Corporate Governance

The recognized standards stipulated in the German Corporate Governance Code in the version dated May 15, 2012, form the basis for Bertelsmann's guidelines on good corporate management and governance. Bertelsmann’s legal form is that of a Kommanditgesellschaft auf Aktien [partnership limited by shares]. The statutory bodies of the KGaA are the Annual General Meeting, the Supervisory Board, and the general partner. The general partner serves as the management and representative body of the KGaA. In the case of Bertelsmann, this is Bertelsmann Management SE, a European stock corporation (Societas Europaea) represented by its Executive Board. Bertelsmann SE & Co. KGaA and Bertelsmann Management SE each have their own Supervisory Boards. The members of the Executive Board of Bertelsmann Management SE are appointed and monitored by the Supervisory Board of Bertelsmann Management SE. The Supervisory Board of Bertelsmann SE & Co. KGaA supervises the management of the business by Bertelsmann Management SE. The duties and responsibilities of the individual bodies are each clearly defined and strictly separated from each other. The Bertelsmann boards are obliged to secure the continuity of the company and to enhance the enterprise value in the long term through responsible and sustainable corporate management.

Corporate Management: Transparent Structures 
and Clear Decision-Making Processes

The general partner, Bertelsmann Management SE, represented by its Executive Board, is responsible for independently managing the company. The duties consist of determining the corporate objectives, the strategic direction of the Group, Group management, as well as corporate planning and financing. The Executive Board provides the respective Supervisory Boards with regular, prompt, and comprehensive reports on all matters that are relevant to business development and strategy implementation, planning, financial and earnings position, as well as risk situation and risk management. It ensures compliance with the provisions of law and corporate guidelines within the Group. The Executive Board Chairman coordinates the cooperation between the Executive Board and the Supervisory Boards and has regular consultation meetings with the Supervisory Board Chairmen. In addition, the Executive Board has established the Group Management Committee (GMC) which advises it on important corporate strategy and development matters as well as other issues that affect the Group as a whole. This committee, with its international and complementary composition, includes members of the Executive Board and selected executives from the Group.

The Supervisory Board of Bertelsmann SE & Co. KGaA supervises the management of the business by the general partner and has extensive information and control rights for this purpose. In addition, the Supervisory Boards advise the Executive Board on strategic matters and significant business operations. The Executive and Supervisory Boards work in close cooperation and are therefore able to reconcile the demands of effective corporate governance with the need for rapid decision-making. Fundamental matters of corporate strategy and their implementation are discussed openly and coordinated in joint sessions. Any significant measures to be taken by the Executive Board are subject to approval. The Bertelsmann SE & Co. KGaA and Bertelsmann Management SE shareholders exercise their rights and vote at the respective Annual General Meetings. The Annual General Meetings vote on amendments to the articles of association and the appropriation of net income, for example, and elect members to the respective Supervisory Board. The members of the Executive and Supervisory Boards are obliged to serve the company's best interests in their work. 

For some time, an integral component of the Supervisory Board's work at Bertelsmann has been the delegation of tasks to committees of experts. This serves to increase the monitoring efficiency and advisory expertise of the Supervisory Boards. The Supervisory Board of Bertelsmann Management SE has formed a Personnel Committee, and the Supervisory Board of Bertelsmann SE & Co. KGaA has formed a Strategy and Investment Committee, an Audit and Finance Committee, and a Working Group of Employee Representatives. The Personnel Committee also performs the tasks of a nomination committee, in which capacity it recommends suitable candidates to the Supervisory Board of Bertelsmann Management SE for its proposed resolutions to the Annual General Meeting. The Audit and Finance Committee is also regularly involved in the accounting process and monitors the effectiveness of the internal control system, risk management system, and internal auditing system. It also monitors compliance within the Group. These committees prepare the topics to be addressed during the Supervisory Board's plenary meetings. The chairmen of the committees then report to the plenary meetings on the work performed. The Supervisory Boards decision-making powers have been transferred to the committees to the extent permitted by law. The breadth and range of responsibilities and tasks delegated to these committees is continuously reviewed through various evaluation processes. The appropriate size of the Supervisory Boards and the professional expertise of their members who are drawn from a broad range of industries and areas of activity are key factors in Bertelsmann's effectiveness and independence.

Diversity in Practice

At a global company like Bertelsmann, active diversity should contribute to the Group's economic success. This is reflected at senior management level, including the composition of the GMC, in which more than 30 percent of the executives are female and the members come from seven different countries. In addition, Bertelsmann aims to promote diversity at all levels of the company. Corresponding initiatives for the development of diversity are being continuously expanded. The diversity within the management positions is also reflected in the heterogeneous composition of the Supervisory Boards. The Supervisory Boards do take into account the aim of achieving diversity in its body when nominating candidates for election by the Annual General Meeting. The Supervisory Boards already have a relatively high proportion of female members and therefore oppose a binding female quota. Age limits for members of the Supervisory Board are regulated in the respective articles of association.

Closed Group of Shareholders

Three foundations (Bertelsmann Stiftung, Reinhard Mohn Stiftung, BVG-Stiftung) indirectly hold 80.9 percent of Bertelsmann SE & Co. KGaA shares, with the remaining 19.1 percent held indirectly by the Mohn family. Bertelsmann Verwaltungsgesellschaft (BVG) controls all voting rights at the Bertelsmann SE & Co. KGaA Annual General Meetings. BVG also holds 100 percent of the shares in Bertelsmann Management SE. BVG is responsible for upholding the interests of the Bertelsmann Stiftung foundation and the Mohn family as indirect Bertelsmann SE & Co. KGaA shareholders and ensuring the continuity of the company's management as well as Bertelsmann's distinctive corporate culture. BVG is controlled by a steering committee, which is composed of three representatives of the Mohn family and three additional members, who are not members of the Mohn family. Bertelsmann SE & Co. KGaA is a capital-market-oriented, unlisted company. Nevertheless, its corporate governance activities closely follow the recommendations of the German Corporate Governance Code in the version published on May 15, 2012, which are primarily aimed at listed companies. Exceptions relate primarily to those guidelines which, in the opinion of Bertelsmann SE & Co. KGaA, apply to publicly held enterprises with large numbers of shareholders or anonymous shareholders. The individual remuneration and incentives paid to the members of the Executive Board and Supervisory Boards are not made public but are disclosed to the shareholders of Bertelsmann SE & Co. KGaA and Bertelsmann Management SE. Accordingly, no remuneration report is prepared. The company does not pay any performance-based remuneration to the members of the Supervisory Boards in order to avoid any potential conflicts of interest and to reinforce the independence of the Supervisory Board.

Compliance

Social responsibility and correct conduct towards employees, customers, business partners, and public authorities are key elements of Bertelsmann's value system. This means that Bertelsmann has always given the highest priority to the principle of adhering to statutory provisions and internal regulations on the prevention of legal risks and their consequences. The Code of Conduct, introduced in 2008, reinforces awareness of correct business conduct and provides information about the options for expressing concerns and reporting violations of the Code of Conduct.

The Executive Board has continuously developed and expanded Bertelsmann's compliance structure and organization over time, including during 2012. In light of the intensification of legal regulations (e.g., UK Bribery Act), the Group has, in particular, expanded its anti-corruption measures (specifically with anti-corruption guidelines and corresponding training sessions). The Corporate Compliance Committee (CCC) established within the framework of the compliance organization holds regular meetings. The responsibilities of the CCC include monitoring the follow-up on reports of compliance violations and the measures taken. The CCC submitted the annual Compliance Report to the Executive Board and advised it on specific and general responses to violations and compliance activity. The Ethics & Compliance (E&C) department has operational responsibility for compliance in the Bertelsmann Group, and its other responsibilities include conducting training sessions, reviewing the reports received through the various whistle-blowing channels, and coordinating investigations. It is supported within Corporate and within the divisions by E&C representatives who are responsible for implementing the E&C program at all levels of the company. The Executive Board and CCC submitted the annual Compliance Report to the Supervisory Board. All the reports of compliance violations received were investigated, and appropriate actions were taken in response to compliance violations. In addition, the report includes recommendations to increase the effectiveness of measures taken to ensure compliance.