WSJ>
July 9, 1999
Tech Center
Ericsson's Nilsson Learns It's Tough
To Succeed a Leader Who Stays On
By JULIA FLYNN and ALMAR LATOUR
Staff Reporters of THE WALL STREET JOURNAL
Shortly after taking the reins at Ericsson, Sven-Christer Nilsson did what a
lot of new chief executive officers would do. He started questioning
Ericsson's strategy.
Only one problem. The strategy he was challenging was forged by his
boss, Ericsson Chairman Lars Ramqvist.
By Wednesday, Mr. Ramqvist had heard
enough. In a stunning move, he sacked the
man he'd hand-picked to succeed him only 15
months earlier and reclaimed the CEO job for
himself.
To be sure, a host of other problems
contributed to the breakdown of the
relationship between Mr. Ramqvist and his
successor. But what happened at Ericsson is
the sort of thing that can occur when an executive as dominant as Mr.
Ramqvist has been over the years at Ericsson is unable to fully relinquish
control.
'Personal Attack'
"It is a classic scenario," says John D. Roberts, an expert on CEO
succession at Cambridge University's Judge Institute of Management
Studies. "If the CEO becomes chairman, almost inevitably he will
experience the scrutiny of the new CEO as a personal attack."
Although Mr. Ramqvist acknowledges that his relationship with Mr.
Nilsson has frayed in recent months, he insists he has always seen eye to
eye on strategy with Mr. Nilsson, but he shoulders the blame for the
current management mess. "I made a mistake," concedes Mr. Ramqvist.
"The current situation at Ericsson is not the fault of Mr. Nilsson. I take full
responsibility for this. He was my candidate."
Even so, the leadership crisis at the top of Ericsson has extracted a heavy
price. Over the past year, the company has been reeling from plunging
earnings, a sliding stock price and an increasingly frazzled relationship with
its investors. Just as worrisome, it has lost some of its most seasoned
executives in recent months to rivals and early retirement.
Indeed, although Mr. Ramqvist, 60 years old, presided over an
unprecedented period of growth at Ericsson, his decision to step in again
as CEO isn't a permanent solution.
"Ramqvist is a stop-gap measure," says David E. Marcus, director of
European investments for fund managers Franklin Mutual Advisers Inc.,
who pushed for Mr. Nilsson's ouster this spring. "They need someone who
can come in and kick butt."
Plucked From Obscurity
That's not what Mr. Ramqvist was looking for when he began scouring the
ranks of Telefon AB L.M. Ericsson for someone to succeed him as chief
executive in 1997. He came up with a list of 20 candidates and put each of
them through two days of psychological testing. At the end of this process,
he came up with a relatively unknown insider named Sven-Christer
Nilsson.
Mr. Nilsson was a surprising choice. He wasn't a member of the
company's executive committee. He hasn't run one of Ericsson's biggest
divisions. And he'd never directly reported to Ramqvist before.
Then again, Mr. Nilsson wasn't the first choice for the job. Before Mr.
Ramqvist summoned Mr. Nilsson to an early-morning meeting at the
company's Stockholm offices in early 1998 to offer him the CEO job, Mr.
Ramqvist had approached a number of other Ericsson insiders first --
including Mr. Nilsson's immediate boss, Kurt Hellstrom. Mr. Hellstrom
passed on the job, according to Mr. Ramqvist, who declined to specify
why.
Short Honeymoon
Not long after Mr. Nilsson took up his new post, the relationship between
him and his boss began renting. During much of the 1990s, Mr. Nilsson
had run the unit that sold cellular-telephone systems in the U.S.
Recognizing he needed to broaden his view of the company, he set off on a
three-month tour of Ericsson's far-flung operations. He also tried to gauge
its strategic strengths and weaknesses.
The conclusions he drew weren't entirely positive. For one thing, Ericsson
was lagging far behind its competitors in logging onto the Internet. More
worrisome, it had failed to prepare itself for the rapid convergence of the
Internet and the telecom industries.
Mr. Ramqvist's chief victory as Ericsson's boss was to establish the
company's leadership in the GSM mobile phone standard. But the
company's troubled Infocom division, which was charged with the job of
making sure Ericsson had products to hook mobile phones to the Internet,
was producing heavy losses. After studying the unit's problems, Mr.
Nilsson concluded it had been starved of investment -- a view that
privately irritated Mr. Ramqvist, according to people close to the
company. Mr. Ramqvist responds he was deeply committed to expanding
Ericsson's Internet capabilities, and says several small Internet acquisitions
were initiated during his tenure as CEO.
Whatever the case, Ericsson insiders contend that Mr. Nilsson antagonized
his boss by pointing out strategic weaknesses in the company's Internet
strategy. Each passing week, this became even more evident. Major
competitors such as Nortel and Lucent started gobbling up one Internet
company after the other in multibillion-dollar acquisitions, while Ericsson
was lying low. Not only was it handcuffed in its ability to raise funds by its
unusual, two-tiered ownership structure, but it was also slowed down by
its tradition of consensus-based decision making, which hampered its
ability to strike deals in the fast-moving Internet industry.
There were also dramatic differences in leadership style between the two
men. Mr. Nilsson, an amiable and soft-spoken Swede, spent much of his
time listening to others, while his predecessor is a dominant, sometimes
abrasive executive who has been known to lash out publicly at people who
stand in his way. "Sven is more of a team-leader, very quiet, always
listening," says Arne Modin, an official for Ericsson's white-collar union.
"Lars is more of a solo-player, always talking. So even after Sven-Christer
took over, he continued to criticize and steer things his way."
Housecleaning
Mr. Nilsson tried to offset Mr. Ramqvist's influence by building his own
team. He ousted some of Mr. Ramqvist's old friends, such as the InfoCom
division head Anders Igel, and appointed his own people to the jobs.
Those who were passed over for the new team quickly jumped ship. For
example, Ericsson Radio System's chief Jan-Ake Kark left to head up
state operator Telia AB; merger and acquisition head Lennart Grabe took
the helm of the Swedish Post; and Ericsson U.S. chief Bo Hedfors joined
rival Motorola. More recently, CFO C.W. Ross stepped down to pursue
other interests.
The only survivors from the Ramqvist camp were Kurt Hellstrom, who
was appointed head of Asia-Pacific region last October, and Jan Sieberg,
who remained in charge of Ericsson's mobile phone division.
Still, Mr. Nilsson was acutely aware of a growing problem between him
and Mr. Ramqvist. Mr. Nilsson felt that his boss's outspoken views made
running Ericsson's day-to-day business more difficult, according to
insiders. For example, when Mr. Nilsson in October announced Ericsson
would move part of its headquarters to London, Mr. Ramqvist, who also
serves as the chairman of the Swedish Federation of Industries, used the
opportunity to criticize the Swedish government, saying large companies
like Ericsson were leaving Sweden because high income taxes made it
difficult to recruit foreign talent. Mr. Nilsson, who had hoped to avoid
political bickering, was drawn into the debate nonetheless. That angered
Mr. Nilsson, according to people close to the former CEO.
Mixed Messages
Meanwhile, the company was facing much bigger problems. While rival
Nokia saw its mobile phone sales soar last year, Ericsson's sank because it
couldn't keep pace with its rivals' new models. Mr. Nilsson badly
miscalculated the depth of the problem, proclaiming proudly during the
announcement of its third-quarter 1998 results that it hadn't issued a profit
warning and wouldn't fire any employees. A week later, Mr. Nilsson was
forced to issue a profit warning and announce that nearly 12,000 jobs
would be cut. Almost overnight, Ericsson lost nearly half of its market
value.
With Ericsson shares still plummeting in the following week, Mr. Ramqvist
decided to take matters into his own hands. In an interview with the
Internet edition of a tiny Swedish business publication, he reiterated that
Ericsson faced a tough year ahead and said there were more layoffs ahead.
The next day, Ericsson shares dropped again. Mr. Nilsson was furious
because Mr. Ramqvist undercut his authority by second-guessing him in
public, according to Ericsson insiders.
Mr. Ramqvist isn't apologetic about the incident. "There was a question
mark" around what Mr. Nilsson meant, said Mr. Ramqvist. "He said one
thing first, then another. It was absolutely necessary to communicate the
facts to the public. The board asked me to step in."
Mr. Ramqvist didn't stop at that. A few weeks after the profit warning, Mr.
Nilsson presented a model of the T28, the first of what would be a series
of next generation mobile phones. Although there were widespread rumors
there were production delays, Mr. Nilsson denied that phone's roll-out
would be held up. But days later, Mr. Ramqvist stated in an interview that
the T28 was six to nine months delayed and had hit Ericsson's profits. "It
was a shock to the board and even to me," Mr. Ramqvist said. "But it was
reported to the board too late, in December. It's the reason why Ericsson
is losing ground."
Signs of Improvement
Yet, this spring, the first seedlings of Mr. Nilsson's strategy started to
appear. Ericsson's share price was slowly recovering while the company
stepped up its acquisitions in the Internet arena. The company also struck
major deals with British Telecom and Qualcomm of the U.S. But the
board and some powerful investors were dissatisfied with the progress.
Specifically, Franklin Mutual, which owns an 8.6% stake in Investor AB, a
big holder in Ericsson, began pressing Investor to make a change at the
top. Marcus Wallenberg, the recently appointed CEO of Investor, sits on
Ericsson's board.
With the support of Mr. Wallenberg and other directors, Mr. Ramqvist
started a series of conversations with Mr. Nilsson about his future at the
company. "I cannot recall a certain moment that the decision [to ask Mr.
Nilsson to resign] was made," said Mr. Ramqvist. "It was the wish of the
combined board, unanimously, after problems had piled up." After
delivering this message, Mr. Ramqvist offered Mr. Nilsson another job
within Ericsson, but the CEO refused. Then Mr. Ramqvist reported Mr.
Nilsson's resignation to the board and suggested Kurt Hellstrom to take
over Mr. Nilsson's job temporarily. The board insisted Mr. Ramqvist take
over the CEO position until a long-term solution was found.
"I hope to be more of a teacher to the next CEO," Mr. Ramqvist said. |
