Corporate Governance

The recognized standards stipulated in the German
Corporate Governance Code in the version dated May 26, 2010
form the basis for Bertelsmann AG’s guidelines on good corporate
management and governance. In accordance with German
stock corporation law, Bertelsmann AG operates a two-tier
board system which draws a distinction, in personnel terms,
between the Executive Board as a management body and the
Supervisory Board as a supervisory body. The Bertelsmann AG
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 Bertelsmann AG Executive Board is responsible for 
independently managing the company. Its 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 
Supervisory Board with regular, prompt and comprehensive 
reports on all matters that are relevant to the company’s 
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 Board 
and has regular consultation meetings with the Supervisory 
Board Chairman. 

The Supervisory Board monitors the Executive Board and 
advises it 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 its implementation are discussed openly and 
coordinated in joint sessions. Any significant measures to 
be taken by the Executive Board are subject to the approval 
of the Supervisory Board. 

The Bertelsmann AG shareholders exercise their rights and 
vote at the Annual General Meeting. The Annual General 
Meeting votes on amendments to the articles of association 
and the appropriation of net income, for example, and elects 
members to the Supervisory Board. The Supervisory Board, 
in turn, appoints the members of the Executive Board. The 
members of both 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 
Board. In addition to the Personnel Committee, the 
Bertelsmann AG Supervisory Board has formed a Strategy 
and Investment Committee, an Audit and Finance Committee 
and a Working Group of Employee Representatives on the 
Supervisory Board. The Personnel Committee also performs 
the tasks of a nomination committee, in which capacity it recommends suitable candidates to the Supervisory Board 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 Board’s 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 Board and its heterogeneous composition with 
competent members of distinct expertise are key factors in 
its effectiveness and independence.

Diversity in Practice

For a global, decentralized company like Bertelsmann, it is 
essential that management positions reflect diversity. In this 
respect, Bertelsmann is also particularly interested in increasing 
the proportion of women in management positions. The company 
has set up special promotion programs and is planning further 
measures for the development of female executives. 

The diversity within the management positions is also reflected 
in the international composition of the Bertelsmann Supervisory 
Board. In addition, three of its members are women, which means 
that the proportion of female members on the Supervisory Board 
is already significantly above average. The Supervisory Board 
does take into account the aim of achieving diversity in its body 
when nominating candidates for election by the Annual General 
Meeting. However, it opposes a binding female quota, as decisions 
on appointments should be based exclusively on the qualifications 
and performance of individual candidates and the interests of the 
company. Age limits for members of the Supervisory Board are 
regulated in the articles of association.

Closed Group of Shareholders

Three foundations (Bertelsmann Stiftung, Reinhard Mohn Stiftung, 
BVG-Stiftung) indirectly hold 80.9 percent of Bertelsmann AG 
shares, with the remaining 19.1 percent held indirectly by the 
Mohn family. Bertelsmann Verwaltungsgesellschaft (BVG) 
controls all voting rights at the Bertelsmann AG Annual General 
Meeting. BVG is responsible for upholding the interests of the 
Bertelsmann Stiftung foundation and the Mohn family as 
Bertelsmann AG shareholders and ensuring the continuity of the 
company’s management as well as Bertelsmann’s distinctive
corporate culture. BVG shareholders include three representatives 
of the Mohn family and three additional shareholders elected by 
the BVG shareholder meeting who are not members of the Mohn 
family. Bertelsmann AG is an unlisted company, yet its corporate
governance activities closely follow the recommendations of the 
German Corporate Governance Code in the version published
on May 26, 2010, which are primarily aimed at listed companies. 
Exceptions relate primarily to those guidelines which, in the opinion 
of Bertelsmann AG, apply to publicly held enterprises with large 
numbers of shareholders or anonymous shareholders. The 
individual remuneration and incentives paid to the members of the 
Bertelsmann AG Executive Board and Supervisory Board are not 
made public but are disclosed to the shareholders of 
Bertelsmann AG. Accordingly, no remuneration report is prepared.

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 been fully committed 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 employee survey conducted in 2010
showed that employees feel properly informed about the rules
of conduct specified in the Code of Conduct. The Executive Board 
has continuously developed and expanded Bertelsmann’s 
compliance structure and organization over time, including during 
2010. In particular, a risk inventory was drawn up in order to 
evaluate the relevant compliance risks. Furthermore, the training 
sessions offered to employees worldwide on the principles of 
the Code of Conduct, the importance of an open dialog in the 
workplace and the different whistleblower channels available 
whichbegan in 2009 were completed in the year under review. 
The training sessions were conducted by the Ethics & Compliance 
department, whose other responsibilities include reviewing the 
reports received through the various whistleblower channels and 
coordinating investigations. 

The Corporate Compliance Committee (CCC), established as
part of the compliance organization, held regular meetings
during the period under review. 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 Executive Board and CCC submitted the annual 
compliance report to the Supervisory Board. All the reports 
received were investigated, and appropriate actions were taken 
in response to compliance violations. The report also included
suggestions for increasing the effectiveness of compliance.