LDN - Business

Ericsson CEO faces investor ire over handling of Iraq probe

[March 29, 2022] By Supantha Mukherjee

STOCKHOLM (Reuters) -Investors are set to publicly rebuke Ericsson Chief Executive Borje Ekholm over a scandal involving potential payments to Islamic State in a vote on Tuesday.

Ekholm's handling of an internal probe into Ericsson's operations in Iraq has come under scrutiny after the U.S. Department of Justice (DoJ) said the company was in breach of a 2019 deferred prosecution agreement for failing to inform U.S. authorities of potential misconduct it had uncovered there.

The risk of a hefty fine for that breach has shaved a quarter off Ericsson's market cap and angered investors who were not given any information about the company probe until media inquiries about it earlier this year.

At Ericsson's annual general meeting, shareholders will, among other things, vote on whether Ekholm and other board members could be personally liable for their actions.

Under Swedish law, if board members are not discharged of their liabilities for the previous year by shareholders owning at least 10% of the stock they can be sued by the company and its investors.

Based on the responses of shareholders contacted by Reuters, the votes will pass the 10% threshold.

While losing the vote may not mean Ekholm has to step down, it will raise further questions over his stewardship of the group.

Ekholm, the company's chief financial offcer Carl Mellander and Ericsson have been named as defendants in a U.S. class action lawsuit for misleading investors over its dealings in Iraq.

In 2014, a scandal over business dealings in Uzbekistan of telecoms company Telia Company, then called TeliaSonera, led shareholders to vote against discharging former CEO Lars Nyberg from personal liability in 2014.

Nyberg was later charged with bribery, but was acquitted by a Swedish court.

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Ericsson Chief Executive Officer Borje Ekholm holds a news conference during the Mobile World Congress in Barcelona, Spain February 26, 2018. REUTERS/Yves Herman

TRANSPARENCY

Ekholm took https://www.reuters.com/article/ericsson-ceo-idINASM00072G the helm at Ericsson in 2016 after a string of poor results https://www.reuters.com/article/us-ericsson-ceo-idUSKCN1050IT and when the company was under investigation by U.S. authorities over bribery allegations.

Backed by top shareholder Investor AB, Ekholm revived the company's performance and paid https://www.reuters.com/article/us-usa-ericsson-idUSKBN1YA2HU a $1 billion fine to the DoJ to settle bribery cases in several countries.

In the same year, a company probe into its operations in Iraq identified payments designed to circumvent customs at a time when militant organizations, including Islamic State, controlled some routes.

While Ekholm has been fostering transparency and urging employees to speak up about improprieties, the company did not disclose details of the new probe to shareholders.

Ekholm told Reuters in February the substance of its findings did not pass the threshold to make a disclosure.

Last week he told investors that he had instructed his staff to disclose the investigation to the authorities. The company replaced Chief Legal Officer Xavier Dedullen, who handled the settlement in 2019, earlier this month.

Cevian, which owns just under 5% of Ericsson shares, said it would have to vote against discharging board members of their liabilities because it did not have enough information to do otherwise. But it still plans to support their re-election.

"Cevian remains convinced of the strength and potential of Ericsson and its businesses," it said. "Overall, we have confidence that the board and the CEO are capable of realizing that potential, and we will be voting for their re-election."

(Reporting by Supantha Mukherjee in StockholmEditing by Mark Potter and Carmel Crimmins)

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