37 shareholders instigated lawsuits against Swedish network manufacturer Ericsson last week, reports Dagens industri. Their claims total SEK1.8bn (USD170mn) and relate to the company’s internal investigation of corrupt business practices in Iraq. Ericsson admitted in 2022 that bribes had been paid to Islamic State (IS) terrorists so they could route transportation through IS-controlled territory in order to avoid taxes levied by Iraq’s legitimate government. The lawsuits will argue the existence of the investigation report was only revealed two years after it had been completed, meaning Ericsson failed to comply with stock market regulations that require them to promptly disclose information.
Ericsson and its management team have been severely embarrassed by the Iraqi bribery scandal amongst others, and the company’s share price dropped sharply when the public became aware of the existence of their internal report. The company’s shares have continued to slide since; they are currently worth less than 40 percent of their peak in April 2021. The lawsuits filed by the shareholders are separate, but they have been coordinated. Various pension funds and investment firms are amongst the plaintiffs. Ericsson responded by telling the press that the company will ‘vigorously’ defend itself.
Corruption is inevitable in the telecoms industry because the most corrupt parts of the world need telecoms services as much as any other. This creates tension when Western firms that are subject to anti-corruption laws and regulations seek to supply their products in countries where corruption is rife. But that does not mean they can simply ignore the rules. Ericsson made all sorts of corrupt deals in order to boost sales and profits but it took time to realize the full cost of those deals, which will be suffered by shareholders who did not sell out when the company’s share price was highest.
Commsrisk has often commented on the need for executives to be held personally liable for corrupt decisions. This is necessary to avoid scenarios where executives are rewarded in the present for risky unlawful behavior that will only afflict investors at a later date. In the meantime, it is good to see shareholders pursuing some redress, even if these lawsuits have arrived too late to affect the departed executives who nurtured corruption.
