisory Board, chairs its meetings, and also represents the Board’s concerns to outside parties. As a rule, the Supervisory Board adopts its resolutions at meetings. However, by decision of the Chairman of the Supervisory Board, resolutions may also be adopted in conference calls or in videoconferencing sessions, or outside a meeting. Equally permissible is the adoption of resolutions by a combination of voting at meetings and voting via other forms.

Resolutions of the Supervisory Board are valid if at least half of its members participate in the vote. Resolutions by the Supervisory Board are normally adopted by simple majority of the votes cast, except where a different majority is prescribed by law. In the event of a tie, the Chairman of the Supervisory Board, or in his absence the Vice Chairman, has the casting vote.

Minutes are kept of the meetings of the Supervisory Board, and are signed by its Chairman. Resolutions adopted outside meetings are also recorded in writing. A copy of the minutes, or of resolutions adopted outside a meeting, is promptly sent to all members of the Supervisory Board. The Board members who participated at the meeting or in the resolution may file written objections against the minutes with the Chairman of the Supervisory Board within one month after the minutes are sent out. Otherwise the minutes, or the resolution, are deemed approved.

Prof. Dr. Harald Wiedmann, who is also Chairman of the Audit and Finance Committee, meets the requirements of Sections 100(5), 107(4) of the German Stock Corporation Act and Item 5.3.2 Sentences 2 and 3 of the German Corporate Governance Code as an independent and expert member.

Every Supervisory Board member must report conflicts of interest immediately to the Supervisory Board’s Presiding and Nomination Committee, particularly those that could arise from an advisory or executive function for customers, suppliers, creditors or other business partners.

In accordance with the recommendation of Item 5.6 of the German Corporate Governance Code, the Supervisory Board conducts regular efficiency reviews. The major points of examination include the Supervisory Board’s view of its own mission, the organization of its activities, the independence of its members, the handling of potential conflicts of interest, and the composition of its committees. The Supervisory Board arrived at a positive conclusion.

Composition and Working Procedures of the Committees

The Executive Board did not set up any committees, while the Supervisory Board appointed three in the 2014 financial year. Members of the Supervisory Board Committees are assigned by the Supervisory Board. In choosing committee members, Board members’ potential conflicts of interest are taken into account, as are their professional qualifications.

The committees of the Supervisory Board normally meet quarterly. To the extent permitted by law, the committees have been entrusted with making resolutions concerning various tasks of the Supervisory Board, especially approving certain management measures. A committee’s resolutions are valid if at least half — and in no case less than three — of its members participate in the vote. Committee resolutions are normally adopted by a simple majority vote; in the event of a tie, the committee Chairman has the casting vote. Written minutes are prepared of each committee meeting and are signed by the committee Chairman. Resolutions outside meetings are also recorded in writing. Minutes and resolutions are sent to all members of the committee concerned. They are deemed approved if no committee member who was present at the meeting, or who took part in the resolution, objects to the content within one week after delivery. The committee Chairmen report to the meetings of the Supervisory Board on the work of the committees.

The CFO and the independent auditor regularly participate in the meetings of the Audit and Finance Committee. Additionally, the Chairman of the Audit and Finance Committee invites in particular executives from finance and reporting units to provide information at meetings if required. The Audit and Finance Committee meets without the presence of Executive Board members at least once a year. The Supervisory Board has adopted rules of procedure to govern the work of the Audit and Finance Committee.

Individualized Disclosure of Participation in Meetings

The Supervisory Board regards it a part of good corporate governance to disclose each individual’s participation at meetings of the plenary Supervisory Board and of the committees of the Supervisory Board.

Capital Market Communication and Reporting Principles

• Transparency: We aim to strengthen trust among shareholders and capital providers, as well as the interested public, through openness and transparency. For that reason, ProSiebenSat.1 Media AG reports regularly on important business developments and changes in the Group. In general, the company provides this information simultaneously to all shareholders, media representatives, and the interested public. The information is also published in English, considering the international nature of the interested groups.
  To ensure fair communication and prompt disclosure both in Germany and in other countries, the Company particularly makes use of the Internet as a channel for communication. All relevant corporate information is published on our website, www.prosiebensat1.com. Annual reports, interim reports, current stock price charts, and company presentations are available for download there any time. The group provides information about organizational and legal matters concerning all aspects of the Annual General Meeting on special pages for the event. As well as the agenda itself, the speech of the CEO and the results of votes can also be downloaded from the site following the meeting. Under the Corporate Governance heading, ProSiebenSat.1 Media AG also publishes the annual Corporate Governance Report, the current Management Declaration according to Section 289a of the German Commercial Code, the Declaration of Compliance with the German Corporate Governance Code in accordance with Section 161 of the German Stock Corporation Act, including an archive with previous Declarations of Compliance and the company’s articles of incorporation.
• Regular reporting and ad hoc disclosures: Four times a year, as part of the Company’s annual and interim financial reporting, the ProSiebenSat.1 Group’s business performance, its financial position and its current results of operations are explained. In keeping with the requirements of law, matters that could significantly influence the stock market price are promptly publicized also outside of scheduled reporting in ad hoc disclosures, and are made available immediately on the Internet.
• Financial Calendar: The financial calendar publishes the release dates of financial reports well in advance, along with other important dates, such as the date of the Annual General Meeting. The calendar is available at the ProSiebenSat.1 website, and is also reproduced in this Annual Report.
• Reports of Equity Holdings: Reports of equity holdings under Sections 21 ff. of Germany’s Securities Trading Act (WpHG) are released as soon as they are received. Recent information is available at www.prosiebensat1.com/en/investor-relations/publications.
• Disclosures of directors’ dealings: Directors’ dealings disclosures under Section 15a of the German Securities Trading Act are also published on the Internet immediately after receipt. During the financial year 2014, the following transactions in Company stock and/or financial instruments relating to Company stock were reported to ProSiebenSat.1 Media AG by management personnel or parties related to them, in compliance with Section 15a of the German Securities Trading Act.

• Shareholdings of the Executive Board and Supervisory Board: As of December 31, 2014, members of the Executive Board held a total of 152,000 common shares and members of the Supervisory Board a total of 3,000 common shares in ProSiebenSat.1 Media AG.
  The Company repurchased the 165,000 stock options of the previous stock option program (Long Term Incentive Plan) from the 2009 cycle still outstanding in the 2014 financial year from the relevant Executive Board members. Stock options from the Long-Term Incentive Plan of ProSiebenSat.1 Media AG confer the right to purchase one common share of ProSiebenSat.1 if the exercise conditions are satisfied. Since the 2010 financial year, no more stock options from the Long-Term Incentive Plan have been granted to members of the Executive Board.
  As of December 31, 2014, members of the Executive Board (including Heidi Stopper, who resigned from the Board with effect from September 30, 2014) held a total of 451,177 Performance Share Units (PSUs) from the new share-based compensation plan (the Group Share Plan), which entitle them from the start of the year of the commitment to receive common shares after the expiry of a four-year holding period. The conversion factor by which the Performance Share Units (PSUs) are exchanged for ProSiebenSat.1 common shares after the end of the holding period depends on the achievement of predefined annual targets during the holding period.
• Reporting principles: The ProSiebenSat.1 Group’s financial reporting conforms to IFRS (International Financial Reporting Standards) as adopted by the European Union. The annual financial statements of ProSiebenSat.1 Media AG, as the Group’s parent company, are prepared under the accounting principles of the German Commercial Code (HGB). Both sets of financial statements are audited and certified by an independent accounting and auditing firm. The single-entity financial statements of ProSiebenSat.1 Media AG are available — separate from the Consolidated Financial Statements — at www.prosiebensat1.com.
• Information on stock option plans and similar securities-based incentive schemes: Information about the new ProSiebenSat.1 Media AG share-based compensation plan (Group Share Plan) and the former stock option plan (Long-Term Incentive Plan) can be in the notes to the consolidated financial statements and in the Compensation Report.