Ericsson Chairman Ramqvist Finds Himself Under the Gun
By ALMAR LATOUR
Staff Reporter of THE WALL STREET JOURNAL
STOCKHOLM -- There isn't much chance that one person would ever become chairman of Microsoft, General Motors and Citigroup.
In Sweden, Lars Ramqvist has pulled off the equivalent. Since 1998, the 62-year-old has been chairman of Telefon AB L.M. Ericsson, the global telecommunications group that is Sweden's largest company; auto maker Volvo AB; and Skandia AB, the international financial-services company.
But these days, the man known in Swedish corporate circles as "The Godfather" is fighting to save his own reputation -- and perhaps his job -- and the sagging fortunes of Ericsson, the company where he made his name as chief executive from 1990 through 1997. Since moving to the chairman's office, Mr. Ramqvist has presided over a series of crises rocking a company that looms large in the Swedish national psyche.
The latest wallop came over the weekend, after the company on Friday reported a first-quarter loss of $485.3 million and announced layoffs that will bring the total for the year to more than 20,000 people, or 18% of the work force. Ericsson's board formed a three-person crisis committee to keep a close eye on Mr. Ramqvist and other executives as they struggle to restructure the company and reverse the losses that have plagued the once-stellar handset division.
The company's share of the world handset market slumped to between 7% and 8% in the first quarter from 16% two years ago as Ericsson lost touch with consumers' changing tastes in mobile phones. Last year, its losses worsened after a fire at a key supplier's U.S. factory that made handset components. The company's share price, which peaked at 231 kronor ($22.94) last year, has tumbled 76% to 55 kronor, below where it was two years ago. On the Nasdaq Stock Market, the company's American depositary receipts are at $5.35, down 77% from their 52-week high of $23.44, reached last July.
Mr. Ramqvist's blunt, combative style hasn't always served the chairman well. He lost a high-profile showdown with the Swedish government over the country's high taxes. And he feuded with his handpicked successor as CEO and had him fired after just 18 months on the job.
"Ramqvist should step down," says Lars-Erik Forsgardh, chief executive of the influential Swedish Shareholders Association. Urban Ekelund, an analyst with research firm Redeye AB in Stockholm, is equally blunt: "Ramqvist has done many good things for Ericsson, but it's time for him to leave."
The Godfather is having none of that. Though he had expected a quiet retirement by now, playing tenor saxophone and hunting moose at his 16th-century country estate, Mr. Ramqvist says he is determined to get Ericsson back on track by cutting costs, laying off workers, outsourcing handset production and strengthening the company's network-systems business. The company is on the verge of announcing a 50-50 joint venture with Sony Corp. of Japan to produce and market mobile phones.
"We'll solve these problems," Mr. Ramqvist says.
It won't be easy. The global economic slowdown is likely to affect Ericsson's network-systems business, which provides infrastructure systems for telecom operators and accounts for 55% of revenue. That business has long helped offset mounting losses at Ericsson's mobile-phone division, but now, many telecom operators are coping with debts from recent expansion and are slashing infrastructure spending. Meanwhile, growth in the global handset market is slowing.
No one could have predicted that Mr. Ramqvist would find himself at this pass. His record as CEO at Ericsson made him irresistible to the shareholding public, as well as to Volvo and Skandia, both of which cited his performance as reason for bringing him on as chairman of their boards in the late 1990s. Multiple chairmanships weren't new to corporate Sweden, but seldom, if ever, has anyone simultaneously occupied the top spot at three of the nation's top companies.
Born the son of a copper-mine foreman in the Swedish hamlet of Grangesberg, northwest of Stockholm, Mr. Ericsson earned a doctorate in chemistry and physics under Kai Siegbahn, who later received the Nobel Prize for physics. Hired by Ericsson in 1980 to head its licensing and business-development division, Mr. Ramqvist quickly rose through the ranks -- strategic planner, head of the components division and then executive vice president for the growing mobile-systems unit. A year later, he became president and CEO.
It was a difficult time. The showdown that led to the Gulf War had begun, the global economy was slipping, and Ericsson's sales were down. But instead of cutting costs, Mr. Ramqvist told investors that Ericsson needed to invest more in research and development to prepare for the arrival of new technology -- the mobile phone.
"When I told investors in New York that we had to increase investments at the expense of profits, one half of the room started sobbing and walked away," Mr. Ramqvist says. "The other half stuck around. They became very happy later."
While Nokia Corp. of Finland found itself struggling to keep up with growing demand for mobile phones in the mid-1990s, Ericsson's sales were skyrocketing. Mr. Ramqvist became Sweden's most celebrated corporate hero, credited with renewing national pride after the gloomy days of the early 1990s, when a banking scandal and soaring interest rates pushed the country into economic crisis.
By 1998, Mr. Ramqvist decided he wanted to reduce his involvement in the daily operations of Ericsson, so he stepped down as CEO to become chairman. The same year, he was elected chairman of the prestigious Swedish Federation of Industries, a pro-business lobbying organization. It should have been a comfortable bridge to retirement, giving him an opportunity to put aside daily corporate decision-making for the mantel of the nation's business statesman. Instead, he found himself clashing with the man he had chosen to succeed him as CEO, Sven-Christer Nilsson.
England on the Horizon
As head of the business federation, Mr. Ramqvist in 1998 got into a noisy argument with Sweden's government over the country's steep income tax -- the top rate is 57% -- which he condemned as a threat to the country's economy. To press his point, he threatened to move Ericsson's headquarters to London, and he even got the company's board to authorize the purchase of a central London property in anticipation of the move.
Mr. Nilsson, not wanting to mix politics and business, opposed the move. Without informing Mr. Ramqvist, Mr. Nilsson told the project manager for the new London office to redesign the building so that several floors could be rented out to other companies in case Ericsson didn't move. Word soon got back to Mr. Ramqvist. Storming into a management meeting in 1999, Mr. Ramqvist screamed at Mr. Nilsson to keep his hands off the London project, according to people who attended the meeting. Five months later, Mr. Ramqvist and the board fired Mr. Nilsson.
Ericsson says its headquarters will remain in Sweden, and it has sold the London property.
Mr. Ramqvist says of Mr. Nilsson: "Maybe I did not spend enough time with him. He did not take enough decisions. He was not ready for the job. That was my responsibility. Mea culpa."
The 57-year-old Mr. Nilsson, a former division manager at Ericsson who was named CEO only after several other internal candidates declined the job, won't comment on the incident, other than to say, "Lars and I are not the same type of people."
During all this, broader trouble was brewing. To catch up in the race for new Internet technology, Ericsson paid more than $500 million to acquire a slew of high-tech telecom companies, including U.S. firms Touchwave and Torrent, as well as part of Qualcomm Inc. The company's cash flow soon turned negative, worsened by disappointing sales of mobile phones -- all at a time when rival Nokia was ramping up production.
As the company looked for its third CEO in 18 months, Mr. Ramqvist suggested longtime colleague and friend Kurt Hellstroem. After joining Ericsson in 1984, Mr. Hellstroem had focused on marketing and sales until he became head of the radio systems division, followed by stints as president for radio communications and president of Ericsson Asia Pacific Ltd. in Hong Kong.
But while Mr. Hellstroem seemed to have the right qualifications, the board refused. Directors argued that Mr. Ramqvist had created the mess by appointing Mr. Nilsson in the first place, and that now he had to clean it up. So at a July 1999 gathering, the board reinstated Mr. Ramqvist as CEO for 18 months and named Mr. Hellstroem president. Mr. Ramqvist accepted the decision reluctantly, after telling the board that it was "ridiculous."
Biker on a Mission
That evening, Mr. Hellstroem, clad in black leather, gunned his Harley Davidson to Mr. Ramqvist's mansion outside Stockholm, where the duo devised a plan to fix Ericsson's problems. Mr. Hellstroem, though not outspoken in public, is considered one of the few top managers at Ericsson who dares to contradict Mr. Ramqvist. The two men agreed that Mr. Ramqvist would be involved in all strategic decisions, act as Ericsson's international ambassador and find ways to slash costs. Mr. Hellstroem would take care of day-to-day affairs, talk to the media and woo customers.
For a few months, they appeared to be on the right track. They replaced some managers of the mobile-phone unit and speeded the restructuring initiated under Mr. Nilsson. The share price rose, and the outlook for the following year was optimistic. Six months into his second term as CEO, in February of 2000, Mr. Ramqvist declared to a crowded news conference: "Ericsson is back on track."
But the recovery was short-lived. A speech by Mr. Hellstroem a few months later at the annual Cebit technology fair in Hanover, Germany, didn't help. This was at the height of the hype for new phones that allow Internet access, and Mr. Hellstroem wondered aloud at the launch of Ericsson's own Internet-enabled phone whether there was any demand for the technology just yet.
Delegates were shocked. Ericsson's share price nose-dived. Sales of the new phone were disappointing. And the incident left scars on the 58-year-old Mr. Hellstroem's persona. In ensuing public events, he has appeared nervous and rattled, his hands and lips trembling throughout his speeches. After announcing disappointing results recently, he snapped at a Swedish radio journalist, "I don't want to talk to you," not realizing that the conversation was being broadcast live. At last month's annual meeting, Mr. Hellstroem pushed away a photographer who tried to climb on stage to take a picture.
Mr. Hellstroem says he has "learned a lot from being in the limelight."
Mr. Hellstroem has also had to deal with fallout from the March 2000 fire at a Philips Electronics NV semiconductor plant in New Mexico. The fire disrupted the shipment of components for Ericsson phones, forcing the company to take a $400 million second-quarter loss. By the end of the year, the company's overall loss had widened to $1.6 billion.
Running Three Shows
As Ericsson's position deteriorated, Mr. Ramqvist's full attention was divided. At both Volvo and Skandia, Mr. Ramqvist had set out to repeat his success at Ericsson by adopting aggressive growth strategies. He eagerly jumped into talks to merge Volvo and Swedish rival Scania to create a giant truck maker. He pushed to turn Skandia, a stodgy insurer, into a global asset-management and financial-services company, even taking its funds into the U.S. market. But his ambitions faltered. EU regulators killed the Volvo-Scania merger plan, leaving Volvo to pursue a smaller merger with the truck division of Renault SA of France. And Skandia's stock price has tumbled in recent months as global markets have stumbled.
At Ericsson, Mr. Hellstroem became CEO in January, when Mr. Ramqvist's 18 months were over. Now, the chairman's No. 1 goal is to fix the handset division -- the area on which investors, too, are focused. "Ericsson made a few mistakes when it comes to handsets," says Christer Elmehagen, chief executive for AMF Pension, an institutional shareholder in Ericsson. As many see it, Ericsson long built technologically superior phones that lacked the aesthetic appeal of rivals' products. The deal with Sony is one way Mr. Ramqvist hopes to lift the consumer appeal of Ericsson phones.
Ericsson's troubles have become an obsession in a nation where many other corporate icons have been gobbled up by foreign rivals. Plus, 55% of Ericsson stock is held either individually or through pension plans. News about Ericsson phones is featured almost daily in the mainstream press. When Ericsson issued its full-year 2000 profit warning, a local newspaper ran a picture of Mr. Hellstroem on the front page with the caption "Wanted."
Many Swedes hold out hope. "Ericsson is a symbol for Sweden," says Kaimei Olsson, who used her savings to buy 100 shares in the company last August, only to see the value drop sharply. "This is how Sweden looks to the outside world. It's a big company in a small country. We all hope it will be doing better for the sake of our country." |
