Ericsson in crisis: CEO fired, suspicions of corruption

Ericsson (the Swedish world leader in communications technology and services) is in a leadership crisis and being investigated on corruption. The corporation also announced that large lay-offs are imminent.

With mounting pressure on Ericsson its Board of Directors announced on 25 July 2016, in the middle of the Swedish vacation break, that its President and CEO Hans Vestberg was stepping down with immediate effect. Jan Frykhammar, Executive Vice President and CFO, will assume the CEO position until a new CEO is in office.

Jan Frykhammar, Executive Vice President and CFO, assumes the CEO position until new CEO is appointed

This follows on Ericsson in early June firing its former Chairman of Region North East Asia and Senior Vice President Asia-Pacific, Mats H. Olsson (who has previously been accused of corruption with regard to Ericsson’s Chinese operations, according to Swedish daily Svenska Dagbladet – SvD.)

On 27 May SvD reported that Ericsson’s management team had since 2010 has cost shareholders 1.3 billion, of which CEO Hans Vestberg 265 million. The salaries of the telecom giant’s top executives has increased and are significantly higher than in other large listed companies. Meanwhile the stock has gone into disrepair.

Dissatisfaction with Ericsson rose on the stock market after the weak first quarter report and a poor share price performance over time. After the report, earnings estimates for 2016 turned down sharply.

The criticism had been hard on CEO Hans Vestberg who had been able to take a cash bonus of just over SEK 16 million in 2015, especially as the company had not revealed exactly what criteria is the basis for payment.

Ericsson has lost nearly a third of its market value in the past five years, while the Stockholm Stock Exchange has risen by about 30 per cent. Since Hans Vestberg was appointed CEO on 1 January 2010, the Stockholm Stock Exchange index has risen by almost 60 per cent, while Ericsson’s stock has fallen by about 5 per cent, said the SvD news report.

Jan Frykhammar takes on the role as CEO until a new CEO can be appointed, while Carl Mellander is appointed acting CFO.

Hans Vestberg leaves all assignments, effective immediately, said a press release. During his years with Ericsson Hans Vestberg held various positions in China, Sweden, Chile and Brazil.

“Hans Vestberg has led the company for seven years through significant industry and company transformation. Hans has been instrumental in building strong relationships with key customers around the world and his leadership and energy have been an inspiration to employees and leaders across Ericsson. However, in the current environment and as the company accelerates its strategy execution, the Board of Directors has decided that the time is right for a new leader to drive the next phase in Ericsson’s development,” said Chairman of the Board Leif Johansson.

As recently as on 1 July Ericsson announced a series of organizational and structural changes to strengthen strategy execution to drive growth and profitability. A new Executive Leadership Team (ELT), was then appointed, still with Hans Vestberg as CEO.

“As we move into a new phase of the company development I want to give a special recognition and thanks to the leaving ELT members. They have been instrumental in building our market leadership and setting us on our current path of change,” said Hans Vestberg, President and CEO of Ericsson.

Ericsson also stated on 25 July that in conjunction to presenting its earnings report for the second quarter on July 19, the company presented a strong action plan to significantly reduce cost and adapt to the current market environment.

“As stated in the report the Board fully supports the cost reduction plans. In addition, the Board supports the company business strategy and new company structure,” Johansson continued.

In addition Ericsson on 17 June commented on recent media reports on questions concerning corruption, following information revealed by SvD, that the Swedish telecom giant is being probed by US authorities on suspicions of corruption, said to include operations in China.

“In March 2013, Ericsson received a voluntary request from US Authorities to answer a number of questions relating to Ericsson’s operations, something we have also confirmed to media in 2013. Ericsson cooperates with US Authorities to answer these and additional questions,” stated Ericsson’s press release.

“While we strive to at all times conduct our business in compliance with applicable laws, matters do arise from time to time as a result of the global nature of our business.”

“We will not provide any detailed comments on the request as such, but can say that it relates to Ericsson’s anti-corruption program and questions related to the Foreign Corrupt Practices Act. Ericsson cooperates with US Authorities and works diligently to answer the questions.”

On 10 June SvD reported that the company’s chief executive for Asia, Mats H Olsson, was suddenly forced to leave the company prematurely, according to SvD Näringsliv sources. Ericsson confirmed the retirement but said it concerned the already announced reorganization.

Mats H Olsson, who was to leave Ericsson on 1 July, has worked for Ericsson since the early 1980s and since 1984 has worked for the telecommunications giant in Asia. He has held a variety of positions, including Head of Ericsson in China. As recently as February, Mats H Olsson, then titled Asia Manager, precided over the start of construction of a new Ericsson factory in India, with Prime Minister Stefan Löfven in attendance at the grand ceremony. Ericsson announced at the same time that the company will double its Indian workforce to 40,000 employees in just a few years.

SvD sources testifed that Ericsson’s internal auditors have initiated a review of Olsson’s activities during his many years as manager. The reaction at the Ericsson office in Hong Kong was described as shocking as Olsson in late May were visited by staff from Ericsson headquarters. Olsson was deprived of keys, access cards and computers at the same time as he was escorted out of the building, according to SvD.

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