Ericsson comments

From time to time we publish statements, clarifications or comments, as well as other relevant information regarding articles and interviews.

December 19, 2016

Comment regarding alleged corruption in South Africa

In an article in Svenska Dagbladet on December 19, it is alleged that Ericsson is under scrutiny for alleged corruption in relation to a contract with City of Johannesburg. Following the article, Ericsson wants to make the following comment:

In 2010 Ericsson and CitiConnect won an RFP with the City of Johannesburg for a so-called BOT contract (Build, Operate and Transfer) regarding the deployment of fiber networks. In this cooperation, Ericsson performed services for CitiConnect, who was the contracting party to the City of Johannesburg. In 2014, City of Johannesburg, terminated the agreement with CitiConnect, because the timetable had not been kept. After the termination followed an arbitration process between the City of Johannesburg, CitiConnect and Ericsson, which was concluded in 2015.

In connection with the termination of the contract an independent third-party audit was conducted and concluded that the value of the network was largely the same as the amount of the corresponding portion of the contract. We are aware that there have been reports in local media that this is not the case.

The project with the City of Johannesburg was the only time we have collaborated with CitiConnect. Our customers&squo; operations and ownership is nothing we can comment; these are questions that should be addressed directly to them.

We have previously communicated that we cooperate with US authorities and are answering a number of questions related to the Foreign Corrupt Practices Act and related areas. We have also said that we cannot go into details about the questions, as it could affect or interfere with the work of the authorities.

December 17, 2016

Comment regarding media report about alleged briberies in Africa

In an article in Svenska Dagbladet on December 17 it is alleged that Ericsson has used ‘middlemen’ to pay extensive bribes to executives in one of Ericsson’s customers in Africa. Following the article Ericsson wants to make the following comment, which is the same comment we gave to Svenska Dagbladet:

Without having received information about which specific ‘middlemen’ it is referred to, we can say that Ericsson, like many other global companies, has used sales agents around the world, which has been a well-established way of doing business in the telecom industry. However, in recent years, Ericsson has phased out the use and today we use sales agents to a significantly lesser extent, for example in markets where it is a legal requirement.

We take any allegations about corruption in relation to our business seriously, and we do not agree with the allegations of widespread briberies. When we get indications that misconduct or violations of our Code of Business Ethics may have occurred, we investigate them and take action where necessary. We cannot comment in detail which potential investigations Ericsson conducts around the world, but we report our overall work in our annual Sustainability and Corporate Responsibility report.

When we get questions from authorities in various countries, including the US, we always cooperate with them. However, we cannot go into detail about such questions as it could affect or interfere with the work of the authorities. For this reason, we cannot provide any details about the questions we have received from US authorities, and we can neither confirm nor deny specific countries or regions. We have previously communicated that the questions are related to the Foreign Corrupt Practices Act.

Ericsson has zero tolerance for bribery and corruption, and we are conducting extensive work to ensure compliance with Ericsson's guidelines. At the same time, we have a global operation with about 115,000 employees, which makes it difficult for us to guarantee that individual employees never violate our guidelines and principles. We work continuously to strengthen our processes and to ensure we have a strong culture around these issues, and have done so for many years.

Related Links:

Sustainability and Corporate Responsibility report, 2015

Standing strong on anti-corruption

November 23, 2016

Comment to media reports about hearing of Ericsson employee

In an article in Svenska Dagbladet on November 23 it is said that Ericsson employees have been called for hearing in the US. Following the article, Ericsson wants to make the following comment:

Ericsson has previously communicated that we are cooperating with US Authorities and are responding to a number of questions on a voluntary basis. As part of this process, it is natural that employees of the company are interviewed.

Ericsson does not provide any detailed comments about requests from authorities as it could interfere with their work. It is also against Ericsson’s policies to disclose the names of individual employees in these situations.

As a listed company, we always follow the requirements to publicly disclose any information about events that would have a material impact on the company or its finances. Should such materiality arise, Ericsson will disclose information in accordance with regulatory requirements.

November 23, 2016

With regards to a documentary in Swedish Radio November 23, 2016

The radio documentary refers to a period of 15-20 years ago when Ericsson used sales agents to a greater extent than today. Ericsson has, like many other companies that are active on an international market, used the services of sales agents. To engage well established and knowledgeable sales agents has been a significant competitive advantage. This approach can be attractive because it can be far more cost effective than building up a large local sales organization.

Several of the events are related to a payment system called World Wide Commission Scheme (WCS), that Ericsson took into use in 1998 to manage payments to sales agents. The system proved to be difficult to control and was therefore terminated already in 2001. The company continued to use commercial agents in a more controlled way, but nevertheless began to phase out the use of sales agents in 2008. Today there are a few remaining sales agent agreements, for example in countries where sales agents are a legal requirement.

Ericsson has repeatedly reported on the World Wide Commission Scheme (WCS). We also note that the WCS was investigated and tried in a court of law in conjunction with a case of tax evasion. The District Court (2006) and the Court of Appeal (2008) acquitted all the defendants. The court had not discovered any inaccuracies in our accounting or had objections to our business procedure related to WCS. In the documentary it is also mentioned an alleged payment to the President of Costa Rica in 1999. Now, 17 years later, Ericsson has not found any further information on this matter.

Ericsson disagrees with the claims made in the Swedish media that the company would have used bribes in a deliberate and systematic way. We cannot guarantee that individual employees have never, or will, act in violation of our Code of Business Ethics. What we can do is to make sure we always take appropriate action when we have information proving wrong-doing. Ericsson has a zero tolerance policy for corruption and bribery and take these matters seriously.

For more information on Ericsson's anti-corruption work

November 22, 2016

Comment to article about alleged conflicts of interest in relation to supplier, 2016-11-22

In an article in Svenska Dagbladet on November 22 allegations are made about potential conflicts of interest concerning former Ericsson employees and a local supplier in South East Asia. Following the article Ericsson wants to make the following comment:

According to Ericsson’s Code of Business Ethics, employees must avoid conflicts of interest. If an Ericsson employee has a position or ownership in an external entity, which could give rise to a conflict of interest, the employee must report this to his or her manager or Ericsson’s legal function, who then assess the situation. Ownership in a supplier could be a conflict of interest and should be reported in this way. If that doesn’t happen, it is a breach of our policies and guidelines.

Ericsson continuously work to ensure our suppliers meet high social, ethical, human rights and environmental standards. In our sourcing process the companies are evaluated on a number of criteria, including ownership. We continuously gather information from our suppliers to discover potential issues or misconduct.

What we can say regarding this specific case is that the supplier in question has been screened in accordance with our sourcing process and that no red flags have been raised. If conflicts of interest have existed without being reported in accordance with our directives, it is serious and a breach of our Code of Business Ethics.

Read more about Ericsson’s sourcing processes here

October 12, 2016

Ericsson’s chairman interviewed in Swedish radio

In a 30-minute long interview from Friday, October 7, Ericsson’s chairman Leif Johansson answers questions from Swedish Radio (Sveriges Radio Ekonomiekot) about the latest developments in Ericsson. Note that the interview is in Swedish. The following link will take you to the website of Swedish Radio.

September 22, 2016

Comment regarding speculations on employee reductions in Sweden, 2016-09-21

In 2014 the Company communicated a cost and efficiency program aimed at securing annual cost savings of 9 billion SEK during 2017. This program is progressing according to plan, but is not yet finished.

On July 19, 2016, the Company announced further actions to reduce costs. This means a doubling of the previously announced savings of operating expenses of 4.5 billion SEK (i.e. not a doubling of the entire savings and efficiency program), in order to reach a reduced run rate of operating expenses (excluding restructuring charges) of 53 billion SEK during the second half of 2017. This can be compared to 63 billion SEK for the full year 2014.

As previously communicated on several occasions, these measures mean a reduction of the number of employees worldwide. We have large operations in Sweden which are not excluded. As we always do for any employee reductions, we will handle this on a country-by-country basis and our employees and, where applicable, union representatives will always be informed first.

September 7, 2016

Executive remuneration overview

Ericsson applies the same remuneration principles globally. These are outlined in our Annual Report 2015 (p. 160), and are the principles of performance, competitiveness and fairness.

When it comes to the executive management team, the decisions around remuneration levels is set by the Board’s Remuneration Committee which is guided by the remuneration guidelines approved the shareholders on a yearly basis at the Annual General Meeting and adherence is verified by the company’s external auditors on an annual basis.

The consists of four Board members appointed by the Board, including an employee representative. In addition, the Remuneration Committee is supported by an independent remuneration advisor.

Ericsson is operating in a worldwide industry, where competition for market share as well as for competence is global. As a company, Ericsson believes it is important to have a diverse executive management team consisting of different nationalities and background. Ericsson also believes it is important to have members of the executive management team placed in locations which are important for Ericsson’s development, including, but not limited to Stockholm and Silicon Valley.

Like taxation systems, public benefits and costs of living, remuneration levels and compositions also vary in different parts of the world. A company with an executive management team consisting of different nationalities, based in different locations, will see an impact on the cost for the executive remuneration. In order to be able to attract strong talent in different geographies, remuneration needs to be adjusted in line with each country’s situation, the company’s situation and the availability of good talent.

The ability to move individuals in line with business needs is of vital importance to Ericsson and currently there are about 800 employees on so called expatriate contracts, or long term assignments. While we have a standard policy on how such contracts are set up, the number of possible combinations of home and host countries, family situations and other factors means that expatriate contracts can look very different.

Where Ericsson requests individuals, including the executive management team, to move on such long term assignment, the company provides certain benefits, including housing, in the host country. The housing benefit are determined and limited by location, seniority and family size. If an employee on an expatriate contract selects more expensive housing, the additional cost is borne by the individual.

Remuneration is ultimately a matter resolved at an individual basis. As a principle, Ericsson does not comment on the remuneration, or other employment conditions of individual employees, beyond the public information covering the remuneration of the CEO and the executive management team in the Annual Report 2015 (p. 97).

July 18, 2016

Comment regarding article in Svenska Dagbladet about Ericsson’s accounting, 2016-07-17

In an article in Svenska Dagbladet published yesterday on the newspaper’s website, it’s alleged that Ericsson’s accounting is inflated, according to the newspaper’s sources.

The company consequently wants to make the following comment:

  1. The claim that Ericsson in a wrongful way has reported income in its accounting is not correct
  2. The claim that the company has changed the definition of net cash to “embellish” the numbers is not correct
  3. The claim that it is “inexplicable and abnormal” for the company to tie up more capital even when the sales are decreasing is wrong.

The company’s auditors, Price Waterhouse Coopers, go through all financial statements and quarterly reports in line with the accounting standard ISRE 2410, and gives a formal Auditor’s report for the full year financial statement.

Additional details on these claims are found below, in the form of information from the company’s annual report and quarterly reports.

Ericsson’s quarterly report for the second quarter is presented on Tuesday July 19, at about 07.30.

1. The claim that Ericsson in a wrongful way has reported income in its accounting is not correct. The principle for revenue recognition is described in the company’s annual report in note C1, Significant accounting policies, p. 63 and onwards

Revenue is recognized when risks and rewards have been transferred to the customer, with reference to all significant contractual terms, when:

  • The product or service has been delivered
  • The revenue amount is fixed or determinable
  • The customer has received and activation has been made of separately sold software
  • Collection is reasonably assured

Estimations of contractual performance criteria impact the timing and amounts of revenue recognized and may therefore defer revenue recognition until the performance criteria are met. Regarding frame agreements and longer services contracts, the following applies: Distribution and/or accrual related to criteria for delivery-type contracts, ie contracts that relate to delivery, installation, integration of products and provision of related services, normally under multiple elements contracts. Under multiple elements contracts, accounting is based on that the revenue recognition criteria are applied to the separately identifiable components of the contract.

2.The claim that the company has changed the definition of net cash to “embellish” the numbers is not correct. Information from Q1-2016 report, page 24

The definition of Net Cash has been adjusted in order to more clearly represent Ericsson’s ability to meet financial obligations. Post-employment benefits will no longer be included in the calculation of Net Cash. Net Cash for prior periods has been recalculated using the new definition. The revised definition is as follows: Net Cash: Cash and cash equivalents plus short-term investments less interest-bearing liabilities (which include: non-current borrowings and current borrowings).

This definition is also more in line with how most other companies define their net cash.

We can also add that our Auditor’s report is available on page 129 in the Annual report 2015

All information to calculate the earlier definition of net cash is available in the company’s quarterly reports.

3. The claim that it is “inexplicable and abnormal” for the company to tie up more capital even when the sales are decreasing is wrong. Working capital is to a large degree impacted by the business mix where a high proportion of large projects, primarily network coverage projects, tie up more capital than for example software sales, which tie up less capital. This is also what happened in the first quarter with a business mix with a high proportion of coverage projects. Capital tied-up is a function of business mix and sales volumes.

June 19, 2016

Greek investigation into contract from 1999

Ericsson (NASDAQ:ERIC) informs about an investigation in Greece relating to a defense agreement signed in 1999.

Greek authorities have, for a period of time, conducted investigations into arms deals in the Greek defense sector. One investigation involves an agreement in which Ericsson Microwave Systems delivered an airborne radar system to Greece. The contract was signed in 1999. The company reports incidents of corruption annually as part of its Sustainability and Corporate Responsibility disclosures. Ericsson commented publicly on this case more than two years ago, including in conjunction with its Annual General Meeting.

Ericsson Microwave Systems was sold by Ericsson in 2006. Company records, agreements and documentations were handed over as part of the sale.

Recently, as part of the ongoing investigation, seven current and former Ericsson employees have been served with summons in preliminary investigation proceedings by a Greek prosecutor involving allegations of possible corruption.

Ericsson has not been contacted by any authority in this matter.

The current and former Ericsson employees have not yet been provided with the full relevant documentation from the investigation, and have not yet been questioned by the Greek prosecutor.

Since an investigation is on-going, where present and former employees have been served, it is not appropriate for Ericsson to comment further on the substance of this matter.

Ericsson works actively with its anticorruption program, and has a strong Code of Business ethics which is acknowledged by all employees at the time of employment and repeatedly throughout the term of employment. Ericsson has zero tolerance for corruption and bribery, and we work actively to prevent any kind of corruption within the Group, for example through anticorruption training for both employees and suppliers. We report transparently on our efforts annually in our Sustainability and Corporate Responsibility Report, which includes our GRI reporting, where we report in incidents of corruption and actions taken.

Ericsson will continue to follow this case closely and will cooperate with authorities, as appropriate.

June 17, 2016

Ericsson comments on recent media reports on questions concerning corruption

In March 2013, Ericsson (NASDAQ:ERIC) received a voluntary request from US Authorities to answer a number of questions relating to Ericsson's operations, something we have also confirmed to media in 2013. Ericsson cooperates with US Authorities to answer these and additional questions.

While we strive to at all times conduct our business in compliance with applicable laws, matters do arise from time to time as a result of the global nature of our business.

We will not provide any detailed comments on the request as such, but can say that it relates to Ericsson's anti-corruption program and questions related to the Foreign Corrupt Practices Act. Ericsson cooperates with US Authorities and works diligently to answer the questions.

As a listed company, we always follow the requirements to publically disclose any information about events that would have a material impact on the company or its finances. Should such materiality arise, Ericsson will disclose information in accordance with regulatory requirements.