I would like some clarification, to me it seems very obvious that this Elop's tenure at Nokia accomplished exactly what it was intended to accomplish, and further it seems clear that the Board of Directors were in line with this plan.
What exactly is the benefit of this plan for the Board of Directors? Is it literally the assumption that they were paid far in excess of the money they (I assumed) lost due to the stock tanking.
And finally in a well run market, what is supposed to keep this kind of thing from happening? It seems like having the Board of Directors essentially scuttle a company for their own payoffs is not in the markets best interest, so i assume some mechanism is in place to try to reduce the likelihood of this occurrance.
Whoever said anything about there being a "well run market"? I think it's pretty clear that, at least in the US, the incentives CEOs and boards face are almost laughably perverse.
Understood, but thats not really what I am asking. I want to know what is SUPPOSED to stop this kinda thing from happening in a well run market, regardless of whether the US is or isnt a well run market.
A fiduciary duty[3] is the highest standard of care at either equity or law. A fiduciary (abbreviation fid) is expected to be extremely loyal to the person to whom he owes the duty (the "principal"): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents.
What's supposed to hedge this for the market is competition. There's nothing anyone can do to stop a dedicated board from tanking a company (for whatever benefit they get from doing so). But what that does is open up an opportunity for a competitor to step up and take the marketshare of the company that is going down.
If I am understanding competition doesnt help the victim in a case like this. the victim isn't the consumer of the products produced, its the stock holders who own the company who are being fleeced.
I guess it seems to me one can buy a company not for the price of the valuation, but for the price of the board of directors.
Oh, yeah ... the problem is that the average stockholder has entered into an agreement where they are at a disadvantage. By buying a relatively small amount of shares (ie. what most regular people do), they have no control over what the company does, they have no voice. So in reality, regular investors should invest with that risk at the forefront. It's obvious that most day traders and small time investors don't really take this risk factor into account ... but the mechanism does exist to mitigate it; doing your due diligence on the board of directors, and choosing not to invest (or selling your shares if the board changes).
I know nothing of how it works in Finland, but in most countries the board of directors are legally obligated to act in the interests of shareholders. Knowlingly acting otherwise can be one of the few things that can bring personal liability into the equation. So in theory, the stockholders of Nokia could sue the the board of directors. The problem is, what do you get out of it? They can be stupendously wealthy and it will still not make any noticeable difference to the bottom line. Unless there is a significant stockholder that wants to simply make a point of principle, there will not be much chance anybody has the incentive to pursue it. I hope someone does because at very least I think there is a case to answer here - the whole situation is just too incestuous and dubiously structured right from the start.
The author is clearly bitter about Nokia's decline and looking for someone to blame. But the conspiratorial tone is a bit much.
He tries to frame the decline of Nokia, its sale, and the market responding positively to that sale, as an "unusual" sequence of events. And therefore explainable only by an internal conspiracy, not the failure of Nokia's business. But when you factor out the ominous tone, there's really nothing unusual about that sequence.
Nokia was already in trouble when they brought on board Elop. He was their hatchet man. It shouldn't be that surprising that they incentivized him to handle the sale of the company well if it came to that.
It's not about unusual sequences of events, he's saying that Elop had an important incentive to accelerate the landslide of Nokia into irrelevance in order for it to be bought cheaply by his former employer. Things like publicly bashing your company (that well-known memo), abruptly stopping a successful (though declining) line like the Symbian cheap phones and spending a whole year to launch a new line with an unproven and unpopular OS (in mobile). Even before all of that enthusiasts had hacked the N900 and made it run Android (look at NITDroid), so it could hardly be argued that it was difficult task for them to swiftly move to Android and differentiate themselves like Samsung does. He wasn't responsible for Nokia's difficulties in 2010, but it was far from an impossible situation.
Seriously, these events are things many of us saw as soon as he put a foot on Nokia. We have been calling him a Trojan Horse since then, and with Nokia bought and Elop back at Microsoft as Head of Devices with a juicy check who can say we were mistaken? I even bought a Nokia N9 last year considering it my farewell to a once great company destined to be a part of Microsoft. And I'm hardly a clairvoyant.
It could "hardly be argued" that it'd be a difficult task to compete with Samsung? No, that could definitely be argued.
I'm not exactly a gigantic Elop fan but Nokia was in trouble long before he came on board. Consider this headline from his hiring in 2010: "Nokia Hires Microsoft's Elop as CEO to Reverse Losses to Apple". A top Nokia shareholder said, "Earlier management grossly underestimated the challenges related to moving from a hardware-driven business model to software." And Elop: "My job is to take the organization through a period of disruption..." [1]
That's what's at the core of this, a kind of denial about Nokia's condition pre-Elop. Fans want to pretend everything was hunky-dorey and make the hatchet man the scapegoat.
But really, Nokia fumbled their chance to build a smartphone platform several years ago. And one could definitely argue that Elop's bet on Microsoft's platform was a better shot at a profitable strategy than competing with Samsung in the Android space. (Have you considered that's why the board brought him on in the first place?) Didn't work out so well but probably neither would have becoming yet another Android player.
I didn't say that, I said it could hardly be argued that they couldn't have easily entered the Android ecosystem. We are talking about smartphones, they were (and are) competing with Samsung anyway, Windows or Android. So, what you say doesn't make much sense to me.
I acknowledge Nokia's situation in 2010, but I think you are taking the other extreme of considering Nokia already doomed by that time. By the time Elop entered Nokia it still was the largest mobile phone maker in unit sales and Samsung had just entered the smartphone sector a year before. And though a promising entrant, Samsung wasn't that big of a threat until much later.
Look at the article you linked, or Elop's memo, they don't even mention Samsung or Galaxy phones (just Android in general terms). At that time Android was low-hanging fruit to be put on their phones and leverage their market leadership. The first Galaxy phones weren't exactly a paramount of excellence. I don't think it's very unrealistic to think that they could have competed with Samsung in more or less equal terms for Android dominance.
And I'm telling this without being exactly an Android fan, but at that time it was the most sensible course of action (IMHO). They could have even tried both Android and Windows Phone (something Samsung did) and see what sticked.
Instead, they chose to stop Symbian and Meego and took the strange decision of betting the future of the company on the all new Windows Phone 7, something which can only be described as an enormous gamble. Those first phones couldn't even be upgraded to Windows Phone 8 when it came out afterwards, and I'm not even mentioning the incompatibilities between those two. Talk about a burning platform.
The Win 7 and Win 8 rollouts were the biggest problem. Elop ANNOUNCED shutting down Nokia's OS units with their Flagship N9 in the wings to be sold. Strike one for slashing YOUR OWN SALES. Then they announced the shift to Win 7, which they had to WAIT on Microsoft to make ready... Strike Two, what the hell were they supposed to SELL for almost 18 months. Finally they had to wait again for Win 8 that was incompatible with their "bet the company" Win 7 hardware... Strike three... Screw the few customers trying to save you.
Finally Strike Four is that they bet the company on Microsoft delivering products in a timely fashion and maybe letting them be first. Except what is MICROSOFT's incentive to DELIVER a compelling product when they really want your price to fall so you are cheap to buy.
Look at Microsoft's history in mobile: Orange? Danger Sidekick? Kin? and several others... Microsoft kills its partners. Was the Nokia board so foolish to think it wouldn't happen to them. This is as entertaining as Taylor Swift dating John Mayer and watching everybody cry from"broken hearts" when the cheating starts... It's not like you knew who you were getting in bed with.
You claimed more than that. You said it would be easy to enter "and differentiate themselves like Samsung has" (emphasis mine). That most certainly is not easy. There are multiple big players that have tried that exact strategy and failed or been reduced to marginless commodities.
Just found this money quote from Elop:
For Elop, it was all about standing out from the crowd, and he admitted that Nokia couldn't do that with Android.
"The single most important word is 'differentiation,' " he said. "Entering the [Android] environment late, we knew we would have a hard time differentiating."
Of course, I'm sure it could never be an automatic winning strategy, but I think it could have given them a fair chance at market dominance.
Instead of the popular and proven OS with many apps they chose the unpopular and unknown one with just a few. And in the end, what's the advantage of the Windows-only strategy when Microsoft gives licenses to Samsung and HTC to produce phones with the exact same OS? They haven't differentiate themselves at all from the competition, just cornered themselves.
So you're saying they shouldn't have gone with an OS that is licensed to Samsung and HTC because they can't "differentiate themselves at all from the competition," and instead they should go with an OS that is licensed to Samsung and HTC because "it could hardly be argued that it was difficult to differentiate themselves."
Well, it was Nokia the ones who said that they wanted to differentiate themselves, which they clearly didn't since they chose an OS used by other manufacturers as well.
What he's saying is that Nokia could have at least chosen the more popular OS, which would have offered them a higher market share.
> which would have offered them a higher market share
That's huge leap of logic. Android has a larger market share. Android vendors don't automatically get more market share. They still have to outcompete the other vendors.
Given how commodified the Android space is, it's not surprising they saw the Windows hail mary as a relatively more differentiated approach. Obviously not as differentiated as a proprietary approach, but given they couldn't pull that one together in time, they didn't exactly have a plethora of awesome options. Become yet another commodity Android vendor, or try to be the "Samsung of the 3rd platform" so to speak.
Too bad that 3rd platform didn't work out. It was a risky bet, but probably the only shot at a sustainable business. Really their fate was sealed a long time ago when they missed the shift towards sophisticated software platforms.
You severely underestimate how dominant Nokia was at that time. Nokia was 'the' premium brand, at least in Europe and Asia. Symbian was dead, Meego held promise, but Android...God, they could have so easily produced a nice Android phone! We're talking here of people who designed the N9, it doesn't take much imagination to think how they could have customized the UI and sold it on their beautiful, sturdy hardware.
The market's big enough for another android player, especially if it can provide the kind of hardware that Nokia provides.
I will argue they've already proven themselves wrong. Nokia has differentiated itself through hardware quite well - the 1020 takes better pictures than any smartphone on the market.
There's a reason why all the Lumia commercials have focused on hardware rather than software. The technical merits of Windows Phone 8 aside, it doesn't seem to have much consumer appeal compared to iOS or Android.
I wonder if the focus should be on the question of disclosure of the incentive. It's one thing to put a company up for sale, and another to set a strategy with incentives to put the company on a course for sale without fully informing all the stockholders.
its still true that elop planned this all along tho. he added the specific clause. theres just no denying it.
heck, most people would do the same for $25M...
> Should this unlikely chain of events ever occur, Elop would be entitled to an accelerated, $25M payoff.
It seems awfully strange that Nokia's board would incentivise the decline of their own company, but I disagree that the sequence of events that played out was unlikely: Nokia was way behind Apple and Android when Elop joined, and the devastating fall in market-share and share price, followed by acquisition, is more-or-less the same thing that's played out with Blackberry.
Perhaps the board was unable to attract a quality CEO because it was generally accepted that the downfall of Nokia (a la RIM) was unavoidable, so they attempted to make it attractive? i mean i dont really understand it just trying to come up with a logical rational
How way behind? In brics Nokia had like 60% of smartphone market in 2011... They only lost that market because they made no new cheap smartphones, opening the door for Chinese crap
I skipped over the BRICS part, but it doesn't change the equation. Anyway meaningful way you slice it Nokia was "way behind", even if they still had a legacy in a few markets that primarily used dumb phones (or "feature phones").
I couldn't find BRICS-specific numbers or I would post them too, but I'd like to see any reputable source that they had anything close to a 60% marketshare in a non-dumbphone category.
(some other numbers I had were also from Kantar, unfortunately their site is TERRIBLE)
Note that in 2012 Brazil STILL HAD 22% of new Smartphones being Symbian.
Also, several other countries in 2011 still had some good Symbian numbers (like first or second place).
Suddenly stopping selling Symbian to switch to WP7 made no sense, even worse when claimed it was to make it different (when other manufacturers ALSO made WP7 phones).
I just wish I could find the 2010 and 2011 numbers for all the BRICS again, but today that is seemly very hard :(
I think what I take issue with is referring to any device running a Symbian OS as a "smart phone". Many Symbian phones were just "feature phones", and this is probably (though I can't prove it) especially true in BRICS countries. It's not really a fair comparison. We've got little reason to believe Nokia's fate would have been any different in those markets as they developed than it was anywhere else.
From the moment I heard that Elop would lead Nokia I assumed that the Nokia board wanted to be acquired and were doing whatever it took to become attractive to the most likely (or highest) perceived bidder.
But to say that Elop sank Nokia is to ignore the trend of the company's financial performance leading up to that point.
The claim that the trend was unstoppable ignores at least two key opportunities that were foregone:
1. The Meego smartphones were selling well, and could have been continued.
2. Android-based products could have been added to the product line at relatively little cost.
While this is all theoretical, we do know other OEMs, like Sony and LG, have had strong comebacks with Android products, and several other OEMs have broken into the top 10 with Android, all despite Samsung's dominance.
Elop did sank Nokia , and he got rewarded for that. How do you call it , a win win contract? But that's the price one pays when one does business with Microsoft => Scroogled !
Sure, but even if Nokia was already on the path into irrelevance, Elop greatly accelerated the pace. He did this by announcing that Nokia would abandon the Symbian OS for Windows Phone OS; a distant 3rd in terms of the OS penetration. All this while the company had NO products to introduce with the Windows Phone OS for another 6 months, leaving all Symbian smartphones they did have at the time dead in the water. (Who wants to buy a phone with an obsolete OS?) This ensures a definite and immediate share price slide.
Not to disrupt the hate, but let me propose an alternative scenario:
* The board approached Elop to take on a risky position: a failing company losing marketshare.
* Elop says, "Well - I'm willing to give it a shot, but this is pretty bad. I need something in the contract that will allow me to actually make some money in the event that all else fails, and sale is the only option."
The CEO in this kind of structure does not unilaterally make major business decisions. He is advised by the board - in fact he serves at the whim of the board - and they generally can stop anything they don't agree with.
Now if we had a scenario where every board member had asimilar clause, then the idea that he deliberately drove the company into the ground would have more merit. But to me it just seems like a clause that any reasonable person would want before taking the helm of a sinking ship.
(1) The board should not give an incoming CEO a $25 million dollar incentive to destroy and sell the company.
(2) A candidate with so little confidence in the company (as you describe) probably should not be hired for the job.
Elop says, "Well - I'm willing to give it a shot, but this is pretty bad. I need something in the contract that will allow me to actually make some money in the event that all else fails, and sale is the only option."
If he's being hired to fix the company and has a clause that guarantees compensation if he fails, that would seem to create a perverse incentive. Why does he get paid extra for doing a bad job?
The author of the article goes a step too far in saying Nokia was deliberately run into the ground, but the result is indistinguishable. The real villain is Windows Phone. Had Nokia kept options open and had tried other OSs, they would have, at least, seen different levels of market acceptance among the OS choices. The argument that they had to "focus" is specious. No other OEM ever harmed their results by hedging their OS bets.
It's been said that Nokia suffered internal wars by having something like 3 competing teams developing different systems. The all-in on WP seems like a Jobsian 'focus on one product' reaction.
Yes but that's kind of the whole conclusion of this arguement. Basically the behavior of a hardware manufacturer was so counter intuitive that to many people the only logical explanation is that the CEO must be trying to take the company down.
I really dont know, but will say seems crazy that Nokia didn't have at least a small team dedicated to making an android OS 'port' for their devices. It seems like even if they thought it was a 1% chance of windows mobile not working out for them the hedge would have been worth it.
The speculation has been that since Microsoft was paying Nokia some kind of subsidy they were not permitted to market other OSs. That would explain killing their Meego phones which were selling reasonably well, as well as killing another project for a low-end Linux-based OS. Nokia could easily have tried some Android products at minimal cost.
But all the terms of those contracts were never revealed. I've seen it mentioned in the press that Nokia can re-enter the handset business in 2016, that Nokia owns part of Jolla, and that Nokia ported Android to several phones, which may have had a role in inducing Microsoft to buy the handset business.
>I really dont know, but will say seems crazy that Nokia didn't have at least a small team dedicated to making an android OS 'port' for their devices. It seems like even if they thought it was a 1% chance of windows mobile not working out for them the hedge would have been worth it.
Elop did have such a team working on an Android port.
Why would the board include such a clause? Wow. It undermines MS's Windows Phone, if Nokia fails WP fails, being its only partner. But Lumia's are slowly gaining ground, even if its 520 one and Nokia has only ramped up the line since they debuted the first one.
The snarky tone of the author is getting in the way of the message, it is obvious he is a Finn and is emotionally invested in Nokia. Please do some analysis for us, you are writing on Forbes, rather than regurgitating original article, 1) what was the share price drop, 2) How was it accomplished, 3)How the share bounced back and how was it accomplished. It would make the collusion of quid pro quo more obvious. Right now, it can be a mere coincidence too.
WP is a disaster, Nokia is dead, Ballmer is forced out, yet you still believe it is "gaining ground" ? Of course WP ramped up,from 0 ,any product can ramp up. Let's stop the whole PR, WP is a failure, it is time for anybody who invested in WP eco system to acknowledge that fact. This whole enterprise was designed to fail, because nobody wants Windows on his phone.
Kantar Worldpanel - July 2013 Windows Phone Share by country
Germany: 8.8% (+2.6% YoY)
GB: 9.2% (+5% YoY)
France: 11% (+7.4% YoY)
Italy: 7.8% (-0.5% YoY)
Spain: 1.8% (+0.1% YoY)
USA: 3.5% (+0.5% YoY)
China: 2.4% (-2.2% YoY)
Australia: 7.4% (+2.4% YoY)
Mexico: 12.5% (+10.5% YoY)
>The biggest and most impressive individual gains were seen in Mexico (12.5%) and France (11%) where double digit Windows Phone sales figures were finally reached.
If there was a case for a thorough investigation of a company affairs then I think it is Nokia. There has to be much more that went behind the scenes that brought Nokia to this state. In many parts of the world Nokia was synonomous with the mobile phone. They could have played a vital part in bringing the emerging economies online. Today that company has been destroyed and MS and its ambassador has played a dubious role in this.
I haven't seen Maemo so I couldn't talk to its quality vs win phone, but there is more to the argument than product quality. With win phone they got reduced dev costs since they didn't have to support the OS, and reduced marketing costs since MS was promoting win phone so heavily. Add on top of that a larger App ecosystem(sure MS' is pathetic but it beats starting from scratch) without having to run a developer program and you have a strong argument. The only question then is why win instead of android? I think that is easily answered by his background and how well non Samsung android manufactures are doing.
I knew somebody had been paying Elop to sacrifice Nokia for the (apparently slight) benefit of Windows Mobile, but I had reckoned it was M$: they could have just "forgotten" to take him off the payroll. Very strange behavior from the Nokia board of directors.
This makes me wonder about the legality of all this. Isn't the CEO supposed to act in the company's best interest ? By giving him a bonus for selling the company at a low price, isn't the board somehow betraying the shareholders ?
Did Nokia's shareholders agree to this ?
Can it be fast enough? N9 had excellent UI (so much better than Android even now) but was infuriatingly slow and laggy. Nokia still owns the UI patents from N9.
NSN was about half the company by revenue, and doing better in terms of profit, before they sold their mobile division. I see no reason that, now that they've dumped the phone division, they won't be able to build and grow around NSN and their other technologies. Look at Nokia's history. It's not like this is the first time they've pivoted.
Right I think this is a very valid point, but I don't think however the thought of the vast majority of stockholders was that the ideal was to sell to Microsoft after losing almost all of its value.
I think the fundamental issue most people are having is that it seems like the board decided that the company should be sold at penny's on the dollar while they felt it could have been sold at nickles on the dollar.
The board was a party to the negotiation of Elop's contract. If such terms are in the, it is only by consent of the board. If they are incentives toward a particular outcome, then that outcome was deemed acceptable by the board at the time the contract was executed.
There is nothing unusual in it other than the emotions sparked by the names of the companies involved in the planned sale.
This seems more like a benefit in the offer package to Elop. It's like the board was saying to Elop: "hey we know our company is in hard times. Try your best but if you fail, that's ok, we'll pay you for your trouble. But make sure you sell it off to a buyer"
I think the new Blackberry CEO had a similar offer. In case of a buyout, he ges paid.
What exactly is the benefit of this plan for the Board of Directors? Is it literally the assumption that they were paid far in excess of the money they (I assumed) lost due to the stock tanking.
And finally in a well run market, what is supposed to keep this kind of thing from happening? It seems like having the Board of Directors essentially scuttle a company for their own payoffs is not in the markets best interest, so i assume some mechanism is in place to try to reduce the likelihood of this occurrance.