Nokia Board Faces Call for Change on $77 Billion Lost Value

Nokia Oyj’s board has stayed in the background as the company’s shares plummeted 67 percent in the three years since Apple Inc. started selling the iPhone. Pressure has been building on directors to act.

“For me, the board needs to act yesterday,” said Vlad Cara, who helps manage 150 billion Swiss francs ($144 billion) in investments including Nokia shares at Pictet Asset Management Ltd. “In order to get maximum response in the shortest period of time, you have to start changing everywhere.”

Nokia, the world’s largest phone maker, has lost almost 60 billion euros ($77 billion) in market value since the iPhone’s 2007 debut, with the stock falling 25 percent this year alone. The Espoo, Finland-based company has lowered profit forecasts twice in three months, as new high-end smartphones were delayed.

Chairman Jorma Ollila has stood by CEO Olli-Pekka Kallasvuo and his management team in the four years since Nokia’s last big hit, the N95, helped boost the operating margin in the devices unit to more than 21 percent. Since then, Apple and Research in Motion Ltd. have eaten away at Nokia’s customers and profit, pushing the handset margin to 12.1 percent in the first quarter.

A new CEO is the first order of business, said James Kelleher, an analyst at Argus Research Corp. in New York. Since taking over from Ollila in June 2006, Kallasvuo, 57, has overseen Nokia’s push into software and services, and its failure to combine them into a lucrative rival to the iPhone and online media store iTunes. Nokia has tumbled to 6.83 euros from 20.81 euros on June 29, 2007, when the iPhone went on sale.

New Blood

Rival Motorola Inc. hired Sanjay Jha two years ago from chipmaker Qualcomm Inc. as co-CEO to turn around its phone business and was pushed by activist shareholder Carl Icahn to appoint two of his board nominees. Sony Ericsson got a new CEO, Bert Nordberg, in October when Dick Komiyama retired.

While both companies face a struggle to rebuild value, they have gained support from carriers and analysts as the new chiefs committed to making phones for Google Inc.’s Android platform, which is growing even faster than the iPhone.

The Finnish company has split its smartphone energies between two platforms, Symbian and MeeGo, confusing developers and customers. It still hasn’t introduced a credible competitor to iPhone and Android on either of them.

“I keep expecting Olli-Pekka Kallasvuo to get dumped,” said Kelleher, who has a “hold” rating on Nokia shares. “Instead they’re changing everyone under him.”

New Finance Chief

So far, Nokia’s biggest moves have been naming Timo Ihamuotila as chief financial officer late last year -- his predecessor Rick Simonson will retire at the end of this year -- and reshuffling the other executive vice presidents in May.

Members of the board of directors did not respond to requests for interviews and company spokeswoman Arja Suominen also declined to comment.

“One suggestion would be to move Kallasvuo to chairman if Ollila chooses to retire,” says Helena Nordman-Knutson, an analyst with Oehman in Stockholm. “It would be excellent to take influences from the new Internet way of thinking, perhaps hire somebody from a competitor.”

The board, which includes no activist investors, needs new members to bring in fresh ideas and perspectives, Cara said. Ollila runs the 10-member board, half of whose members are Finns.

The other three are MIT economics professor Bengt Holmstroem, software company F-Secure Oyj’s founder Risto Siilasmaa and Keijo Suila, the retired CEO of Finnair Oyj. Suila is chairman of Solidium Oy, the Finnish government’s equity investment arm, which owns stakes in “nationally important” companies such as phone company TeliaSonera AB.

Turnaround Experience

Nokia hasn’t had a board member from a company in the U.S., where it is struggling to gain traction, since Dan Hesse, the CEO of Sprint Nextel Corp., resigned in Dec. 2007. About 38 percent of shares are held in the U.S. It also doesn’t have a board member from China, its biggest market. Board member Lalita Dileep Gupte is the non-executive chairwoman of the venture arm of ICICI Bank Ltd. in India, Nokia’s second-biggest market.

“I’d like to see someone who has experience turning around companies,” said Hakim Kriout, a portfolio manager at Grigsby & Associates in New York who owns Nokia stock. “Someone with an understanding of what it takes to bring a company back from the brink -- not that Nokia is on the brink -- and sharpen things up a bit.”

The board’s vice chairwoman is Arizona-born Marjorie Scardino, CEO of London-based publisher Pearson Plc. Other members are Per Karlsson, a Stockholm-based consultant and former M&A director at SEB AB; Henning Kagermann, the retired CEO of SAP AG; and Isabel Marey-Semper, a L’Oreal SA research executive.

‘Atomistic’ Shareholding

“Nokia’s shareholdings are atomistic so there’s no one clear owner, which makes it quite different from many European companies where there’s one family or some other anchor shareholder,” says Vesa Puttonen, a finance professor at the Helsinki School of Economics.

When Nokia reshuffled its managers in May, marketing chief Anssi Vanjoki became head of the smartphone unit. Since then, he’s made appearances talking up Symbian, the last decade’s best-selling smartphone platform, and MeeGo, the more computer- like platform that is Nokia’s future hope. Investors say it’s not enough.

“Normally these same guys should be able to solve the problems, but they have to be open to the reaction of the market,” said Boris Boehm, who helps manage more than 1 billion euros ($1.3 billion) at Aramea Asset Management in Hamburg including Nokia shares. “I feel they’re a little bit stubborn and they need another kick.”

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

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