A form of Norway’s much-cherished “julefred” (literally, Christmas peace) settled over Telenor the weekend, as it and other Norwegian companies recessed for year-end holidays. Most analysts and academics are not expecting a very happy New Year for Telenor, however, since its chief executive has been weakened by the board leader’s unsuccessful attempts to fire him, and her authority is arguably even weaker.
The board and its management called a ceasefire last week after months of conflict, but few expect the company’s problems to fade away. Many thought this past year would bring improvements at Telenor after a crisis year in 2015, which was battered by a huge corruption scandal and unrest at the highest levels of the company. “You’d think that things could only get better,” wrote Einar Lie, a professor of economic history at the University of Oslo, in a commentary in newspaper Aftenposten on Friday. “But that didn’t happen.” He doesn’t have high hopes for 2017 either.
This week, Telenor’s bedriftsforsamling (corporate assembly) and the ceasefire between board leader (chairman) Gunn Wærsted and CEO Sigve Brekke was extended. The 15-member assembly that’s responsible for monitoring the board and choosing its members declared that it was satisfied with the board’s own conclusions, that Brekke would not be fired and that he and Wærsted would both continue to work to develop the company.
The corporate assembly, however, expressed concern over the disagreements that have occurred within the board and between the board leader and top management and, not least, that those disagreements were leaked to the press. “That weakens confidence in the company and makes the work that needs to be done by both the board and management unnecessarily demanding,” the assembly stated.
The corporate assembly wrote that it also was satisfied with the board’s eventual expression of confidence in Brekke and its agreement on “strategic challenges” lying ahead. The assembly called the board’s handling of compliance issues “demanding and complex.”
It all means both Brekke and Wærsted will continue in their jobs, at least for now, under no small degree of pressure. More heads may roll by the time of the next annual shareholders meeting this spring, however, and here are some of the reasons why additional problems are expected to flare up:
*** Wærsted still believes it was correct of her to ask Brekke “to evaluate his position,” with an eye to resigning under fire. Despite a string of “irregularities” in Thailand, Bangladesh and India, all of which occurred while Brekke headed Asian operations, he maintained support from a majority on the board. That’s what weakens Wærsted’s own authority.
*** Questions have arisen over how involved the government minister in charge of the state’s 67 percent stake in Telenor was, as drama swirled around Brekke this fall. Minister Monica Mæland has said she was briefed on the drama and there’s speculation that she supports Wærsted, even if the board doesn’t.
*** More “irregularities” may occur, with even Wærsted saying at last week’s press conference that “zero tolerance for corruption doesn’t mean zero incidents of corruption.” It’s already emerged that Brekke did not alert former Telenor CEO Jon Fredrik Baksaas when Telenor’s joint venture operation in India made payments totalling NOK 6.3 million in so-called “sponsorships” to both local defense and police officials, in violation of Telenor’s own guidelines. “We could have done a better job with that, ” Brekke admitted. “We could have done more.” An investigation into the payments, and whether they amounted to bribes is underway.
News also broke this week, meanwhile, that Telenor’s chief of operations in Bangladesh had abruptly resigned. Telenor has had problems in Bangladesh as well, but Telenor denied it had anything to do with criticism that’s also been swirling around operations in Bangladesh. “Vivek Sook chose himself to resign,” said company spokesman Severin Roald. “He has accepted a new job at a competing operation and can’t begin there until a six-month quarantine period is over.”
Telenor remains involved in 13 countries, many in which bribery and other forms of corruption are normal. Another case of suspected corruption, in a land Telenor won’t identify, is also under investigation at present.
*** The operations that Brekke guided Telenor into in India have generated huge losses. Newspaper Dagens Næringsliv (DN) reported earlier this month that those losses amount to NOK 10.5 billion since 2009, while another NOK 14 billion in investments is currently valued at just NOK 300 million. Telenor has signalled it will set out of its Indian operations. The company may end up with total losses of NOK 25 billion.
*** The stock market does not seem to share the board’s confidence in Brekke. Telenor shares have lost 20 percent of their value since Brekke took over as CEO last August. They fell another 2 percent on last week’s news that Brekke had kept his job and Wærsted was staying on, too. Neither will comment on Telenor’s share price development.
Telenor, meanwhile, also faces the biggest fine ever for a Norwegian company, after European and Norwegian competition authorities raided the company four years ago and has since charged it with abusing its market dominance to hinder competition within the mobile phone business. Norwegian regulators at the state agency Konkurransetilsynet warned they would issue a fine amounting to NOK 906 million, more than three times the previous record set when another Norwegian multinational firm, Yara, was charged with corruption.
There’s no question that Telenor remains severely challenged heading into 2017. Professor Lie concluded that it’s the company and its 36,000 employees around the world who stand to suffer the most. He argued that Telenor needs something better than an uneasy truce at the highest levels of the company. He sees major difference in how Telenor would have been run if it was under private ownership instead of having the state as majority owner, with private owners likely to be more keen on maintaining the value of the company. Lie doesn’t think “a wounded board leader” would have been allowed to stay on after running afoul of a majoritiy on the board. The state, meanwhile, remains committed to cut its stake in Telenor in half, down to 33 percent.
More drama is thus expected to swirl around Telenor in the coming year. “I don’t hesitate to wish all involved a peaceful Christmas,” Lie wrote in Aftenposten. “I have little faith, though, that it will be an especially good New Year.”