Overheard, interesting and for the reading stack.
It’s all here in the Friday roundup.
Overheard
In connection with the ongoing saga of Ericsson (see here for a recent post) during a recent investor conference call, E. Borje Ekholm (President, CEO and Director) stated:
“First of all, of course, this is a serious matter, a very serious matter and involves embarrassing and unacceptable misconduct in the past. But before going into that, I want to start by making a little bit of a perspective on what we are going to do and have executed on over the past few years. And of course, this is — and you all know this, and we have had controlled failures in the past, significant control failures in the past. And we’ve had a culture that has not allowed us to capture this behavior in time. So if we take just the recent report on Iraq, that’s a behavior that started 2011, went on uninterrupted for many years until our new compliance efforts that was put in place in ’17, ’18 detected a suspicious expense claim and that led to a rollout of the number of misconducts and breaches of our code of business ethics. I’ll come back and touch upon that a little bit more.
But it’s important that you understand that this investment we made in a strength and compliance effort that allows us to detect these things. But equally important is to strive towards changing the culture because it is — we have these past wrongdoings They’re hugely embarrassing but they still need to be tackled. And that’s what we are trying to do. That includes changing the culture and that create the culture of speak up. So if you look for example, and take just to measure the progress of how many allegations we get internally. A few years ago, so within 2016, we had 145 reported compliance concerns. And this past year, we had about 1,000. So that allows our people to speak up when they see things and when they detect things. And this is the cultural journey we have to go through. It’s a cultural journey of behaving in the right way, behaving ethically taking ethical decisions but it’s also speaking up when you see something or hear something.
And we invest significant resources in this. We have invested over the years in growing our compliance staff, compliance functions, but also our investigation functions. So we have made significant commitments on making progress and cleaning up the bad behavior we’ve had. I’ve been working on that. It feels like every single day since I came in to clean up that past, but it takes time. And unfortunately, we do uncover things that are bad and that are poor performance. But I would also say that we have 99% plus of our people delivering every day. I would never even consider a misconduct. But we need to have a culture in place where those 99% are truly empowered to speak up when they see and feel something.
So here, over this year, we made progress. We made progress on the strategic side. You see that with our market share gains, our competitive product portfolio. You see the financial numbers but we’re also doing something on the — or call it, on the cultural side, where we’re making progress. And I think to speak up the number of allegations is a progress indicator but we have more to do. So in this specific case, it’s, of course, very hugely embarrassing and hugely unsatisfactory. But we still need to tackle them, and we need to deal with the situation. We are going to continue to do that because we are determined as a team in the company to really rule out past misconducts and poor performance. And I remain firmly committed to doing that.”
The following question was also posed:
“I guess the most important question I would have really is, if you could help us understand what is your assessment of the maximum financial damage to Ericsson from [the] revelations of breaches of your DPA. Are we looking at a potential additional fine this could be of a similar order of magnitude as the December 2019 fine or settlement? Or is it something a little bit more marginal? Just if you could give us a range of possibilities here. I guess investors are entitled to know if the damage is potentially destabilizing your financial position? And if it has any implication on your ongoing bid for Vonage as well.”
Ekholm stated:
“I wish we could answer. We cannot assess that today, we do not have information enough to provide you with any type of guide. So it would be incorrect to try to do that. So I have to refrain from answering. Regarding Vonage, we believe that we can still proceed as per before. So we do not believe or expect it will impact the process. But of course, given the situation, we can never rule out anything, but I do not see that to be impacted.”
The following question was also posed:
“Can you just draw a distinction between the breach of the deferred prosecution agreement of which you notified the market last year in October and [the recent] update. Is it correct to say that last year’s notification was to do with misconduct in a country other than Iraq. And then now you’ve got these 2 additional issues, the insufficient disclosure on Iraq under the original settlements and then the insufficient disclosure on Iraq under the DPA. So is there sort of 3 questions outstanding with the DoJ at the moment?”
Xavier Dedullen (Senior VP, Chief Legal Officer) stated:
“So the breach notice that we received last year has to do with the failure by the company to provide certain information and data. The failure or the breach notice that we have [most recently] is in connection specifically with the disclosure that was made to DoJ pre-DPA and decided to follow up with disclosures post DPA. It does not concern any conduct that are violations under the FCPA, post-DPA. So we’re not talking about conduct issues, we are talking about failure to adhere to conditions as to disclosure vis-a-vis DoJ.”
During the call, Dedullen further stated:
“We have been informed by DoJ in ’21 that they determined that there was a breach with respect to failures to disclose certain information. That has nothing to do with this incident where they again determined that we failed to comply with our disclosure obligations under the DPA and that prior to mention disclosures were I would say, inadequate. So these are 2 different instances and they both relate to our disclosures to DoJ that do not relate to post-DPA breaches of the FCPA. So it’s not conduct-related under the FCPA it is failure to comply with the disclosure obligations under the DPA, and those are 2 unrelated instances where DoJ has made those examinations.”
The following question was also posed:
“[What is] the extent to which you see this news having a significant impact on the business you could be awarded in the U.S. or elsewhere by customers. Is there any way to give a perspective on the view of customers here and what drives their decision making? Any help on that would be appreciated.”
Ekholm stated:
“It’s very difficult to assess. It’s a good question. We are, of course, going to be committed to our compliance program, and we describe what we are doing in this area. How we are changing as a company. And for example, the behavior here actually dates back to a period many years ago. So we try to describe why we’re different now and how it has changed. Of course, it’s always that disclosure that you’re raising. But I would also add here that — when we had the announcement in 2019 in December where we showed and committed to a number of misconnected variations as well as corruption. And you can see that on our total numbers, we had very limited impact on our business. I don’t want to trivialize the question. I think it is a very serious situation we’re in, and we take it very seriously. But we also know that when we discuss with customers, what we’re doing, how we’re changing, how the company is evolving. It helps us, but I do not want to trivialize the question us.”
Interesting
Apparently there is a “new chapter in anti-corruption enforcement.”
For the Reading Stack
The Corporate Crime Reporter has two recent interviews with former FCPA enforcement officials.
In this interview, Daniel Kahn (former DOJ FCPA Unit Chief) talks about a variety of topics including voluntary disclosure and states:
“It’s always a tough balancing act for a company. The company will be balancing those downsides against the likelihood that the government may find out about the misconduct if the company doesn’t disclose. And so maybe it’s better to clean up the misconduct, be prepared to fully cooperate if the Department comes knocking.”
In this interview, Kara Brockmeyer (former SEC FCPA Unit Chief) talks about a variety of topics including how long FCPA inquiries generally last as well as voluntary disclosure.
