Corporate Governance Report

In the following, the Executive Board and Supervisory Board present their annual report on corporate governance at the Company in accordance with the recommendation given in Item 3.10 of the German Corporate Governance Code (Deutscher Corporate Governance Kodex — DCGK).

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

The German Corporate Governance Code establishes a standard for transparent control and management of companies that is particularly aligned to the interests of shareholders. Many of the principles contained in the German Corporate Governance Code have already long been standard practice at ProSiebenSat.1.

Specific issues relating to corporate governance at ProSiebenSat.1 Media SE and ProSiebenSat.1 Group are presented in more detail in the Management Declaration in accordance with Sections 289a and 315(5) of the German Commercial Code (Handelsgesetzbuch — HGB); this includes in particular the annual Declaration of Compliance with the German Corporate Governance Code, relevant information on management practices and on the compliance management system (CMS), and stipulations on the equal participation of women in management positions at the two management levels below the Executive Board. Supplementary statements such as a description of the working procedures of the Executive Board and Supervisory Board, stipulations on the equal participation of women in management positions on the Executive Board and the Supervisory Board, a presentation of the composition and working procedures of the committees, and supplementary information regarding capital market communications and accounting principles can be found in the following Corporate Governance Report.

Fundamentals of Corporate Governance

ProSiebenSat.1 Media SE is a listed European stock corporation (Societas Europaea — SE), with its registered office located in Germany. Thus, in addition to the German Corporate Governance Code, the formal structure for corporate governance is derived from German and European law, notably the law governing European Companies (SEs), stock corporation and capital markets law, and the Articles of Incorporation of ProSiebenSat.1 Media SE.

Information on Corporate Governance Practices

The Executive Board believes that sustained economic success in a competitive environment can only be achieved by ensuring that all action taken is in compliance with the applicable laws. Therefore, preventing corruption and breaches of law are key success factors with regard to our market position and attainment of our corporate targets. This applies in particular to antitrust legislation and media law as well as to data protection and the associated preservation of privacy rights due to increasing digitalization of the Group’s activities.

ProSiebenSat.1 Group has implemented a compliance management system (CMS) to monitor compliance with the law. The main objective of the CMS is to prevent violations of the law or, if violations have already occurred, to resolve the matter quickly and comprehensively and to ensure that all employees are at all times mindful of conducting themselves in accordance with the law. In view of its Group structure, ProSiebenSat.1 has established both a central and a decentral compliance organization. The central organization is made up of the Compliance Board, the Group’s Chief Compliance Officer (CCO), as well as experts in compliance-related topics. The role of the Compliance Board is to support the Executive Board in implementing, monitoring, and updating the content management system. The CCO is entrusted with implementing the principles of corporate governance, monitoring compliance with statutory provisions, and documenting those processes. Keeping up to date on changes in the law and tracking the relevant public discussions also fall under the officer’s purview. The decentral compliance organization is represented by the Unit Compliance Officer (UCO). Overall responsibility for the CMS lies with the Executive Board of ProSiebenSat.1 Media SE as the parent company of ProSiebenSat.1 Group.

ProSiebenSat.1 Group has laid down basic guidelines and policies in its Code of Conduct, which was revised in 2016. The guidelines define general standards of conduct in business and legal and ethical matters as well as governing how employees can report misconduct at the Company without being subject to repercussions. They serve all members of the Executive Board, the management, and the employees of ProSiebenSat.1 Group as a binding reference and regulatory framework for dealing with each other and with business partners, customers, suppliers, and other third parties. The Code of Conduct can be downloaded from the Internet.

The Company’s Governing Bodies

As a European Company (Societas Europaea — SE), ProSiebenSat.1 Media SE operates under a dual system via its three governing bodies: the Annual General Meeting, the Supervisory Board (supervisory body) and the Executive Board (managing body). Those bodies’ duties and powers are governed by Council Regulation (EC) No 2157/2001 of October 8, 2001 on the Statute for a European Company (SE), the SE Implementation Act (Gesetz zur Ausführung der SE-VO — SEAG), the German Stock Corporation Act (Aktiengesetz — AktG) and the Articles of Incorporation of ProSiebenSat.1 Media SE.

A clear separation of powers is maintained between the management function and the supervisory function. The managing body is the Executive Board, which is overseen and advised by the Supervisory Board on management of the Company. All transactions and decisions of fundamental significance for the Company are undertaken by the Executive Board in close consultation with the Supervisory Board. To this end, open communication and close cooperation between the two bodies is of particular importance. This Corporate Governance Report describes the working procedures of the Executive Board and Supervisory Board and the cooperation between them. The remuneration paid to the members of the Executive Board and the Supervisory Board is described in the Compensation Report, which is part of the Combined Management Report.

The Company’s shareholders exercise their rights of co-administration and oversight at the Annual General Meeting. Each share of common stock confers one vote at the Annual General Meeting. The shareholders are notified of the items on the agenda of the Annual General Meeting and the resolutions proposed by the Executive Board and the Supervisory Board in a timely manner in the meeting invitation.

Composition of the Executive Board and Supervisory Board

According to the Company’s Articles of Incorporation, the Executive Board must be composed of one or more members. The number of Executive Board members is determined by the Supervisory Board. As of December 31, 2016, the Executive Board of ProSiebenSat.1 Media SE had seven members. In principle, members of the Executive Board are appointed and removed by the Supervisory Board as the supervisory body in accordance with Article 39(2) of the SE Regulation. Pursuant to Section 7(2) Sentence 1 of the Articles of Incorporation in conjunction with Article 46 of the SE Regulation, Executive Board members are appointed for a maximum period of five years; reappointments for a maximum of five years are permitted.

The Articles of Incorporation stipulate that the Supervisory Board must have nine members, all of whom are to be elected by the Annual General Meeting. As of December 31, 2016, the Supervisory Board of ProSiebenSat.1 Media SE had nine members. New Supervisory Board members take part in a structured onboarding process, in which they are familiarized with the Company and their tasks.

Targets for Executive Board Composition and Stipulations Concerning the Equal Participation of Women on the Executive Board in Accordance with Section 111(5) of the Stock Corporation Act in Conjunction with Article 9(1) lit. c) ii) of the SE Regulation

Against the backdrop that at that point of time there was no female representation on the Executive Board of ProSiebenSat.1 Media SE, the contracts of the Executive Board members in office at that time extended beyond June 30, 2017, and the Supervisory Board of ProSiebenSat.1 Media SE did not wish to increase the number of Executive Board members merely on the basis of the statutory change enacted in Section 111(5) of the Stock Corporation Act, the Supervisory Board on September 30, 2015 pursuant to Section 111(5) of the Stock Corporation Act in conjunction with Article 9(1) lit. c) ii) of the SE Regulation decided in the interests of flexibility with regard to future appointments of Executive Board members

• to refrain from making any changes to the composition of the Executive Board of ProSiebenSat.1 Media SE prior to June 30, 2017, thus setting a target of 0 % for the share of women on the Executive Board,
• to nonetheless reconsider such target should it appear necessary or are intended — even before June 30, 2017 — to alter the composition of the Executive Board of ProSiebenSat.1 Media SE.

In its current composition, the Executive Board fulfills the aforementioned target adopted by the Supervisory Board in its resolution of September 30, 2015 for the equal participation of women on the Executive Board. The appointment of Sabine Eckhardt as of January 1, 2017 nonetheless put one female member on the Executive Board of ProSiebenSat.1 Media SE.

Targets for Supervisory Board Composition and Stipulations Concerning the Equal Participation of Women on the Supervisory Board in Accordance with Section 111(5) of the Stock Corporation Act in Conjunction with Article 9(1) lit. c) ii) of the SE Regulation

Having thoroughly reviewed the recommendations of Items 5.4.1(2) and (3) of the German Corporate Governance Code regarding the specific targets for its composition, the Supervisory Board has set targets for its composition that take account of the specifics of the Company pursuant to Section 111(5) of the Stock Corporation Act in conjunction with Article 9(1) lit.c) ii) of the SE Regulation. The Supervisory Board has accordingly set the following targets:

• the share of independent Supervisory Board members within the meaning of Item 5.4.2 of the German Corporate Governance Code should be at least 30 %;
• the share of women should be at least 33 %, to be attained by no later than June 30, 2017;
• the international activities of the Company should continue to be taken into account and the current level of internationalization should be maintained at minimum. In addition, the Supervisory Board should continue to be filled with members who, based on their origin or professional activities, represent regions or cultures in which the Company has significant business operations or who have specific international expertise or experience, in particular in the areas of broadcasting, media and communication;
• diversity should also continue to be taken into account when appointing members to the Supervisory Board, and the current level of diversity should be maintained at minimum. The Supervisory Board should be filled with members who, based on their origin, their personal background, their education, or professional activities, are able to contribute a wide range of experience and specific expertise;
• the Supervisory Board will continue to assess how it intends to handle potential or actual conflicts of interest in order to continue to guarantee unbiased supervision of and provision of advice to the Executive Board of the Company in the Company’s best interests in each individual case within the legal framework and taking into account the German Corporate Governance Code;
• the age limit of 70 at the time of appointment to the Supervisory Board, as stipulated in the rules of procedure adopted by the Supervisory Board, should continue to apply;
• individuals who have been members of the Company’s Supervisory Board for three full consecutive terms, and thus generally for fifteen years, should as a rule no longer be nominated for reelection to the Supervisory Board. However, the Supervisory Board may nominate such individuals for reelection to the Supervisory Board if extending the candidate’s term in office appears appropriate and in the Company’s best interests in individual cases.

The Supervisory Board already meets the aforementioned targets it has set for its composition pursuant to the German Corporate Governance Code and the Stock Corporation Act.

Working Procedures of the Executive Board and Supervisory Board

Each member of the Executive Board is assigned an area of responsibility regarding which that member keeps his or her colleagues on the Executive Board continuously updated. Rules of procedure enacted by the Supervisory Board for the Executive Board govern the cooperation between the Executive Board members and the Executive Board members’ areas of responsibility. As a rule, the full Executive Board meets on a weekly basis; the meetings are chaired by the CEO. One of the functions of the meetings is to adopt resolutions on measures and transactions that require the consent of the full Executive Board under the Executive Board’s rules of procedure. When voting on resolutions, at least half of the Executive Board members must participate in the vote. Resolutions of the full Executive Board are adopted by simple majority. In the event of a tie, the CEO casts the deciding vote. When significant events occur, any Board member 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 of the meetings by casting votes verbally, by phone, in writing, or by text message. Written minutes of every meeting of the full Executive Board and of every resolution adopted outside of the meetings are prepared and signed by the CEO or the chairman of the meeting. The minutes are then promptly forwarded to each member of the Executive Board in writing or by text message; if none of the individuals who attended the meeting or took part in the resolution object to the content or the wording of the minutes within one week of dispatch, the minutes shall be deemed approved. In addition to the regular Executive Board meetings, a strategy workshop is held at least once a year. The workshops serve to prioritize strategic targets across the Group and to define the strategy for the current financial year in cooperation with senior executives from the various business units.

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

The Executive Board provides the Supervisory Board with prompt and complete information — both in writing and at the Supervisory Board’s quarterly meetings — on planning, business performance, and the situation of the Company, including risk management and compliance matters. Where indicated, an extraordinary meeting of the Supervisory Board is called to address important events. The Executive Board includes the Supervisory Board in Company planning and strategy as well as in all matters of fundamental importance to the Company. The Company’s Articles of Incorporation and the rules of procedure for the Executive Board stipulate that all significant transactions must be approved by the Supervisory Board. Such significant transactions requiring the consent of the Supervisory Board include adopting the annual budget, making major acquisitions or divestments, and investing in program licenses. More information on cooperation between the Executive Board and the Supervisory Board and on the significant matters on which they consulted in financial year 2016 is available in the Supervisory Board Report.

The Supervisory Board holds a minimum of two meetings during the first half of the financial year and two meetings during the second half. To facilitate its work, the Supervisory Board has adopted rules of procedure to supplement the provisions of the Articles of Incorporation. The rules of procedure stipulate that the Chairman of the Supervisory Board is to coordinate the work of the Supervisory Board, chair the Supervisory Board meetings, and represent the Supervisory Board’s interests externally. As a rule, the Supervisory Board adopts its resolutions at the Supervisory Board meetings. However, on instruction of the Supervisory Board Chairman, resolutions may also be adopted on conference calls, in videoconferencing sessions or outside of the meetings. Equally admissible is the adoption of resolutions via a combination of voting at meetings and voting via other methods.

The Supervisory Board is deemed to constitute a quorum if at least half of its members participate in the vote. Resolutions of the Supervisory Board are generally adopted by simple majority of the votes cast, unless otherwise prescribed by law. In the event of a tie, the deciding vote is cast by the Chairman of the Supervisory Board, or in his absence the Deputy Chairman.

The meetings of the Supervisory Board are recorded in minutes that are signed by the Chairman. A written record is also kept of resolutions adopted outside of the meetings. A copy of the minutes, or of resolutions adopted outside of meetings, is sent promptly to all members of the Supervisory Board. The Supervisory Board members participating in the meetings or voting on the resolutions may raise objections to the minutes. Objections must be made in writing to the Chairman of the Supervisory Board within one month of the minutes being sent out. Otherwise, the minutes shall be deemed approved.

Prof. Dr. Rolf Nonnenmacher, who is also Chairman of the Audit and Finance Committee, meets the requirements of Sections 100(5) and 107(4) of the Stock Corporation Act in conjunction with Article 9(1) lit. c) ii) of the SE Regulation and Item 5.3.2 Sentences 2 and 3 of the German Corporate Governance Code as an independent, expert member. In other respects, the members of the Audit and Finance Committee are, as a whole, familiar with the sector in which the Company operates pursuant to Sections 100(5) and 107(4) of the Stock Corporation Act in conjunction with Article 9(1) lit. c) ii) of the SE Regulation.

The members of the full Supervisory Board are, as a whole, also familiar with the sector in which the Company operates pursuant to Section 100(5) of the Stock Corporation Act in conjunction with Article 9(1) lit. c) ii) of the SE Regulation. All Supervisory Board members must report any conflicts of interest without delay to the Supervisory Board’s Presiding and Nominating Committee, particularly those conflicts that may arise from exercising an advisory or executive function vis-à-vis customers, suppliers, creditors, or other business partners.

The recommendation contained in Item 5.6. of the German Corporate Governance Code states that the Supervisory Board should examine the efficiency of its activities on a regular basis. The review extends primarily to the Supervisory Board’s view of its mission, the organization of its activities, the independence of its members, the handling of potential conflicts of interest, and the composition of its committees.

Composition and Working Procedures of the Committees

The Executive Board has not formed any committees; the Supervisory Board established four committees in financial year 2016. The Supervisory Board decides on the composition of its committees. In selecting committee members, potential conflicts of interest involving Board members are taken into account, as are their professional qualifications.

The committees of the Supervisory Board normally meet once per quarter. The Capital Markets Committee meets only when the consent of the Supervisory Board is required for the Executive Board to utilize the Company’s Authorized Capital and for associated measures. To the extent permitted by law, the committees have been entrusted with adopting resolutions concerning various Supervisory Board tasks, especially approving certain management actions. A committee is deemed to constitute a quorum when at least half — and under no circumstances 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 casts the deciding vote. Written minutes are prepared of each committee meeting and are signed by the committee chairman. Resolutions adopted outside of the meetings are also recorded in writing. Minutes and the text of resolutions adopted are sent to all members of the committee concerned. These shall be deemed approved if no committee member who was present at the meeting, or who took part in the vote on the resolution, objects to the content within one week of dispatch. The committee chairmen report on the work of the committees at the meetings of the Supervisory Board.

The CFO, the Chief Legal Officer, and the independent auditor participate regularly in the meetings of the Audit and Finance Committee. In addition, the Chairman of the Audit and Finance Committee invites employees — in particular senior executives — from the areas of finance and accounting to provide information at meetings if required. The Audit and Finance Committee meets without any Executive Board members being present at least once per financial year. The Supervisory Board has issued rules of procedure to govern the work of the Audit and Finance Committee. In addition, the Audit and Finance Committee and the auditors maintain a regular dialog between meetings.

Individual Breakdown of Meeting Participation

The Supervisory Board sees it as part of good corporate governance to disclose an individual breakdown of participation in meetings of the plenary Supervisory Board and meetings of the Supervisory Board committees.

Capital Market Communications and Accounting Policies

• Transparency: We aim to strengthen trust among shareholders, capital providers, and other interested parties through openness and transparency. For that reason, ProSiebenSat.1 Media SE reports regularly on key business developments and changes within the Group. The Company generally provides this information simultaneously to all shareholders, media representatives, and other interested parties. Given the international nature of our stakeholders, we provide reports in English as well.
  To ensure fair communication and prompt disclosure both in Germany and elsewhere, the Company makes use of the Internet as one of its main communication channels. All relevant corporate information is published on our website at www.ProSiebenSat1.com. Annual reports, half-yearly financial reports, quarterly statements, current stock price charts, and company presentations can be downloaded from the website at any time. The website includes a special section dedicated to the Annual General Meeting, where the Group provides information on organizational and legal matters relating to the Annual General Meeting. The meeting agenda can be found here, and the CEO’s speech and the results of votes are made available after the meeting. In the Corporate Governance section, ProSiebenSat.1 Media SE also publishes the annual Corporate Governance Report, the current Management Declaration pursuant to Sections 289a, 315(5) and 315a of the German Commercial Code (Handelsgesetzbuch — HGB), and the Declaration of Compliance with the German Corporate Governance Code in accordance with Section 161 of the Stock Corporation Act, which includes an archive of previous declarations of compliance and the Company’s Articles of Incorporation.
• Regular reporting and ad hoc disclosures: Four times a year, ProSiebenSat.1 Group presents information on the Group’s business performance as well as its cash flows and earnings as part of the Company’s annual and interim financial reporting. As required by law, matters that could significantly influence the price of the Company’s stock are announced immediately in ad hoc disclosures outside of the scheduled reports and are made available on the Internet without delay.
• Financial Calendar: The financial calendar presents the release dates of financial reports and statements well in advance, along with other important dates such as the date of the Annual General Meeting. The calendar is available on the ProSiebenSat.1 website and is also reproduced in this Annual Report.
• Significant voting rights: Notifications of changes in significant voting rights pursuant to Sections 21 et seq. of the German Securities Trading Act (Wertpapierhandelsgesetz — WpHG) are published immediately upon receipt. Current information is available online.
• Directors’ dealings notifications: Directors’ dealings notifications in accordance with Section 15a of the Securities Trading Act and, since July 3, 2016, in accordance with Article 19 of Regulation (EU) No. 596/2014 (Market Abuse Regulation — MAR) are likewise published on the Internet immediately upon receipt. In financial year 2016, the following transactions in company stock or in financial instruments relating to company stock were reported to ProSiebenSat.1 Media SE by management personnel or related parties in compliance with Section 15a of the Securities Trading Act and, since July 3, 2016, Article 19 of the Market Abuse Regulation.

• Shareholdings of the Executive Board and Supervisory Board: As of December 31, 2016, members of the Executive Board held a total of 47,450 shares and members of the Supervisory Board a total of 17,794 shares in ProSiebenSat.1 Media SE.
  The Long Term Incentive Plan (LTIP) was replaced by a share-based remuneration plan (the Group Share Plan) created in 2012. Participants in the plan are issued performance share units (PSUs) entitling them, at the discretion of the Company, either to shares in the Company or to a cash payment based on the share price following expiration of a four-year holding period, which commences at the start of the year of allocation. In March 2016, the Company and the Supervisory Board, as applicable, decided to avail itself of the right to settle its obligation in cash, for which reason the PSUs will be paid out in cash following expiration of the respective holding period (see Note 31 of the Notes to the Consolidated Financial Statements: Share-based payment). The conversion factor used to convert the PSUs to shares in ProSiebenSat.1 or the corresponding cash amount after the end of the holding period depends on the achievement of predefined annual targets during the holding period. In financial year 2016, Executive Board members held a total of 430,419 PSUs.
• Accounting and audit of financial statements: ProSiebenSat.1 Group’s financial reporting conforms to the IFRSs (International Financial Reporting Standards) as adopted by the European Union. The annual financial statements of ProSiebenSat.1 Media SE, the Group parent, are prepared under the accounting principles of the German Commercial Code (HGB). The single-entity financial statements of ProSiebenSat.1 Media SE are available — separately from the consolidated financial statements — on the Company’s website at www.ProSiebenSat1.com. Both sets of financial statements are audited and issued an audit opinion by an independent accounting and auditing firm. The financial statements for financial year 2016 were duly audited by KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), Munich office, with Haiko Schmidt acting as the lead auditor. They were issued an unqualified audit opinion on February 22, 2017. Haiko Schmidt has worked with the Company since financial year 2012 as lead auditor at KPMG.
• Stock option plans and similar securities-based incentive systems: Information on ProSiebenSat.1 Media SE’s share-based remuneration plan (Group Share Plan), the Mid Term Incentive Plan to be paid out in cash (MTI), the former stock option plan (Long Term Incentive Plan), and the employee stock option plan newly established in 2016 (MyShares) can be found in the Notes to the Consolidated Financial Statements and in the Compensation Report.