
Nokia Admits Giving Misleading Information About Elop's Compensation - fnordfnordfnord
http://www.forbes.com/sites/terokuittinen/2013/09/24/nokia-admits-giving-misleading-information-about-elops-compensation/
======
apalmer
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.

~~~
glesica
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.

~~~
apalmer
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.

~~~
stonemetal
Fiduciary duty seems like it should cover that. Surely they have something
like that in Finland.
[https://en.wikipedia.org/wiki/Fiduciary#Breaches_of_duty_and...](https://en.wikipedia.org/wiki/Fiduciary#Breaches_of_duty_and_remedies)

 _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._

~~~
MaysonL
Who's the last person you heard of being penalized for ignoring fiduciary duty
for personal gain?

~~~
stonemetal
stockholders sue all the time.

[http://www.bloomberg.com/news/2013-06-14/dole-food-
sharehold...](http://www.bloomberg.com/news/2013-06-14/dole-food-shareholders-
sue-over-ceo-s-645-million-bid.html)

Not a penalty but the beginning of getting one.

------
abalone
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.

~~~
Shamanmuni
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.

~~~
abalone
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.

[1] [http://www.bloomberg.com/news/2010-09-10/nokia-hires-
microso...](http://www.bloomberg.com/news/2010-09-10/nokia-hires-microsoft-s-
elop-as-chief-executive-to-reverse-losses-to-apple.html)

~~~
Shamanmuni
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.

~~~
abalone
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."_

Source: [http://news.cnet.com/8301-1035_3-57559620-94/nokia-on-the-
ed...](http://news.cnet.com/8301-1035_3-57559620-94/nokia-on-the-edge-inside-
an-icons-fight-for-survival/)

~~~
Shamanmuni
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.

~~~
abalone
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."

I sense a possible flaw in that logic.

~~~
elbear
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.

~~~
abalone
> 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.

~~~
pm90
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.

------
vosper
> 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.

~~~
speeder
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

~~~
HelloMcFly
Nokia did not have 60% of the smartphone market in 2011. That's absurd.

In US: [1] [http://www.businessinsider.com/android-versus-iphone-
smartph...](http://www.businessinsider.com/android-versus-iphone-smartphone-
share-2011-4)

Global: [2] [http://bgr.com/2011/05/19/android-grabs-53-of-global-
smartph...](http://bgr.com/2011/05/19/android-grabs-53-of-global-smartphone-
market-share-ios-50-of-application-revenues/)

~~~
cwoods
"BRICS is the acronym for an association of five major emerging national
economies: Brazil, Russia, India, China and South Africa."

[http://en.wikipedia.org/wiki/BRICS](http://en.wikipedia.org/wiki/BRICS)

~~~
HelloMcFly
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.

Edit: Found this link for China. Hard to believe the the other countries would
swing the shift so dramatically. [http://www.phonearena.com/news/In-China-
Android-is-blowing-a...](http://www.phonearena.com/news/In-China-Android-is-
blowing-away-iOS-Symbian-leads-Apple-as-of-the-end-of-last-year_id29137)

~~~
speeder
I could not find all my numbers again.

Also remember that mid-2011 Symbian manufacturing stopped (thus all new sales
at the end of the year were of old phones already shipped).

Yet from your own link, it states that Symbian still was ahead of iOS.

Anyway, I DO have numbers from Brazil:
[http://techcrunch.com/2012/09/03/android-smartphone-sales-
le...](http://techcrunch.com/2012/09/03/android-smartphone-sales-led-by-big-
screens-are-growing-everywhere-except-in-the-u-s-kantar/)

(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 :(

~~~
HelloMcFly
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.

Plus, did you ever use an actual Symbian smart phone? I used this one for a
bit ([http://reviews.cnet.com/smartphones/nokia-e7-dark-
gray/4505-...](http://reviews.cnet.com/smartphones/nokia-e7-dark-
gray/4505-6452_7-34176635.html)) and it was just terrible. And it was probably
one of the top 5 best Symbian models!

~~~
speeder
My family owned several of them.

We really liked them... Powerful enough to play a J2ME port of Counter-Strike
but affordable.

iOS is still beyond 90% of the population income or somehing like that.

------
bchjam
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.

(minor edit, redundancy)

~~~
camus
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 !

~~~
sk5t
Wasn't Nokia already well along a slide into irrelevance at the time Elop took
the helm?

~~~
jamornh
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.

~~~
jacquesm
Elop's initial announcement made me wonder if he had not heard about the
Osborne.

~~~
rbanffy
There is a limit to stupidity before you consider malice. Only extensive brain
damage could explain Elop's stupidity.

------
ihsw
> Nokia admits giving every incentive to drive the company in the ground.

This should be the headline, especially since it's far more insightful than
the fact that it was a simple oversight.

Driving Nokia off a cliff or flushing Nokia down the toilet would also be
acceptable.

One has to wonder where the line gets drawn between ignorance and malice.

~~~
pekk
That line is drawn by conflict of interest

------
GrinningFool
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 a _similar_ 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.

~~~
rhizome
_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?

~~~
GrinningFool
Do you know what his incentives were for turning it around? Might have been
considerably higher.

(That's only somewhat a rhetorical question - I believe it's a matter of
record with the SEC if anyone cares to look it up. )

------
Zigurd
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.

~~~
apalmer
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.

~~~
Zigurd
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.

------
iamshs
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.

~~~
camus
"Lumia's are slowly gaining ground"

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.

~~~
debacle
I don't know about that. I'd kill for an x86 Windows phone, and we'll probably
see that in the coming years.

~~~
gnoway
What for? What do you expect to do on an x86 Windows Phone phone (or Windows
phone?) that you cannot do on an existing platform?

~~~
debacle
I guess the point would to be to have the ability to run x86 Windows
applications on a mobile device.

------
g123g
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.

~~~
runn1ng
I just wonder why Nokia didn't went with Maemo-based devices.

They had a headstart with smartphone-like OS. But other than N900, they didn't
really use it anywhere.

~~~
stonemetal
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.

------
jessaustin
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.

~~~
freehunter
Are we still doing the M$ thing? I thought the 90's was more than a decade
ago.

~~~
jessaustin
For me it's simply an unambiguous 2LA. Apologies to anyone who gets annoyed.

------
jre
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 ?

------
chris_wot
Nokia is a dead company. My prediction: in 5 years time, it will be but a
distant memory.

~~~
Tichy
Or they'll pivot, like they've always done before.

~~~
sirkneeland
Yep. It's already begun. It'll be pretty sweet when you get to see it ;)

Still there is no denying that what has happened with Nokia's phone division
was a tragedy, and a completely avoidable one at that.

~~~
solnyshok
anybody thinks they have guts to take ms money and buy into Jolla? that would
be bombastic turnaround :(

~~~
Gravityloss
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.

------
Tichy
Being bought by Microsoft was already their ideal scenario when they took Elop
on board.

~~~
apalmer
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.

------
brudgers
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.

------
curiousDog
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.

------
iMark
What about the flip side - did Elop stand to gain more or less if Nokia had
succeeded during his tenure?

------
ffrryuu
Laying off thousands to pay the executives a few million dollar more!

------
qwerta
Microsoft is next...

