Telefonaktiebolaget LM Ericsson (publ) (ERICB) Earnings Call Transcript & Summary

Welcome, and thank you, everyone, for dialing in to this call. The company has issued various statements over the past several weeks related to the 2019 investigation of wrongdoing in Iraq. The goal of this call is to provide an update on what we are doing moving forward to help ensure that stakeholders can have the confidence in the company's compliance and governance functions. With me today on this call, I have Ronnie Leten, our Chairman. I have Börje Ekholm, our CEO; I have Scott Dresser, our new CLO or Chief Legal Officer; I also have Carl Mellander, our CFO; and Laurie Waddy, our Chief Compliance Officer. It is important to note that we are in an ongoing process with the U.S. Department of Justice. I will share today what we're able to do, but we will not go beyond this. Bear this in mind when asking questions during the Q&A session. I will make this statement. During this session, we will be making forward-looking statements. Such statements are based on our current expectations and are subject to risks and uncertainties that could materially affect our business and results. Please read our earnings report and our most recent annual report for a better understanding of these risks and uncertainties and please see the last page in this presentation for further information about forward-looking statements. Any forward-looking statements made during this presentation speak only as of the date of this presentation, and Ericsson expressly disclaims duty to provide updates to these forward-looking statements and the estimates and assumptions associated with them. So we will begin with our speakers, and then we will have an open Q&A. Please note though that this is a meeting that we have ahead of the AGM, and we will only answer questions from voting shareholders. So -- and as we are a bit restrictive of time, I would kindly request that you only ask 2 questions at a time. So with that, I will leave the word to you, Ronnie. So please, Ronnie.

Thank you, Peter. Thank you for the introduction, and thank you all for joining. We consider this to be an important goal and an important time for the company. I would like to cover a number of significant points before the AGM next week. To start, you will have seen the statement released by myself and our Board yesterday, expressing our unqualified support for our CEO, Börje Ekholm. But to understand where we are today, I would also like to take a step back and consider where we came from. Back in 2017, Börje inherited a business, or I should say, a company in crisis. Financial performance was poor. Our technology leadership had been lost and the company had a history of compliance failings and inefficient controls. In 2019, Ericsson reached a resolution with the U.S. Department of Justice. That was a challenging time and we accepted accountability and committed to significantly overhauling our compliance and controls, while under the oversight of a monitor for 3 years and this beginning in June 2020. This journey is well underway. And since 2017, when Börje, as CEO, joined us, Ericsson has significantly improved its compliance and controls and has committed to doing business with integrity. We have more to do, but we also have made real progress. In 2020, Ericsson completed a financial turnaround and by the end of 2021, the company has already met all financial targets for 2022, delivering a record free cash flow. And this is a real indicator of strong and resilient underlying business performance. But also this has allowed us to further grow our market share, and this is due to our technology leadership. Börje deserves significant credit for this performance, which he has achieved while also leading the ethics and compliance transformation for the entire organization. We have full confidence in Börje. He is a strong business leader with great integrity. Conducting business responsibility and with integrity, it's essential to driving real and positive change and to retaining the technology and the global leadership Börje has steered Ericsson to achieving in his 5 years at helm. We understand there are many questions regarding the Iraq investigation. The historical conduct in Iraq is distressing to us, as we have zero tolerance policy for corruption and other wrongdoing. The Board and the company's leadership are taking recent issues extremely seriously. Addressing these issues is a top priority for us. All Ericsson Board members are fully committed in their support for the continued transformation journey in the business and ethics and compliance performance. And now I will hand over to our CEO, Börje to discuss further.

Thank you, Ronnie. And first of all, a big thank you to all of you for joining this very important call in this, of course, very serious matter. A matter we take extraordinary seriously. And as you say, we'll -- as you will, we'll start with one of the immediate questions in focus, clearly. And I will try to be as open, as direct as possible about the Iraq investigation. But as you all know, because of the ongoing litigation as well as the ongoing investigation, we are limited in what we can say. I see a constructive working relationship between the company and the DOJ is in the best interest of the company, our shareholders and all other stakeholders. And we are fully committed to maintaining such a relationship, and we will, of course, cooperate with the DOJ in a clear and transparent way. We will share with you what we are able to at the appropriate time. There were allegations of improper conduct in Iraq, and we conducted an investigation in 2019. The investigation included the conduct of Ericsson employees, vendors and suppliers in Iraq during the period starting in 2011 to 2019. Our initial investigation did reveal wrongdoing and compliance shortcomings. I instructed this to be properly disclosed to the DOJ. We acted on the findings, including exiting employees. We are continuing the investigation and if we find that any Ericsson employee paid ISIS, directed third parties to make payments to ISIS or failed to act ethically in any way, we will take immediate action. As you've seen from our press release, the DOJ has now advised us that it considers that the 2019 disclosure was insufficient and that the failure to make a subsequent disclosure gives rise to a breach of the DPA. We are reviewing this with them now. We are addressing this issue with the DOJ directly and we have already taken remedial action with respect to the situation in Iraq. Scott Dresser, our new Chief Legal Officer, who you will hear from a little bit later, will lead these discussions with the DOJ and of course, work closely with me and the Board to ensure that we continue to strengthen the company and our governance overall. Since I joined the company, we work to understand and remedy the errors of the past. I am confident that our ethics and compliance program has improved dramatically since these events took place and that today, we are much better positioned to prevent recurrence but also to uncover and respond to misconduct when it occurs. It is precisely because of those improvements that we were actually able to find and to address the misconduct in Iraq. And we have taken lessons from the Iraq investigation. We worked hard to enhance the effective oversight of decisions made in relation to challenging jurisdictions and conflict zones in which we work. We're also going to continue enhancing our governance and reviewing our internal controls for potential improvements to bolster our decision-making and oversight. And we have dramatically improved and continue to tighten our vetting and oversight of third parties, with whom we work, to choose parties who will meet our ethical and compliance expectations. I simply will not tolerate improper payments. I expect Ericsson employees to follow our code of business ethics and to speak up when they see misconduct. I expect the same from third parties with whom we work. When we find violations, we remediate appropriately and honor our obligations. As disclosed in our annual report, we have already exited more than 250 employees from the company since 2019, following violations of our code of business ethics. We're serious about doing business the right way and honoring our integrity value. In a telecoms company in 180 countries of varying stages of development, we will always have challenges. But we will tirelessly work to meet them and put good systems and people in place. We will continue our journey on the path we have set to transform the company. We're dedicated to this task. Where we operate in challenging regions or regions in conflict, we are working to enhance our governance and apply heightened scrutiny to partners and how we operate. In 2020, we completed our financial turnaround. And by the end of 2021, we had already met all financial targets for 2022, delivering record indicators of strong and received -- of record free cash flow, which indicates a strong and resilient underlying business performance. During this period, we have also increased our R&D investment by 30%. I'm convinced these milestones are underpinned by our efforts to continue to strengthen our culture. Our cultural commitment is a continuous journey that will actually never stop. We're focused on not only detecting compliance breaches and remediating them, but working proactively to prevent them. Our revised code of business ethics outlines Ericsson's ethical expectations and equips us to navigate the dilemmas we each face in our work. You will hear from our Chief Compliance Officer on these efforts. I'm also pleased to welcome Scott Dresser as our new General Counsel, and he is an expert in governance. I have asked teams to lead and review across our group in this area and to identify appropriate improvements. We will keep investors updated on this important work. Scott will also assume oversight of the comprehensive review of the conduct related to Iraq that we undertook last month and our continued engagement with the DOJ. This process is ongoing, and we will like promptly to address shortcomings or misconducts identified. And we remain committed to cooperating with the DOJ and other relevant authorities. I am personally, and I know Scott and Ronnie and the Board are, fully committed to doing what's necessary to reearn your trust. These are just not words. We view it as fundamental to how we operate as a company. We need to get this right because it is part of our values of who we are as a company and to maintain the vital technology leadership role that Ericsson plays as a global leader in 5G network deliveries, pivoting towards growth in the rapidly emerging wireless enterprise space. With that, I give the word over to you, Scott.

Thank you very much, Börje, and thank you, Ronnie, as well for the welcome, and I'm happy to join you and Ericsson and to join this call. As people know, I've just joined the company, and I'm being brought up to speed on the issues we're discussing today. I'd like to just build on what Ronnie and Börje have said and make a few remarks on the current position of the company. As you all know, in 2019, Ericsson resolved with the DOJ and the SEC in relation to historical misconduct, including failures of controls and deficiencies in the compliance program. All of this is set out in the Deferred Prosecution Agreement or DPA, which is publicly available and which was entered into by the company as part of its resolution. The DPA importantly includes a number of commitments to the Department of Justice and it requires the oversight of an independent monitor for a 3-year period. During this period, Ericsson, as with other companies, is obligated to enhance its compliance, controls, culture and governance. This work is done under the oversight of an independent third-party monitor that regularly reports to the DOJ on our progress. In addition to the monitorship and these required improvements, an important term of the DPA requires the company to investigate and disclose any evidence or allegations of corruption to the DOJ, even if not substantiated. It's not uncommon for companies under DPAs to disclose many such matters. The company also has an obligation to cooperate with the DOJ. We are, as you know, currently discussing with the DOJ, the issues identified in the breach notice regarding Iraq. I've been charged by Ronnie, the Board and Börje to work with counsel on the ongoing review of what happened and to recommend appropriate remedial actions. I can assure you that the company and I are fully committed to earning full trust and credibility, and that we do not face disclosure-related questions from DOJ going forward. Openness and transparency about what we're doing to improve and any issues that we face is required and also how we will approach this. I want to reiterate how seriously we take this and our commitment to squarely address the historical issues once we're fully clear on all facts. I joined the company based on discussions of Börje, Ronnie and other Board members, including Erik, and it's clear to me how committed they are and how the company is to making sure that we get this right. Thank you, and I'll hand over now to Carl.

Thanks, Scott, and thank you, Ronnie and Börje as well. So the primary focus of today's call is not to discuss our business and financial performance, but I wanted to reiterate a few key points that both Ronnie and Börje made in that regard earlier. So in 2021, we reached our financial targets 1 year early, with an EBIT margin of 13.9% versus a target range for 2022 of 12% to 14%. Our free cash flow amounted to SEK 32.1 billion, the highest in Ericsson's history, further strengthening the resilience of our balance sheet with a net cash position of SEK 65.8 billion. And this turnaround -- these achievements are based on investments in technology leadership, but also the kind of leadership and culture that Börje spearheads and all of us stand for, based on high business ambition, of course, but also honesty, integrity and transparency. And the key point here is not only what we have accomplished, but how we conduct our business. And as Ronnie said, conducting business responsibly and with integrity is essential to real and positive change and to retain our technology and market leadership. And the journey that Ronnie and Börje discussed is really powered by all our passion to do the right thing. And here, I speak for myself, of course, but also my many colleagues in the executive team, in finance and other assurance functions and throughout the company. Personally, I can also add that this is the way I was brought up to think and to act and I will never compromise my own value system. Ronnie and Börje have been clear. We, on the executive team, take full accountability for the effective implementation of a robust ethics and compliance program. We completely share and commit to the direction set by our Chairperson and our CEO. We are here to safeguard an ethical and compliant way of doing business, making decisions and conducting ourselves, front and center in ethics and compliance work, our culture and behaviors. And hence, our focus on the cultural transformation, the integrity value, our code of business ethics and how we also repeatedly address this in meetings, in workshops, employee communication and with role modeling. However, we all know that this is not enough. We also need strong internal controls to prevent and detect and then remediate wrongdoings. And we accelerated this work with the highest ambition back in 2017, '18, with significant investment. And let me mention just a few examples of what we have done and are doing in terms of internal controls. We continue to invest in transactional controls and data analytics for outgoing and incoming payments and expense claims. We deploy anti-bribery and corruption key controls linked to our processes, such as sales, service delivery, sourcing, finance, et cetera. We have strengthened our sourcing processes for compliance. One example is the third-party due diligence process that we follow. And in terms of third line of defense, the corporate audit function, which reports directly to the Audit and Compliance Committee of the Board, has invested in resources and capabilities, including data analytics methods. We have come a long way here, but we are not done. This journey continues every day fed by new learnings and new insights. And as part of this journey, we are collaborating with our independent monitor on further improvements to our ethics and compliance program, including the internal control systems. To close here my part, I wanted to say the following. We said in the Q4 report that our ambition is to reach our long-term financial target of a 15% to 18% EBITDA no later than in 2 to 3 years. However, the only way to reach this target is by conducting our business responsibly based on ethical and compliant decision-making and behavior. This is absolutely fundamental, and this is what defines value creation in our company. And with that, I hand over to you, Laurie Waddy, our Chief Compliance Officer. Please, Laurie.

Yes. Thank you very much, Carl. And thank you all for the opportunity to talk a bit about our ethics and compliance program, our goals for compliance, controls as well as culture here at Ericsson. My role as Chief Compliance Officer is, of course, helped tremendously by the strong commitment of the leadership team and the Board and the overall support behind the compliance effort at the company. An ethics and compliance program can only succeed with this sort of ownership and accountability by leaders and stakeholders outside of the compliance function, which is what we have from our partner functions, the executive team and the Board, as I believe you have heard here today. We have a company-wide ethics and compliance strategy, with a strategic goal of embedding integrity into Ericsson's culture and ways of working in order to build trust with customers, business partners and regulators, to foster accountability and to drive shareholder value. As Börje noted, the findings from Iraq as well as other internal investigations, have been reflected in our ethics and compliance program more broadly. We have prioritized culture transformation, which has focused on driving ethical leadership and accountability, raising awareness by not only educating our employees about relevant law and policies, but also transparently speaking about ethics and compliance issues that the company has faced in the past and empowering our employees to speak up. Our compliance consultation desk, for example, supplements the support given by on-the-ground compliance officers. It's essentially a help desk for employees to ask questions and solicit advice related to gifts and hospitalities, conflicts of interest, third parties or other compliance-related matters. The consultation desk has seen an increase in the number of ethics and compliance related questions of 721% between the years of 2019 and 2021, reflecting employees' engagement in the program. Our anticorruption risk assessments now include a review of areas of conflict that might be present in a country so that those risks and the compliance risk that may be associated with them can be addressed. And our third-party integrity processes now include more monitoring of third-party relationships after initial due diligence is completed. We have a team of more than 100 ethics and compliance professionals, up from just 21 ethics and compliance team members in 2019 that are located not only in the headquarters, but also in countries sitting close to our business colleagues, to facilitate real-time, relevant and practical risk management advice. They are supported by approximately another 150 employees in a variety of different roles necessary to an effective ethics and compliance program, including internal controls, finance and sourcing compliance teams, anticorruption auditors and compliance champions. These totals are in addition to the company's corporate and government investigations team. As in other areas of the business, our compliance team is committed to continuous improvement. And I think as you've all heard here today, we have the leadership and the Board's support to do that. Thank you very much. I now hand it back over to Peter Nyquist.

Thank you, Laurie, and thank you, Ronnie, Börje, Scott and Carl for the speeches or presentations. So we're getting closer to the Q&A. And again, I would like to repeat that this is a meeting ahead of the Annual General Meeting, so we will only have answers on questions from voting shareholders. It's important. By that, I would like to hand over the word to you, Simon, so you can open up for the Q&A. Please, Simon.

[Operator Instructions]

Thank you, Simon. And I think we have the first question from [ Aurora Samson ] at Handelsbanken. Can you hear me very well?

Yes. And I hope you can hear me, too. Thank you so much for the presentation. Perfect. Yes. I have prepared several questions, but I will try to fix on a few. And one is actually addressed to you, Börje, on what you said in your presentation. Now you said that you had instructed that the finance you had in the internal Iraq report should be properly disclosed to the DOJ. Should I interpret that you instructed but didn't follow through all the way through? Because one of my questions that I had prepared was to -- but we need to understand when the DOJ was informed about the internal Iraqi report, was it in December 2019? Or was it later than that? So that's my first question.

Yes. Thank you, Aurora. And we will start with Börje then maybe Scott can fill in. So if you start, Börje, and then Scott.

Yes. So it's correct that I instructed to disclose fully to the DOJ. And then, of course, we have an internal process, et cetera, for this, and I will not go into those details. But that was quite clearly the case. And I think most companies, you will find in a similar situation to us, wouldn't go into the exact details of the internal workings in a company, but otherwise, it's correct.

Yes. And Börje, just I'll add briefly to that. And just to reiterate, we are comprehensively reviewing this and are discussing with the DOJ, the sufficiency of the disclosure and this is part of the ongoing review on our engagement with the DOJ.

Thanks, Scott. And you had a second question, I guess?

Yes. Because I mean we were -- as shareholders, the information about the internal Iraqi report came to us from media, more or less. So we did not find out from you more than the sort of the press release early in February. So I would like to ask, is there anything that we should know about now that is not on the table in other -- in any of your other 180 operations that are -- I mean, anything else that we should know of as of now? Because I think to regain trust, we need to know that there will be no more, I mean Iraqi internal investigations coming up on the table from other companies in the near time.

Should we take the same order as last time? Maybe Börje mention a few words and then Scott can fill in there, if that's okay.

On -- I understand that question. The reality is I think we have a staff of 50 internal investigators plus. So there are constantly a number of reviews internally, clearly. But as part of the review that Scott is doing here, we clearly need to ensure that we properly disclose to the DOJ everything in the right way and then act properly and take the right actions on the reports. But I don't want you to leave this to think that there is a very few number of reports. I think the other indicator, which you may think about is the number of allegations, which in 2016, I believe they were less than 150. This past year, it's more than 1,000. And we take, call it, 250 remediation actions. So that means that there are so many allegations that we need to have a process to manage those in a good way.

Yes. Thanks, Börje. I'll add a couple of brief observations to that, and reiterating what you said, all companies of this size receive quite a few reports and allegations of various types. And importantly, we have disclosure obligations to the DOJ and of course, we'll always meet our disclosure obligations to investors and appropriate authorities. Also as part of our internal efforts, as Börje mentioned, strengthening and ensuring that our investigations function is robust and excellent is a top priority, and it has improved significantly over the years and we'll make it even stronger. Lastly, as Börje mentioned in his remarks, I think importantly, when we operate in challenging regions or areas of conflict, we'll enhance our governance and make sure that we apply heightened scrutiny to partners and how we operate there is very important to us.

Thank you, Scott. Maybe Laurie wants to sort of reiterate something you said in your presentation as well.

Yes. Thanks, Peter. I would just say like to follow up on what Börje said, I think that employees speaking up and raising concerns, whether or not they are concerns that are validated or confirmed to actually be a problem, really reflects a strong speak-up culture. And as Scott said, we've been enhancing our investigations process over the last years alongside of the compliance program. So significant efforts have been put into the overarching E&C program.

Thanks, Laurie. Then Aurora, are you -- you had a third question? Or are you...

Yes, I mean thank you so much for your answers. And I mean, I've been in conversations with Laurie for over 2 years. So I'm fully aware of all the efforts being made in strengthening the speak-up culture in the program. And I think that's really a good sort of change that's happening right now. And one thing that I have asked for previously and we ask again and Laurie knows this question, for us to understand when we follow you in this journey, it would be great to understand from where you get the speak-up signals. If there are some regions that are sort of quiet. And my wish would be that if you could report on a country-by-country basis, that would be really good. If that's too sensitive, then at least on a sort of regional level, it would be great to understand how many reports you get in and sort of -- and how you act on those reports.

Thank you, Aurora. We will note that. That's good. So we have the next question from Shane Chaplin at Swedbank Robur. Shane?

And my question is a little bit similar to Aurora's, but with a slightly different angle, actually. I mean we hear quite a bit about the cultural transformation and education on laws and policies and so on and speak-up mentioned numerous times, but those measures may seem a little sort of -- they're partly proactive, but what I want to hear a bit more about is the more hardcore enterprise risk management side of this and how the company actually assesses the risk of projects and countries and then puts in place controls for those risks before things even start happening on the ground. Because if that end of the process is robust, then the need for speak up and this sort of stuff becomes much less because you're not exposing people to unnecessary sorts of risks. So if you could maybe tell us a little bit more about that front-end process and if and how that's being improved, that would be really helpful.

Let me take that because, Shane, I think that's a really important question and something that I touched on earlier. And I won't go into detail, but as part of the comprehensive review that we're undertaking, we will also address just inherently in the process, general risk management. And as you noted, the company does operate in challenging regions and conflicts. And we're going to make absolutely certain that we review and enhance governance in these areas and apply heightened scrutiny around decisions and also around how we operate in these challenges. And so it's an important point, and we're very focused on it.

Thank you. And Börje wants to add something here as well. So please, Börje.

Yes. I think this is a great question and Scott gave one answer. What I think is also worthwhile to remember here is that when we enter the market, it's typically not a high-risk market at the time, but it may convert to becoming a high-risk market. That's when the problems occur. And it's fair to say when we enter into a market, we provide the critical infrastructure in the country, which actually therefore, includes a very long-term commitment to operate that. So I think no more comparisons than this one, but just think about Ukraine, for example, which 2 months ago would have been a low-risk market. Today, I would say it's a high-risk market. Not necessarily -- I think there are 2 parameters to look at. One is the health and safety and well-being of our people. And the other one is that we can conduct our business following our code business ethics. But you can also understand that today, for example, traffic in a mobile network in Ukraine is up 3 to 5x compared to what they were pre-invasion. That's not the time when you start to say, okay, let me find ways to pull out. We need to instead manage risk in those circumstances and we need to manage with the health and well-being of our people at the front and center. That's why I think the -- what Scott described is a very dynamic process that we need on how to manage risk in the right way in a company that provides critical infrastructure, that's actually used during times of conflict as well.

Yes. [indiscernible] certainly has the confidence in that area because you have a footprint in a number of high-risk jurisdictions. And so that requires quite a team and quite some skill. And as you alluded to sort of situations change in place, and so risk assessment has to be revisited on a regular sort of basis, maybe annually or biannually, depending how sort of fast the situation...

It's more often than that. It's actually -- I mean think about Ukraine. 2 months ago, it was completely different, right?

Yes. That's quite an extreme example though. But that's sort of moves...

It's not so extreme because you can have a revolution.

Yes. Sort of brings me on the question around auditing though, of operations. I mean there have to be actually people on the ground sort of asking questions and checking things out as well and how do you feel about the company sort of coverage there in terms of regular auditing and follow-up?

Thanks, Shane. I guess that would be a question to you, Laurie. Or -- can you address that?

Well, I mean, for sure, I think what you're mentioning there is super critical that we remain dynamic. And that when we have investigations or other issues that come up that we make sure that we embed lessons learned into our overarching ethics and compliance program. So I can only reiterate again that we've worked really hard to understand and remedy the errors of the past, including that, which was evidenced by Iraq. But I can say that I do feel very confident that our ethics and compliance program has improved dramatically since those events took place. Today, we're in a much better position to prevent reoccurrence but also to more quickly uncover and respond to misconduct when it does occur. So for example, just in terms of the misconduct in Iraq and embedding that into the overarching ethics and compliance program, we've worked hard to enhance just the oversight of the decisions made in relation to challenging jurisdictions and conflict zones where we work. We've also worked to continue enhancing our governance and reviewing our internal controls for potential improvements in those areas to really bolster decision-making and oversight. And we've dramatically tightened up when it comes to vetting an oversight of our third parties with whom we work and really choosing to work with third parties who meet our ethics and compliance expectations. And lastly, I would say, in terms of our risk assessment process, we also have embedded into that process a review of areas of potential conflict to make sure that we're adequately assessing risk when we're on the ground. And then along the lines of being on the ground I should also reiterate that we have compliance officers who are located in country close to the business, so they are more on top of, if you will, in terms of strategic decisions that are being made, in terms of business opportunities that are being evaluated and can address those in real time as compared to a few years ago.

Thanks, Laurie, and thanks, Shane, for those questions. We will move to Gaia -- thank you. Thank you, Shane. We'll move to Gaia Mazzucchelli from BlackRock. Gaia, can you hear me?

Yes, I can hear you very well. Thank you, everyone, for the time and for giving us an opportunity to ask questions. So I have 2. The first is on variable remuneration. So in the call, you have reiterated that compliance is really a key top priority. And so the question is why then haven't you included it in the variable pay, knowing that you have included this year for the first time ESG metrics on your LTIP? And so wouldn't it make more sense to use compliance metrics, knowing that this is also what will drive investor trust? And second question, still related to governance. Looking at the mandate of Mr. Ekholm, we can see that he's also a Non-Executive Director at Trimble and Alibaba, which could also be considered as quite a lot in terms of numbers of mandates and especially in the context of Ericsson. So are there any plans to review, end some of the mandates and what is your perspective on this?

Thank you, Gaia. I think these 2 questions is dedicated for Ronnie. So please, Ronnie.

Yes. Peter, thank you and Gaia, thank you for that. I'll start with the last one on the mandate. I think maybe you have not seen the announcement of Börje is stepping down from Alibaba, so that I think is ready. And I think when it comes to Trimble, I think it's also very important as a CEO that you also have insight in other ways, what other companies doing. So I think it is an asset for the quality what Börje can do for Ericsson to be like -- to be connected to a leading company like Trimble, which I happen to know myself. And I think it's really a good insight, if I take it, say, in the way how IoT is developing in the market, he gets an insight on that. So that is, I think -- maybe it takes time. But on the other hand, you need also educate yourself all the time in -- as the CEO. When it comes to the variable pay and assess on compliance, of course, we evaluate every time in the Board, where we have a possibility to review say, the payout when it comes to LTI and STI. We have that, and we do that also before we go really on beside the different measures. We also see also the other metrics is included there. So I feel we have always been considered that maybe it was not so explicit in one say, 10% here or 5% there. It was more overhauling where we said, okay, is this really on the right level, but we have definitely done that. So Peter?

Maybe, Peter, I would just add that to address that particular question that variable pay and specific KPIs are being adopted for this year. Some of the documents associated with short-term variable, long-term variable, I believe, had to be adjusted in order to make that happen, but that has been on our radar, and we have taken that up for this year. The other thing that I think is worth mentioning is that withholding variable pay has always been a tool in the toolbox, if you will, of the ethics and compliance program. So from that perspective, we have utilized that tool, at least since the time that I've started. And I think what is new is actually including or developing the KPIs around the integrity mandate for our executive managers.

Okay. Thank you, Laurie. Thank you, Gaia, for those questions. We will then move to our next question from Emily Weston at [ Folksam ]. Emily?

I'm honestly struggling to understand the complex situation that you're in, and we have many questions from Folksam. But I'd just like to focus on the terminations of employees that you mentioned earlier. And according to your 3 most recent sustainability report, between 80 and 100 employees have been terminated every year related to compliance concerns and that means 260 terminations in total. And on top of that, there are also recognitions and warning letters and variable warnings. But just looking at these 261 terminations, during these last 3 years, due to breaches of the code of business ethics, first, I'd like to reiterate what Aurora said about how we'd like to know more about each regions' estimations [ took place ] and also a kind of incidents that these employees were involved in. But to my question, could you please comment on this number -- the number of terminations? Would you say that this is a normal number for a company the size of Ericsson? To us, it seems pretty high. Usually, as investors, we appreciate when we see that a company has a working with a growing process with a number of reported cases every year. For us, it's a proof that the process is working, that the employees trust the system. But when we see this kind of numbers of terminations 3 years in a row, we start to wonder if there's something missing in the way the employees are recruited or in the way they are managed from the top. Almost 100 of your employee were fired last year because they were basically not doing the right thing. So what numbers will we see next year and the years to come?

Maybe, Laurie, if you want to start answering that question?

Yes. Thanks, Peter, and thanks for the question. We do benchmark our activity levels with regard to consequence management and believe that we are in line with others for our size and complexity. And of course, I would reiterate, and I think it's important here to reiterate that we have a zero tolerance for corrupt behavior in the organization. So we take that very seriously.

Just let me add to that briefly, Laurie, just as a general remark. I think one of the dynamics here is when an organization the size of an Ericsson enters into a DPA and undertakes significant enhancements in its programs and the way it has historically operated and adopt zero tolerance, there's fundamentally a fair bit of change and that involves the type of exits that you referred to, and it's not an unusual level that we're talking about here.

Thanks, Scott. Emily, did you have a second question as well?

No. I just -- I had a last question what numbers we will see next year and years to come. As I understand, of course, like you say, the program you've undertaken and the success of 3 that you made, I mean, they result in terminations of employees. But are you done with the program, with all the change? Or will we see further terminations for years to come?

Laurie, I guess you can start with that one as well?

Yes. I'll just respond to that. Again, and this goes back really to the size of the organization and the nature of the change that's in progress here. We -- as we noted earlier, there -- and people will understand this. There's not a small number of allegations and reports that come in, in an organization of this size, and they're thoroughly investigated and it does result in exits. As you strengthen the organization, Obviously, these things move down and the number of exits are reduced. So you do expect certainly a gradual downward trend, but it takes time. And so the answer would be, yes, we certainly are moving towards a place where it will be reduced, but it does take time when you're undergoing this sort of change.

And Börje, you want to add something here?

I think from my perspective, it's -- as Scott very well put it, this is a change journey we're on. We're cleaning up past behaviors, changing cultures in a big way. And I would say one thing, though, you can rest assure on, and that is we're working to prevent. But if we find some wrongdoing, we take immediate actions. And that we're very committed to. We need to be remediating any of these actions. And over time, we'll find ourselves in a different spot. And I will just broaden the discussion a bit also, which is, we focus now on the compliance side, and that is really a -- I think it's a spearhead in the company. It's a bigger cultural change underlying this. So pick, for example, speak up. Speak up is critically important for our compliance efforts, no question, but it's equally important to know how a project is doing. How are we doing on an R&D project or a delivery project to customer that everyone is empowered to speak up or to make sure that we get the right information about any decision, everyone's empowered to speak up. So I want you also when you think about these things, we actually want to encourage an environment that's open that create a willingness to contribute into all type of decisions. So while we talk about compliance, don't forget the spin-off effects of that.

Thank you, Börje, and thank you, Emily, for those questions. We will then move to the next question from [ Slara Linton ] from [ Axisporama ]. Slara?

Thank you for giving us the opportunity to discuss those -- these important matters ahead of the AGM. And as many others, I have several questions, but I'll try to keep it short. I have had a bit of a problem with my phone connection, so in case I repeat something that has already been answered, I apologize ahead of that. My first question is that the DOJ has some 2 occasions on the 21st of October 2021 and on the 2nd of March 2022 made remarks on how Ericsson is following the agreement. And yesterday's press release also indicates that Ericsson will not fully cooperate even in the future. And therefore, my first question is I wonder is to what extent do Ericsson cooperate today? And to what extent to Ericsson plan to cooperate in the future? And I think you have given the answer to this today, but I just wanted to make sure that I understood it correctly. And as the second question, what consequences do Ericsson risk if it will not cooperate in full with the DOJ? And then I have another question. Should I wait for that one? Or should I take it?

Sorry, I think you had 2 questions, and I will try to keep it -- it's a long queue here. So maybe, Scott, you can address Slara's 2 first questions here, please?

Yes, and 2 aspects to the response. The first one is we are absolutely cooperating and we'll continue to cooperate. It's a fundamental aspect of the DPA and we're engaged with the DOJ and we'll fully cooperate. The -- you referred to and I mentioned in my remarks that we are discussing with the DOJ sufficiency of disclosures to them around Iraq, and that is what I will be reviewing and covering with the DOJ. So I think that addresses your first question. As far as consequences, we at this point, are not going to comment on hypotheticals. We're cooperating with the DOJ and we'll remain engaged with them. And if there's anything to come back to on that, we will. It's too premature to predict any outcomes here.

Thanks, Scott. So we have quite a long of queue here of questions. So we move to the next person, which is Simon Peterson at Didner & Gerge Aktiefond. Simon, can you hear us?

Yes, I can. Can you hear me?

We can hear you perfect.

Great. So this is Simon Peterson from Didner & Gerge Aktiefond. Thanks for taking my question and they are related to the press release from the 15th of February regarding the issues in Iraq. And I'm trying to understand your internal process when deciding whether to disclose information to the market or not. So I mean, in the organization, who is responsible for the decision not to share the Iraq information with the market already back in 2019? And was that the question that you discussed in Board meetings? Or how does that work?

I will leave that question to you, Scott. Scott, please.

The only remark I can make on that is that this is a fundamental aspect of what we're reviewing at this point. And we're committed to making sure that we've got tight governance and we're going to strengthen overall governance. And we will ensure that we comply with our disclosure obligations to investors.

Thanks, Scott. Simon, did you have a second question?

Yes, just a follow-up on that. And I mean, have you made any changes now recently in how you decide whether you need to disclose information to the market?

Yes. Thanks for the follow-up. As you know, I just joined the organization. And as I discussed in my remarks, I've been charged to undertake a full review, but you can rest assure that we're going to do everything that we need to do to address any issues, historical, or that come up in the review and to the extent that there needs to be strengthening of governance around how we disclose and make disclosure decisions that's going to be done, and it will be done promptly.

Thanks, Scott. And thanks, Simon, for those 2 questions. We'll move to -- thank you. [ Philippa Nogensta ] at Nordea. Philippa?

I might repeat that was just asked to some extent. But just to understand that you instituted the information to be published to the DOJ, but there seems to be some failure with the internal processes so that didn't happen, the way I understood it. But could you help us understand why -- on what basis you decided not to inform the stock market about it because you saw it was not enough to inform the DOJ, they didn't receive the information due to internal processes but you didn't inform the market. Why was that?

Philippa, we discussed this previously, and we are in the midst of sort of a comprehensive review of the direct matter associated sort of disclosure, we're working with this with the DOJ and report it fully for them to resolve the matter. So unfortunately, we cannot expand further on this question than we have done before. So maybe you can take the second question, please.

That was all I had, thank you.

Thank you. So we move to the next one, which is from Anders Oscarsson, at AMF.

This is the AMF here who called. I have a question for you, Scott. We have several questions that we are lacking of answers. When do you estimate the best time when we will -- can get the answers on all of the questions?

Scott, I guess this is a question for you.

Yes. Thanks for that question. And the most important thing at the moment is that we undertake the review and engage with the DOJ. And the DOJ is engaging with us directly, and we want to do this thoroughly. So it will not be immediate. We will, of course, discuss it with the DOJ, I would say, a number of months. And we will not be able to come back and report on this until we conclude with the DOJ.

Okay. And the second question is for you, Ronnie. Have you discussed within the Board how a denied discharge will be perceived from the Board members?

Say it again, Anders? Can you say it again, Anders? Can you repeat again the question?

Yes. have you discussed with your Board members how a denial of the discharge [indiscernible] here, how that will be perceived, if we, as an owner, will give that denial?

Yes. Of course, I think we -- this was one of the topics which came up with the Board members. But of course, we will see first when we have the AGM, how it will be coming out, of course, Anders, so that's just to -- but of course, no one would like and appreciate if we don't get discharge of liability, that's for sure. So this -- because people will take it definitely as a personal part. But let's see first where we end up in the AGM on Tuesday on this.

Thank you, Anders. We'll then move to [ Oscar Borison ] at [ Skandia ]. Oscar?

We discussed a lot of the issues I was wondering about as well. But I was wondering if you could expand a little more about if you consider any breaches of the coding on the basis of the nondisclosures report, both towards the DOJ and to investors. And if so, the Board has looked into activating holdbacks?

This is a question for you again Ronnie.

Yes. When it comes to the holdback, I think, again, this is something which we will discuss when we really have, say, full the outcome and the evaluation, which we do every year, which is up later on in the next coming months where we do that with the Board. So for the time being, we have not reviewed or going back to, say, '17, '18. But as I think Laurie already said, I think in another answer in a previous one, we have done some holdbacks in from SDIs and LTVs, we have done that. And we will do also when we see there is a real, real reason for that, for sure, you can assure that we will do that. But for the time being, it's not up to now.

Did you have a second question, Oscar?

No, a lot have been covered already. Thank you.

Thank you, Oscar.

And Ronnie, just to add up on what you said. I want to make a further remark on the process with the DOJ, just to make sure that everyone understands. We're involved in a dynamic process with the DOJ. We're undertaking this comprehensive review and are working and are engaged actively with them. And we will come back to investors as we're able and as -- again, we're going to be certain that we meet our disclosure obligations to investors, but I want to manage expectations on this process.

Thanks, Scott. And thanks, Oscar. We will take the next question from [ Victoria Lidia ] at [ Storebrand Capital ] [indiscernible]. Victoria?

Most of the questions I had has already been addressed, especially on operations in high-risk markets. But I have one question on the provision of information to DOJ and the shortcoming in providing these information such as failing to provide certain documents and factual information leading to a breach of the obligations under the DPA. And I understand that you're now conducting an internal review into the shortcoming, which is now led by you, Scott. But I am wondering if you have considered commissioning an external review looking into these issues and how your information pushing could improve going forward? Is that something you can comment on?

Maybe, Scott, can you take this?

Thank you for the question. And just to be clear, my review will be accompanied with external counsel, who have been brought in to participate. So I think the answer to your question is yes. And also, a really important point here is -- one additional point as well, which I think we often -- people lose sight of is we do have an independent compliance monitor that is in the company, that we engage with actively, and that is also engaged in this. And that's a very important component of the DPA. So this is all done openly and transparently and with the involvement of the independent compliance monitor.

Thanks, Scott. Did you have a second question, Victoria?

No. I will leave the floor open for other questions.

Thank you, Victoria. We will have then the last question for this session from [ Arin Vaniemire ] from [ BlackRock ]. So Arin, can you hear me?

Yes. I have one additional question on the DPA breaches. So we understood that have been 2 breaches of the DPA, one was communicated quite recently related to the Iraq case. And another one that was flagged a couple of years ago, I believe. But there isn't that much information available about what that breach actually relates to. So it would be helpful if we can get some clarification on what that first DPA breach from you a few years back what that relates to?

Maybe that's another one for you, Scott.

Well, I think this was covered in the press release. And I think, Peter, you can perhaps add to that, but that is a matter that's also under discussion with the DOJ. But I believe it was disclosed and discussed in the press release.

Yes. That's correct. Did you have a second question, Arin?

No, that's all.

I think we're going to have a last one here from [ Erik Durham ] from [ Marie France ]. Erik here, you're the last one out.

I just want to continue the question that Philippa asked from Nordea. I mean, when I look at this, I see great uncertainty. The only thing we actually know is that the DOJ thinks that something wrong has happened and that the DPA has been broken. That's more or less what we know. We don't know if something happened on the C level. We don't know something happened at the Board level. We just know that something has happened. So it's a huge uncertainty. And if you look at what actually, the approved discharge of the Board or the CEO under AGM 8.3, what that is about is actually saying that, well, we have the information, and we know so we can give approval of discharge. But just on looking at on the fact that [indiscernible] we don't know that, because we don't know what financial implication this has. We don't know where decisions were taken. So -- and Glass Lewis and ISS comes to the same conclusion. So that is my simplistic analysis. Can you please offer me your counter perspective? What am I missing? Why should I [indiscernible] the search of the Board and the CEO, given the huge uncertainty that we still have? We only know that there's some information will communicate in the future.

Yes. Let me respond to that, and thank you for the question. It's an important question. And a couple of remarks. I mean -- and as discussed earlier by Ronnie, and I'll repeat it, it is clear that the Board has supported Börje and we've noted that Börje has instructed that this be properly disclosed. I think that's extremely important. He conducted himself in the highest ethical manner, and there are no questions in that regard. The question at hand with the DOJ is whether at the time, disclosure around the Iraq matter was made sufficiently to them. And that's what we're discussing with them. And as Ronnie said, I think as far as the discharge of liability question goes, the Board is strongly recommending a vote of yes, and there are no questions at the level that you have raised.

Ronnie, do you want to add something to that?

Yes. I think -- and I said that I think we also said that in our press release yesterday and I said it also in the opening that I think we have an unqualified support for Börje. And Erik, this we will not do, first myself or the Board will not do that if we were not really supporting that. We just don't do that for the sake of, okay, looking good. This is really well-meant, unqualified support to Börje, because we believe he has worked with all the ethical and the highest value. I think he has professionally done what he needs to do and did. And we should also -- if I said in my speech part, the opening part, we are really on a journey. Look back where we were in '17 and where we are today. This is a journey. And of course, we also know in '19, we got from the DOJ, DPA. That was a reason for why we got that because we were definitely not good enough in the past. So -- and this is a journey what we do there. And have we improved? Definitely. Are we there yet? No, because that is the reason why we don't -- but that is the whole thing. And of course, you can, as investor, you choose if you give a discharge of liability and you have the right to do that. but I can assure you that we, as the Board, and also you saw a whole force Börje was talking, we believe we are on the right track.

Thank you, Ronnie, and thank you, Erik. So we will move now to the closing remarks from your side, Ronnie, if you please.

Yes, I can repeat a bit what I said to Erik. So to close, I would like to make an important point, which already made now, but I can repeat myself. We know that the recommendation of Glass Lewis and ISS is to vote no on discharge of liability. And you can -- and you heard me saying just a minute ago, of course, the Board and myself, we strongly disagree with that. We are confident that Börje has conducted himself and will continue to be guided by our commitment to acting in the highest ethical manner, including in relation to the current issues before the DOJ, what I just mentioned, and we got the questions around that. I would also remind all shareholders that you are able to change your submitted postal votes at AGM. Should you feel after this session or even later on that your views have changed. But further also, I would like to draw the attention that the company's independent auditors have recommended that shareholders discharge liability. And I urge and recommend that you do the same. And again, we, myself, management, the Board are absolutely committed to reearning your confidence regarding how we operate. We will address these matters strongly, continue our ethics and compliance journey and maintain, and that's even more important for the future of the company, our focus on our customers and our focus on technology leadership. So thank you. Thank you for joining, and thank you also for a very interactive and interesting questions. So Peter, turn it back to you.

Yes. Thank you, Ronnie, and thank you, everyone, for today's call, and thank you very much for dialing in. Thank you.