Treschow issued an official rebuttal: Svanberg was not going to be dismissed. “Carl-Henric has been the head of Ericsson for five years. During that period the company has gained the best position in the global market, the highest profitability and the best growth. And he has created a company with very inspired employees. We have never before had such high figures in our surveys. I believe that Carl-Henric will go on doing a very good job as head of Ericsson,” Treschow said in an interview on Swedish Radio.

Treschow felt that the news of Svanberg’s dismissal “was perhaps based on inadequate checking of sources”, pointing out: “I am the only one who definitely knows the facts in this case.”

He could understand that shareholders were “unhappy and angry” that Ericsson, after 18 successful quarters in a row, had not lived up to expectations. He agreed that routines needed review and that the company had to develop better early-warning systems. In his opinion the lawsuits brought in the US were unjustified.  

The Stockholm Stock Exchange exonerated Ericsson in March 2008 but found that it would have been appropriate to issue a press release at the same time as the information had been presented in New York. “But,” said Jonas Rodney on behalf of the exchange, “the committee has not viewed this as too far-reaching”.

Former financial journalist Paul Ronge, now a PR consultant, subsequently observed:  

“A number of well-known journalists got things really wrong but did not want to admit it. Gripenberg wrote nothing at all to say that the stock exchange had not in fact censured Ericsson. And there has not been one word from Cervenka and [his fellow E24 reporter Torbjörn] Isacson about how they could be so wrong with their cocksure assertion that Svanberg had been dismissed and was living on borrowed time.

“The second two have in fact not mentioned Ericsson at all since then, rather like two pals who drive their car into the ditch but are too proud to admit that they rang for a breakdown truck.”

As Treschow pointed out, Ericsson’s employees took the profit warning calmly.

Cathrine Vincenti, in charge of the annual Dialog survey of Ericsson staff, recalls: “The survey reveals that the events in the autumn of 2007 have had no impact on our HCI. We more than exceeded our target for the year and now at a level ‘Excellence’ that is considered uniquely positive by the people helping us with the survey.”

SAFE AND SOUND

The “crisis” of the autumn of 2007 has few similarities with earlier Ericsson crises. Svanberg says that, in many ways, it was useful, and that in the end the company came through the storm safe and sound.

“In one way, we feel rather pleased about the way we survived,” Svanberg said in the discussion with Henrik Frenkel. “We identified all the main causes of the decline in profit. At the same time it is important to remember that it was the media and the stock exchanges that panicked, not the company. We realized very quickly that we were not fighting for survival.” 

In Contact, Svanberg stated that Ericsson’s reporting system “includes all the data we want. But in such a large and complex company with so many different types of business, we have to make our minds up about what to monitor.” He also announced more frequent contact between the company’s key account managers to enable earlier identification of when things were not going as they should.

When the final report for 2007 was being drawn up for release on February 1, 2008, the growth forecast for 2008 was cut back from 5 percent to flat. Costs were to be clawed back by SEK 4 billion annually and the number of employees reduced by 4,000. As far as possible, cuts were to be avoided in Ericsson’s research and development facilities.

The employees’ representatives on Ericsson’s board had different opinions. Jan Hedlund from IF Metall (an industrial and metalworkers union) was critical, while Torbjörn Nyman from Sveriges Ingenjörer (Sweden’s Engineers) was positive. Nyman said: “In my union, we think it is better to take preemptive action. I see this as a healthy signal. When the market is not growing and the boom is not expected to continue, then it is better to take action early. For me it is like putting winter tires on your car. It is good to have them if something happens.”

Author: Svenolof Karlsson & Anders Lugn

© Telefonaktiebolaget LM Ericsson and Centre for Business History

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