Ericsson sets aside $1.2 billion in preparation for corruption fine

Since 2013, Ericsson has been the focus of two investigations concerning the Swedish vendors compliance with the US Foreign Corrupt Practices Act (FCPA), and now it is preparing for the fine.

The investigation officially ended in the fourth quarter of 2017, though Ericsson has been in a continued dialogue with the Securities and Exchange Commission (SEC) and the Department of Justice (DoJ) since. With the team found to have broken the law in six markets, Ericsson is expected the combined fines to be north of $1 billion. Today’s announcement is to prepare investors for the hit.

“With today’s announcement we confront another legacy issue and take the next step in resolving it,” said Ericsson CEO Börje Ekholm.

“We have to recognize that the Company has failed in the past and I can assure you that we work hard every day to build a stronger Ericsson, where ethics and compliance are cornerstones in how we conduct business. Over the past two years, we have made significant investments in our ethics and compliance program including our investigative capabilities and have taken actions against employees who have transgressed our values and standards.”

Corrections have been made to internal procedures in the six years since the probes begun, though it casts a dark shadow on the vendor. Corruption allegations are never favourable, irrelevant as to how far in the past they were.

Starting in 2013, the SEC launched a probe with the DoJ joining the party in 2015. The investigations covered a four-year period, ending in 2017, relating to bribes which were offered to Government officials. Ericsson was found to be non-compliant with the FCPA in six markets; China, Djibouti, Indonesia, Kuwait, Saudi Arabia, and Vietnam.

Like every other law, there are hundreds of provisions and clauses to the FCPA, though there are two which it is most readily known for. Firstly, rules dictating accounting transparency requirements under the Securities Exchange Act of 1934, and secondly, concerning bribery of foreign officials.

In short, the rules state it is unlawful to provide anything of material value to government officials to obtain or retain business. On the accountancy transparency side, these rules are to ensure there is an effective compliance and accountability system to internally prevent illegal activity.

Although Ericsson has been co-operative with the agencies during the investigation, the $1 billion fine might only be part of the problem. The Ericsson management team has pointed to additional risks associated with this saga, including reputational damage. The team will have been working hard to smooth over the cracks, however the official fine might well encourage other parties to have a closer look at the relationships in place.

Juniper pays $11.7m to make SEC bribery investigation go away

Networking vendor Juniper has never admitted or denied it participated in any activities related to bribery, though apparently its bank accounts were simply too full to continue.

The details of this investigation are complicated and nuanced, though the over-arching accusation is simple. The Securities and Exchange Commission accused Juniper of improperly reporting accounts and allowing a subsidiary to continue a practice which smells incredibly similar to bribery.

To conclude the investigation, Juniper has paid the SEC $11.7 million. This is not an admission of guilt from the firm apparently, it has apparently decided to reallocate $11.7 million because it is innocent and would not consider any form of bribery.

The fact that the government agency will stop a bribery investigation after receiving the funds is perhaps a pleasant after-effect.

While this would appear to be the end of the saga, there are some relatively suspect elements to consider. This extract from the ‘Cease and Desist’ document is an interesting one to ponder.

“From 2009 to 2013, local employees of Juniper China paid for the domestic travel and entertainment of customers, including foreign officials, that was excessive and inconsistent with Juniper policy. Certain local Juniper China marketing employees falsified agendas for trips provided to end-user customer employees. These falsified trip agendas understated the true amount of entertainment involved on the trips.”

Another interesting claim is the approval process. Juniper requires approval from its legal department to justify and validate such entertainment expenses, though marketing and sales employees sought approval after the events took place, painting the legal team into a corner.

The period in question took place between 2009 and 2013. It had been going on for an undisclosed period of time prior to 2009, though this was the time in which senior managers at Juniper were alerted to the practice.

At JNN Development Corp., a Russian subsidiary of the Juniper Group, secret discounts were discussed with third-party channel partners. These discounts were not passed onto customers, instead, funnelled into nefarious accounts. These funds were used to fuel corporate entertainment, much of which undermined the Juniper anti-bribery policies.

Managers were alerted to the presence of these funds, as well as the opaque practices and bread crumb trails which were left behind, in 2009. Some effort was made to discourage the practice, though the SEC deemed this was not sufficient, and the nefarious activities continued for another four years through to 2013.

“Juniper failed to accurately record the incremental discounts and travel and marketing expenses in its books and records and failed to devise and maintain a system of internal accounting controls sufficient to prevent and detect off-book accounts, unauthorized customer trips, falsified travel agendas and after-the-fact travel approvals,” the SEC has stated.

As with every slippery corporate firm around the world, Juniper will not admit fault, though apparently it had exactly $11.745018 million to ‘donate’ to the SEC to make the investigation go away.

Apple asks SEC if it can ignore shareholder diversity request

Apple has written to the SEC to ask to exclude a shareholder proposal which would essentially hardwire positive discrimination into the DNA of the business.

Put forward by various institutional investors including Zevin Asset Management, Friends Fiduciary Corporation, Nathan Cummings Foundation, the Employees’ Retirement System of Rhode Island and the SEIU Fund, the proposal is to tie diversity metrics of the senior management team to the ‘company’s compensation incentive plans’. In short, CEO Tim Cook would not get his bonus is he continues to hire white males.

In writing to the SEC, Apple VP of Corporate Law Gene Levoff is asking permission to ignore the proposal and to exclude it from an upcoming shareholder meeting. The argument here is current initiatives for diversity should be deemed sufficient, and writing in strictly defined parameters to the foundation of the business would have a negative impact.

The team also argues it is making progress as well. 54% of recent hires are ethnic minorities, but 56% of current employees are male and 68% are white. When you look at senior executives and management, 73 of the 107 positions are white male. You can check out the rest of the numbers here.

Apple is one of numerous organizations which has been singing the praises of diversity, but having a quick look through the company’s leadership team on the website, this focus doesn’t seem to be making its way up the ladder. Currently there are 19 executives listed. 14 are white and male. The company has not however committed the PR disaster of appointing a white male to the ‘Inclusion and Diversity’ VP role.

On the surface, the shareholders might have a point. Most people will stick with the status quo when performance is successful, and Apple is a successful business. We don’t necessarily agree with the idea of cementing positive discrimination in the foundations of a business’ constitution, but you could argue not enough has been done to ensure diversity in the Apple boardroom.

Zevin Asset Management is leading the charge for the small club of investors, which has been a long-time critic of the diversity achievements of Apple. Alongside Antonio Avian Maldonado, an individual investor, Zevin Asset Management has been particularly vocal in pressuring the iLeader to up its diversity game, seemingly falling on deaf ears for the moment.

Although we were not able to figure out how much financial clout each investor holds, together all those in support of the proposal reportedly hold $9.4 billion in assets. Considering Apple currently has a market capitalization of roughly $813 billion, this is a relatively small percentage. That said, Apple investors are likely to be incredibly varied and diluted; it might be a notable number.

In short, we should not be surprised Apple does not want to be held accountable to claims it has made in the press. Most large organizations scream about social trends such as inclusion and diversity as it is a good means to attract positive PR, but ask them to commit in any real sense to objective and ambitions and it will squirm and wriggle all over the place. Especially when it threatens the bonuses of the big boys.

Inclusion and diversity is a great thing to shout about, but that is likely the sum of it; posturing and reinforcing the brand reputation, with no substance to actually commit to any change. Sadly, this is the world we live in: shallow and superficial.