Was the Board, CEO or group management involved in the decision not to communicate the report on the market? If not, when were the Board, CEO and group management informed that this did not/would not happen?
Background/Public Disclosure Requirements and Approach
As a publicly traded company, Ericsson is subject to the public disclosure requirements set forth in the Nasdaq Stock Market Rules (including the Nasdaq Nordic Main Market Rules and Nasdaq New York), as well as by the requirements set out by the U.S. Securities and Exchange Commission. These disclosure requirements are designed to ensure that investors receive, on a timely basis, certain information needed to make informed investment decisions (as set out more specifically in the applicable law). In turn, these rules also require that issuers not make false or misleading statements to the market, and it is well-established that the release of speculative or partial information can mislead investors and damage a company (and in turn its shareholders).
Ericsson is committed to the highest possible standards when meeting its public disclosure obligations. We accordingly release material and precise information to our investors and the market in a timely, complete and, above all, accurate manner. To help ensure accuracy of our public disclosures, we adhere to rigorous practices regarding internal investigations and substantiation of information. This is an important control in avoiding a premature or incorrect reaction to unproven, inaccurate, or misleading news accounts or conclusions (internal or otherwise) that have the potential to mislead the market.
Ericsson has in place a robust process (summarized in our 2022 Annual Report - Corporate Governance Report (section entitled ”Disclosure Controls and Procedures”).
2019 Iraq Report; Unverified Speculation
With respect to the 2019 Iraq internal investigations report, this report included speculative, imprecise and unverified statements regarding potential payments subcontractors may have made to local militias including ISIS. This speculation was not, and to this day still has not been, established as factually accurate.
Again, Ericsson stated publicly on March 2, 2023: “[T]he Company’s 2019 investigation did not conclude that Ericsson made or was responsible for any payments to any terrorist organization; and the Company’s significant further investigation over the course of 2022 has not altered this conclusion.”
With reference to your specific question, consistent with the points set forth above regarding the standards for disclosure that Ericsson follows, unverified speculation is not an appropriate basis for disclosure.
Nasdaq is reviewing this matter and we continue to engage with them in this regard. We have been clear and unequivocal that our approach to disclosure has been appropriate, including in relation to the Iraq report in 2019 and we have fully satisfied our public disclosure obligations. As this is an ongoing matter, it is not appropriate for us to comment further at this time.
Were the Board, CEO or Group management aware of the 2019 report before the revelation by Uppdrag granskning? And when did the Board, CEO or management become aware of it?
Handling of the Investigation Resulting in the 2019 Iraq Report; Disclosure to SEC and DOJ
The 2019 Iraq investigation report was prepared by the internal investigations team in 2019, with the support of former external counsel. As described in the March 2, 2023 DOJ Plea Agreement, in late 2019 senior management directed that the matter be disclosed to the DOJ and SEC. The disclosure to the DOJ by former external counsel in 2019 was not sufficient, ultimately leading to the DOJ breach determination.
Allegations and Investigations Process; Significant Enhancements since 2019
Since entering into the 2019 Deferred Prosecution Agreement, Ericsson has significantly enhanced its allegations management and investigation processes. This includes strengthening the investigations function with the addition of a new Head of Corporate and Government Investigations (CGI), Rebecca Rohr, and a number of highly experienced lawyer/investigators to the CGI team.
Ericsson’s Allegation Management Office is responsible for the overall management process from the time an allegation of a potential compliance violation is reported until the remediation of any substantiated violation. The CGI team is responsible for ensuring that all allegations of potential compliance violations recommended to CGI are appropriately investigated, and that investigations of higher risk matters are reported to the Audit and Compliance Committee as appropriate. Findings and remediation plans for cases are presented to Ericsson’s Market Area Remediation Committees.
You can find further information about our investigation process and data in (1) our 2022 Annual Report and (2) on pages 33-34 of our 2022 Sustainability and Corporate Responsibility Report: https://www.ericsson.com/493d1d/assets/local/investors/documents/2022/annual-report-2022-en.pdf; https://www.ericsson.com/493d1e/assets/local/investors/documents/2022/sustainability-and-corporate-responsibility-report-2022-en.pdf
Have Ericsson's procedures for handling information changed as a result of the events?
We continuously review the Company's practices to refine and improve them. During the year, Ericsson has recruited new leadership in key internal roles, including a new Chief Legal Officer and a new Head of Corporate & Government Investigations. AMO and CGI is responsible for timely and accurate reporting to authorities on investigations to the authorities as warranted under our obligations in the plea agreement.
[From our 2022 Annual Report:] In the first quarter of 2022, the Board and Ericsson’s President and CEO requested that the Executive Team, led by the Chief Legal Officer and working with the Audit and Compliance Committee, review the Company’s corporate governance practices with a view to extending them beyond the standard and mandatory levels of compliance and introducing enhancements.
The Company has made significant enhancements and our governance processes will continue to be enhanced throughout 2023. The priorities that were implemented in 2022 are as follows:
- introduction of an enhanced approach to risk management and establishment of a Group Business Risk Committee (BRC) comprising executives and co-chaired bythe Chief Financial Officer and the Chief Legal Officer;
- enhancing disclosures on our corporate governance practices;
- formally introducing compliance and integrity performance indicators into executive remuneration;
- formally expanding the remit of the Audit and Compliance Committee to ensure enhanced oversight of the compliance program, high-risk investigations, and risk management;
- increasing the number of Audit and Compliance Committee meetings and
- enhancing the Audit and Compliance Committee’s oversight of ongoing implementation of the Company’s compliance and internal controls program;
- substantially increasing the resources in the Compliance office and CGI team, and continuing to invest in transactional controls and analytics; and
- making enhancements to risk assessments, including expanded risk assessments to address country specific compliance risks, and continuing to tighten our vetting and oversight of third parties with whom we work, to choose parties who will meet our ethics and compliance expectations.
Commenting on the Company in the plea agreement, the DOJ noted: “[Ericsson] has significantly enhanced its compliance program and internal accounting controls through structural and leadership changes, including but not limited to the hiring of a new Chief Legal Officer and new Head of Corporate and Government Investigations and the establishment of a multi-disciplinary Business Risk Committee comprised of Group-level senior executives … and has committed to continuing to implement and test further enhancements.” Further, “[Ericsson] has significantly enhanced its cooperation and information sharing efforts.”
Does Ericsson see any risk of further consequences from its actions in Iraq or its cooperation with US and other authorities?
With respect to the historical conduct in Iraq, the Company continues to thoroughly investigate the facts in full cooperation with the DOJ and the U.S. Securities and Exchange Commission. As previously disclosed, the Company’s 2019 investigation did not conclude that Ericsson made or was responsible for payments to any terrorist organization; and the Company’s significant further investigation over the course of 2022 has not altered this conclusion.
Ericsson has a new Chief Legal Officer, and the legal function together with the investigations function have been significantly strengthened over the course of 2022 (with the addition of a number of highly experienced professionals). Further, the Company has engaged new external counsel – Gibson Dunn, who have worked hand in hand with Miller & Chevalier, FTI and KPMG, reviewing a significant volume of documents over 2022 and 2023; regular updates have been provided to our ACC and Board and external auditor Deloitte, all of whom are actively reviewing and overseeing the process and status. Board counsel, Davis Polk and Hammarskiold also are actively engaged in assisting the Board and to ensure that the Company’s processes are robust and proper.
We promptly report on investigations as required to the U.S. authorities pursuant to our plea agreement obligations, and our prior obligations under the now-expired DPA. In terms of risk, please also see related risk factors (including “Legal and regulatory risks”) which we have most recently disclosed in our 2022 Annual Report as well as the risks and uncertainties described in our press release on March 2, 2023.
You said at the meeting that you had communicated about the Iraq affair and that your internal investigation had not found any evidence of irregularities. What and where exactly have you communicated regarding the Iraq affair? What have you communicated about the fact that you have not found any evidence of what you have been accused of in Iraq?
Please see our most recent press release from March 2, 2023 which includes: “With respect to the historical conduct in Iraq, the Company continues to thoroughly investigate the facts in full cooperation with the DOJ and the U.S. Securities and Exchange Commission. As previously disclosed, the Company’s 2019 investigation did not conclude that Ericsson made or was responsible for any payments to any terrorist organization; and the Company’s significant further investigation over the course of 2022 has not altered this conclusion.”
The extent of the “investigation over the course of 2022” is described above and below in the response to questions 4 and 6.
The Company is well advised and the Board and management team continue to fulfill their fiduciary duties in the best interests of the Company and its shareholders. Independent counsel has been engaged by the Board (as noted above); we are under the oversight of an independent compliance monitor, and we have been over the course of 2022. Further, our external auditor which has deep insights into the Company have recommended that shareholders support the discharge of liability for 2022 as has Cevian, one of our larger investors (which stated on Bloomberg First Word on 16 March that “Cevian Intends to Vote in Favor of Discharge at Ericsson AGM”), and proxy advisor Glass Lewis.
You referred at the meeting to the investigation that you have carried out, which confirms that there is no evidence of irregularities in Iraq. Who carried out the investigation? Was it an internal or external party?
This question is fully responded to in question 4 above; the investigation is overseen by the Company's Audit and Compliance Committee and its Chief Legal Officer and led by the Head of Corporate and Government Investigations together with both internal resources and external counsel. Ericsson has been assisted by Gibson Dunn, who have worked hand in hand with Miller & Chevalier, FTI and KPMG in this extensive investigation over 2022 and 2023. The Company also continues its full cooperation with the DOJ and U.S. Securities and Exchange Commission.
Regular updates have been provided to our ACC and Board and external auditor Deloitte, all of whom are actively reviewing and overseeing the process and status. The Board is independently represented by counsel, Davis Polk and Hammarskiold, who are actively engaged in assisting the Board in its oversight responsibilities to ensure that the Company’s processes are appropriately robust.
How has the Board dealt with its obligation to investigate the possibilities of accountability for the denial of discharge?
The Board of Directors takes the input of its shareholders very seriously and, even prior to the 2022 vote where a minority (but more than 10%) of shareholders voted against discharge, considerable steps were being taken to enhance the Company’s governance, risk management, Board and central management oversight, and compliance and controls program. The Company’s progress was commended by the DOJ in its Plea Agreement (and see response to Question 3 above).
Quoting from our Chairman, Ronnie Leten and our 2 March Press Release: “Since 2017, under the strong leadership of Börje Ekholm, the Company has substantially improved its approach to risk management and compliance, including an overhaul of its Anti-Corruption Program to prevent and detect problematic conduct. The Board continues its active oversight, and with our full support, Börje and his leadership team will continue to embed these changes into the governance and culture of the Company.”
The fact that a large majority (more than 70%) of shareholders voted in favor of a discharging each director from liability, while also re-electing all nominated Board members, is a clear instruction from a strong majority of shareholders to the Board not to pursue any legal actions against directors.
For a comprehensive discussion, please see our recent public statement regarding the vote against discharge of liability: https://www.ericsson.com/en/newsroom/ericsson-comments/discharge-of-liability-vote-at-the-2022-agm