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Corporate Governance 101

Some of you have questions and concerns related to our recent announcements of the change in leadership at SAP. We are very grateful that you have dedicated a lot of time to SAP in your courses and projects and for your careers. And we want to continue to assure you that you have made the clear and correct decision for your short- and long-term futures.

SAP is the world’s leading provider of business software, offering applications and services that enable companies of all sizes and in more than 25 industries to become best-run businesses. Over 60% of the world’s business transactions touch SAP. With more than 92,000 customers in over 120 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE, under the symbol “SAP.”

Many of you in our international academic community may not be aware of the unique governance structure for German corporations whose shares are traded on a public exchange. In most every country of the world, laws and regulations specifically call for corporations to be led by a board of directors. The members of the board are elected primarily or completely by shareholders (owners) of the business. The elected leader of this group is known as the chairman of the board.

The board of directors is normally required by law to install a chief executive officer to manage the corporation and to hire all other company managers. In the vast majority of businesses, although there are some exceptions, the same person holds both the positions of chairman of the board and chief executive officer. Researchers call this the unitary board concept.

In Germany, however, the law calls for public corporations to install two independent leadership boards – a supervisory board and a management board. Researchers call this the dual board concept.

In the required supervisory board, at least half the members, including the chairman, are elected by the shareholders. The remaining board members are elected by employees, not by shareholders (also very important to understand for SAP). The required management board runs the day-to-day operations of the company. And ALL of the members are formally appointed by the supervisory board. The leader of the management board is often the chief executive officer (or managing director), and at times in SAP’s history, like today with Co-CEO’s Jim Hagemann Snabe and Bill McDermott, we have had more than one chief executive appointed by the supervisory board.

In addition, none of the members of the supervisory board can be managers or employees of the corporation. This, of course, means that members of the management board cannot be elected to the supervisory board. SAP was founded and incorporated in Germany. Therefore, our corporate governance system complies with the German dual board structure. We do not have the same person fill the roles of chairman of the board and chief executive officer.

Our chairman is Hasso Plattner. He is a former CEO of our corporation. He is also one of the founders of SAP. Even though we have experienced this recent change in our management board, we have not had a change in the members of our supervisory board. Through this consistent leadership, I feel we have not lost our ‘youthful’ entrepreneurial zeal, even while SAP has matured into one of the largest global corporations and most influential information technology and business process innovators.

I do not want to minimize the impact of our recent announcements. But it is important that we are aware of the corporate governance structure when considering any information or opinions that we are reading or hearing regarding recent and future events at SAP. Your commitment and contributions to SAP and University Alliances are highly appreciated, and we look forward to continued collaboration that is very productive and fulfilling.

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