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SAP Drops Co-CEO Role After Six Months as Virus Upends Plans

Sarah Syed, Nico Grant and Tom Giles

(Bloomberg) -- SAP SE Co-Chief Executive Officer Jennifer Morgan, appointed in October to the top executive post alongside Christian Klein, will abruptly leave the German software company at the end of April, after the Covid-19 pandemic caused problems with its leadership structure.

Klein, 39, will remain in the CEO role, SAP said late Monday in a statement. He joined the company as a student in 1999 and had been chief operating officer since April 2016 before his October promotion, with Morgan, to replace Bill McDermott in the top job. Klein has been a member of SAP’s executive board since 2018.

The company said it is shifting to a lone CEO model now to provide a clearer leadership structure in the face of business challenges posed by the Covid-19 pandemic. SAP also posted its first quarter results on Tuesday, stating business activity in the first two months of the quarter was “healthy” but as the spread of the coronavirus intensified a significant amount of new business was postponed.

SAP fell 2.4% to 111 euros at 9:49 a.m. in Frankfurt on Tuesday. The stock has declined 7.8% this year.

“Jen and I really started with a joint agenda,” said Klein in a call with reporters. “The reason we decided to come back to a sole CEO model was because of the outbreak of the pandemic. There was no exact date to when SAP would have come back to a sole CEO model but in these turbulent times we thought now was the right time.”

SAP had been committed to the co-CEO structure, but when the coronavirus hit, it became clear that having two people in charge was no longer tenable, according to a person with knowledge of the matter. Morgan is the first female chief executive of a DAX-listed company.

The leadership structure was “disorganized and, at times, chaotic,” said the person, who asked not to be named discussing the company’s internal dynamics. It took longer to get some things done because, in certain instances, managers needed sign off from two different CEO offices, this person said. “It was driving people crazy.”

Over time, two distinct power centers emerged, the person said. One was based in the U.S. under Morgan, who is American. The other, under Klein, was anchored in Germany, the site of the company’s headquarters, its greatest sphere of influence and Klein’s homeland, said the person. Klein also benefited from his close ties to Chairman and co-founder Hasso Plattner, this person said.

“The leadership model has many benefits,” an SAP spokeswoman said. “But the current environment requires the company to take swift and determined action.”

SAP also said that due to current uncertainty regarding the duration and severity of the Covid-19 pandemic, it can’t predict whether its response will be effective in mitigating the impact of the virus on its business and results of operations. On Tuesday it reported:

Total revenue in 2020 will be 27.8 billion euros ($30.1 billion) to 28.5 billion euros, down from a previous forecast of as much as 29.7 billion euros, SAP said on 8 April in its preliminary resultsCloud revenue increased 27% to more than 2 billion euros for the first quarter of 2020 while total revenue was up 7% to more than 6.5 billion eurosSAP is not planning on applying for state wage support or requesting governmental aid amid the pandemic, Luka Mucic, chief financial officer, said on the call with reporters

Morgan, 48, joined SAP in 2004 and had been president of the software giant’s cloud business group before being named co-CEO. She became the first American woman appointed to SAP’s executive board in 2017 when she was named president of the Americas and Asia.

“The market has never really appreciated the co-CEO structure, though we believe SAP will lose a dedicated cloud sales person with Jennifer,” Florian Treisch, analyst at Commerzbank AG wrote in a note Tuesday.

McDermott’s departure last year was unexpected, but the new co-CEOs had been on investors’ “short list” to take over in future, Citigroup analysts including Walter Pritchard said in a note at the time of their appointment.

(Updates with shares in fourth paragraph, analyst comment in penultimate)

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