Board members at Ericsson, the technology firm, are about to feel the ire of a sizeable group of shareholders. And it all goes back to an investigation the firm conducted into whether it made payments to terrorist organisations in Iraq and whether it breached a deal struck with the US Department of Justice (DOJ).
Business desks across Europe report today that shareholders including Cevian, the Swedish activist investor, and Norges Bank, the Norwegian sovereign wealth fund, will today vote against a resolution at Ericsson’s AGM that would “discharge liability” for board members and the company president in relation to events between 2011 and 2019 in Iraq.
Cevian is quoted as saying: “We still lack the information necessary to make an informed judgment of what went wrong, why, 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.”
Ericsson’s Iraq investigation
Ericsson conducted an investigation in 2019 finding “serious breaches of compliance rules” and the company’s code of business ethics.
In December that year Ericsson struck a “deferred prosecution agreement” (DPA) with the DOJ. However, at the beginning of March this year Ericsson announced that it had been informed by the DOJ that the company had breached the terms of the deal “by failing to make subsequent disclosure related to the investigation post-DPA”.
Ericsson says it is “premature” to predict the outcome of its communication with the DOJ. However, it has released a statement suggesting it has nothing more to add to its own probe three years ago, which “could not identify that any Ericsson employee was directly involved in financing terrorist organisations”.
It added that recent media reports had not changed Ericsson’s 2019 conclusions. “We reiterate our commitment to investigate and take action to address any new information, including further investigation as appropriate,” Ericsson said.
The 2019 investigation did produce some changes. Some employees were “exited from the company”, internal processes were overhauled, some third-party relationships were ended and increased training was introduced for staff in Iraq.
The company admitted that it “failed to implement sufficient internal controls”, among them measures intended to deter corruption.
However, moves by Cevian and Norges Bank to block the “discharge” motion could prove a major embarrassment for the Ericsson board and prolong public attention on the scandal.
Campaigning record
Cevian and Norges Bank have a record of campaigning on governance issues. This month Cevian warned companies it would use its vote at AGMs against companies that fail to include ESG metrics in executive pay deals.
Ericsson’s previous chair, Leif Johansson, stepped down in 2017 following criticism by Christer Gardell, Cevian’s chief executive.
Norges Bank has recently taken principled action against investee companies having divested over tax transparency and human rights concerns.
Ericsson’s board will have a difficult day. Investors continue to make their voices heard over ethics.