Ericsson shareholders voted against a proposal at the vendor’s Annual General Meeting (AGM) that would have cleared board members of liability for activities in 2021, meaning investors can potentially sue them, as Ericsson faces scrutiny related to disclosures about historical conduct and bribery scandal in Iraq.
At the online AGM on Tuesday, enough shareholders voted against the proposal, reaching a necessary threshold of at least 10% of all shares. With the vote against reaching 10%, it gives investors the right to sue board members in the future under Swedish company law.
As reported by Reuters, certain shareholders had said prior to the meeting that they would vote against the discharge of liability. That included Cevian Capital with a close to 5% stake, Norway’s sovereign wealth fund, and Swedbank Robur.
In a statement provided to Reuters ahead of the March 29 AGM, Cevian said it didn’t have enough information to make an informed decision about what went wrong, why it did, and who should be held responsible.
“Given the lack of information and the magnitude of the damage, we have no choice but to hold the entire board accountable,” Cevian said.
Still, shareholders did vote to re-elect all prior board members, including Ericsson CEO Börje Ekholm, who has been at the helm of the Swedish vendor since 2017 and led its financial turnaround as the company also worked to overhaul its compliance and ethics culture. In a statement after the AGM, Ekholm reiterated commitment to transform the company culture.
“I understand the concerns raised by our shareholders and these are important matters,” Ekholm stated. “I want to state my commitment to continuing to lead Ericsson in the transformation of our company and its culture, executing on global 5G technology leadership, and strengthening our ethics and compliance performance to ensure lasting change.”
Ronnie Leten, chair of Ericsson’s board of directors, in a statement again reaffirmed the board’s confidence in Ekholm.
“Börje and the Executive Team have the full support of the Board. We have made good progress but there is much still to do,” Leten said. “Conducting business responsibly and with integrity is essential to driving real and positive change. During five years at the helm, Börje has led the focus on ethics and compliance and executed the performance turnaround of Ericsson. He has made the company a leader in 5G globally and established a course for growing in wireless enterprise.”
During a company update on March 22 ahead of the AGM, Ericsson leadership and Leten worked to reassure shareholders, fielding questions about disclosures of an internal investigation into conduct in Iraq between 2013-2019 and related breach of a deferred prosecution (DPA) reached in 2019 with the U.S. Department of Justice.
After media reports surfaced over potential misconduct in Iraq earlier this year alleging potential payments to ISIS, Ericsson in February said it had already conducted its own investigation and taken actions. The DoJ in March informed Ericsson that its disclosure prior to the DPA was insufficient and said the vendor breached the DPA by failing to make subsequent disclosures related to the Iraq investigation after 2019. Discussions with the DoJ are ongoing. The DoJ also informed Ericsson in October 2021 of a DPA breach. The DPA had settled SEC and DoJ investigations into earlier bribery schemes and corruption activities in multiple countries, with Ericsson also entering into three years of an independent compliance monitoring that started in June 2020.
Ekholm, along with CFO Carl Mellander, were named in a class action lawsuit this month related to the conduct in Iraq.
Some voting shareholders on the March 22 company update call had questioned why Ericsson didn’t tell the market and investors about the Iraq investigation directly, and indicated they were first informed by media reports. With active ongoing DoJ discussions, leadership was not able to give much additional information, but new chief legal officer Scott Dresser said it would be a number of months before it could come back to investors with more, once the comprehensive review is completed and concludes with the DoJ. He did emphasize that Ekholm had instructed that information be properly disclosed.
During the update, a shareholder specifically pressed Ericsson leadership on the proposal for discharge of liability, citing great uncertainty. The purpose of clearing the board of responsibility is about owners saying they have the information and can give that discharge, the investor noted, asking Ericsson for a counter to his analysis that the only thing investors really know is that the DPA was broken, the DoJ has said something wrong happened, and that information would be communicated to shareholders in the future.
“We don’t know if something happened on the C-level, we don’t’ know if something happened at the board level, we just know something has happened. So it’s a huge uncertainty,” the investor stated.
Dresser reiterated that the board supports Ekholm and that the chief executive conducted himself “in the highest ethical matter” adding that “there are no questions in that regard.” At issue in discussions with the DoJ is whether disclosures to the department around the Iraq investigation at the time were sufficient, he continued.
The board was strongly recommending a vote of yes to discharge liability “and there are no questions at the level that you have raised,” Dresser told the investor ahead of the AGM.
While two shareholder advisory companies recommended votes against discharging the board from liability, Leten last week noted the board strongly disagreed with that stance and added that independent auditors had recommended a vote in favor.